How to establish segregated client money accounts

If your business handles money belonging to your customers, you must keep it in a separate, "segregated" bank account that is legally distinct from your own business funds. This is a core requirement of the Financial Conduct Authority (FCA) under the Client Assets Sourcebook (CASS) rules. The primary purpose is to ensure that if your business becomes insolvent, your customers' money is ring-fenced and can be returned to them rather than being used to pay off your company's creditors.

1. Identify your bank account requirements

Not every bank account is suitable for holding client money. You cannot simply open a secondary business current account and label it "Clients." You must approach a bank—usually one that understands the Fintech or financial services sector—and specifically request a Statutory Trust Account or a Client Money Account. This account must be held in the name of the firm, but include a clear identifier in the title, such as "[Your Firm Name] Client Account."

2. Obtain a 'Trust Letter'

This is the most critical step for legal compliance. You must obtain a written acknowledgment from the bank, often referred to as a "Trust Letter" or "Acknowledgment Letter." In this document, the bank formally agrees that:

• All money in the account is held by the firm as trustee.
• The bank has no right to combine the account with any other account (offsetting).
• The bank has no claim or "right of set-off" against the money in that account to cover your firm's business debts.

Without this letter, the FCA will not consider the money properly segregated, even if it is in a separate account.

3. Set up operational controls

Once the account is open, you need strict internal processes to ensure no "commingling" occurs. This means your business's revenue (like fees or interest) must be moved out of the client account and into your operational account promptly. Conversely, you should never use client money to pay for business expenses, even temporarily.

4. Establish daily reconciliation

You must implement a process to reconcile your internal records against the bank's records every single day. This ensures that the amount of money in the bank matches exactly what your records say you should be holding for your customers. Any discrepancies must be identified and corrected immediately.

Relatable Example: Imagine you are a travel agent holding a customer's payment for a flight. If you put that money into your own business account to pay your office rent, and then your business goes bust before the flight is booked, the customer loses their holiday and their money. By using a segregated account, that money stays in a "bucket" that only the customer (or their service provider) can access.

Tips for success

• Choose the right partner: Not all high-street banks are comfortable with CASS requirements. You may need to look at specialist corporate banks or digital-first clearing banks.
• Automate early: Use accounting software that can track client balances separately from business balances to make daily reconciliation easier.
• Document everything: Keep a clear