A founder tells me their payment partner holds client funds in a safeguarding account, so segregation is handled. It is not handled. Those are two different legal constructions, arising from two different licences, and the difference decides who gets paid when something fails.
What safeguarding means
Safeguarding is the obligation on payment institutions and e-money institutions under European payment services and e-money legislation, and equivalent regimes elsewhere. When an EMI issues e-money or receives funds for a payment transaction, those relevant funds must be protected: typically held in a designated account at a credit institution, kept apart from the institution's own money, or covered by an insurance policy or comparable guarantee.
The point of safeguarding is that the funds are not available to the EMI's general creditors if the EMI fails. What safeguarding does not do is turn the EMI into a bank. There is no deposit guarantee behind an e-money balance, and the claim in an insolvency is against the safeguarded asset pool, with the time and cost of a distribution attached. The licence side of this is covered in the EMI licence explained.
What segregation means
Segregation is the client money obligation on investment firms, including CFD and FX brokers holding retail money. Client funds are held in accounts designated as client accounts at approved credit institutions, the bank acknowledges in writing that it has no right of set off against the firm's own debts, and the firm reconciles balances daily.
The structural difference sits in that acknowledgement letter. Without it, a bank that is owed money by the firm can in principle apply the balance against the firm's debt. With it, the pool is ring fenced for clients and distributed to them ahead of general creditors. The full picture is in client fund segregation, and the daily control that keeps it honest is client money reconciliation.
Where operators get confused
The confusion is understandable, because both regimes produce the same visible artefact: a bank account with the word client or safeguarding in its name. The differences that matter are underneath.
| Question | E-money safeguarding | Investment client money |
|---|---|---|
| Who owes the duty | The payment or e-money institution | The licensed investment firm |
| What is protected | Relevant funds received for e-money or payment services | Money held for clients in connection with investment business |
| Typical method | Segregated account, insurance or guarantee | Designated client bank account with a trust or acknowledgement structure |
| Reconciliation | Regular, on a frequency set by the regime | Internal and external, generally every business day |
| Covers trading exposure | No | Yes, including unrealised profit and loss on open positions |
That last row is the one that catches brokers. Safeguarding covers a payment balance. It has no concept of a client whose equity moved because gold gapped over the weekend. A broker's client money requirement changes continuously with open positions, which is why the calculation is a trading system output and not a bank statement.
The arrangement that does not work
A pattern I see often: an offshore-licensed broker takes deposits through an EMI, leaves the balances sitting in the EMI, and tells clients their funds are safeguarded. Two problems follow.
First, the client's legal relationship is with the broker, not the EMI. The EMI safeguards funds for its own account holder, which is the broker. If the broker fails, the client is a creditor of the broker, and the safeguarded pool at the EMI is the broker's asset in that estate. The word safeguarding in the marketing does not change the chain of claims.
Second, EMIs read their own risk appetite. Trading firms sit in a high risk category for onboarding, and an account used as a de facto client money pool is exactly the profile that gets reviewed and closed. The mechanics of that are in EMI account refusals.
This is descriptive, not advice. Whether a specific structure satisfies safeguarding or client money rules is a legal question about your licence, your contracts and your jurisdiction. Take advice before you build the flow of funds, not after a regulator asks about it.
Designing the flow of funds before you pick providers
The practical order is: decide what licence you will hold, decide which regime applies to money you touch, then choose providers that fit. Firms that do it in reverse pick a payment stack first and then discover the regime does not permit that flow.
Two questions settle most of it. Does the money belong to a client of yours at the moment you hold it, or are you a payment leg in someone else's transaction? And when it fails, whose estate is it in? If the honest answer to the first is that clients own it, you are in client money territory whatever your provider calls the account. Firms building in the EU should read that alongside EU licence options compared; teams structuring from the Gulf usually run the same analysis from Dubai.
The record keeping is the same discipline in both regimes. Know whose money it is, know where it is, prove it on demand.
"People hear the word safeguarding and relax. Ask one question instead. If this provider goes down tomorrow, whose creditor is my client? The answer tells you which rulebook you are actually under."
— Roman Onta, Executive Director, SINGUARD
Key Takeaways
- Safeguarding is a payment and e-money obligation; segregation is an investment firm client money obligation.
- Client money structures rely on a designated account and a bank acknowledgement that removes any right of set off.
- Safeguarding has no concept of unrealised trading exposure, so it cannot carry a broker's client money requirement.
- Holding client balances inside a provider's float leaves the client as a creditor of your firm, not of the provider.
Frequently Asked Questions
Is a safeguarding account the same as a segregated client money account?
No. Safeguarding applies to relevant funds held by payment and e-money institutions, while segregation applies to client money held by licensed investment firms. The accounts look similar and the legal effect in an insolvency is different, so the two should never be treated as interchangeable.
Can a broker rely on its payment provider's safeguarding to meet client money rules?
That depends entirely on the regime and the structure, and in many cases the answer is no, because the provider safeguards funds for its account holder, which is the broker. Firms should get the flow of funds reviewed by counsel in their licensing jurisdiction before launch.
Why does unrealised profit and loss matter for client money?
A broker's client money requirement moves with open positions, so equity changes between reconciliations even when no deposit or withdrawal happens. Payment safeguarding has no equivalent calculation, which is one reason a payment balance cannot substitute for a client money pool.
About the Author
Roman Onta is an Executive Director at SINGUARD. He builds the Prop Firm CRM, the Broker CRM, Scalegram and CopySignals side by side with his brother Alex Onta, and he helped on the design of eTrader, the division Alex built and leads. His ground is worldwide payment processing, AML compliance and the corporate structures brokers are built on, work the two of them carry together, shaped by executive roles in the UAE and international corporates. He lives and works in Dubai for most of the year. Meet the executive duo leading Singuard's five divisions.