- Segregate client funds from operating cash wherever local practice allows.
- Never fund an operator commitment from another client's deposit.
- Treat every last-minute change in payment instructions as suspicious until independently verified.
- Reconcile each payment to a specific engagement reference on the same day it is received.
- Where a payment cannot be reconciled, ring-fence it and investigate — do not apply it to any engagement.
Why client funds are different
Money received from a client to pay an operator is not the brokerage's money. It is money the brokerage holds temporarily, in trust, for a purpose already agreed. Treating it otherwise — using it to fund working capital, to bridge another engagement, or to cover a cash shortfall — is the fastest way for a functioning brokerage to become an insolvent one.
The professional standard is straightforward: client funds are handled distinctly, are traceable to a specific engagement, and are applied only to the purpose for which they were received.
Segregation in practice
Segregation means, at minimum, that client funds are held in a bank account distinct from the brokerage's operating account, that the account is named and used only for that purpose, and that transfers into and out of it are reconciled to specific engagements.
Where local banking or professional-body rules provide for a formal client-account structure, use it. Where they do not, replicate the discipline informally: a separately named account, a written policy, and a rule that operating cash never flows into the client account.
Deposit and payment structure
Deposits protect the operator against the client's cancellation and protect the client against a broker who might otherwise disappear with the money. A professional structure calls for a deposit at signature sized to the operator's committed cost at that point, a balance payment before flight, and a schedule of interim payments for longer-lead engagements.
State the schedule in the contract. Do not vary it verbally. Where the operator's own payment terms drive the schedule, disclose that fact rather than presenting it as a broker requirement.
The cleared-funds rule
Do not release an operator commitment against a payment that has not cleared. In-flight banking systems can and do reverse credited amounts for anti-fraud reasons up to several days after they appear in an account. A brokerage that pays an operator on the strength of an uncleared incoming payment is exposed to a loss it did not contract for.
For time-critical departures, agree the payment method in advance and require the client to send funds early enough to clear before commitment. Where a client is well-known and creditworthy, a written credit arrangement can bridge the gap; a verbal reassurance cannot.
Fraud patterns to defend against
Two patterns dominate. In the first, an attacker compromises an email account and inserts revised payment instructions into a live thread, redirecting the client's payment to an account the attacker controls. In the second, an attacker impersonates a client and requests an urgent departure paid to a new account, then cancels before departure and demands a refund to a different account.
Both patterns exploit urgency and the appearance of a familiar counterparty. Defence is procedural: independent call-back to a previously-known number for every change of payment instructions, and a written policy that no account change is accepted on a same-day basis.
Practical controls
Controls do not need to be elaborate to be effective. Dual authorisation for outgoing transfers above a threshold. Independent call-back verification for any change in payment instructions. A written rule that payment instructions are never accepted or changed by email alone. A weekly reconciliation of the client account against open engagements.
The most important control is cultural: the person handling payments must feel authorised to pause a transaction and ask a question. Where speed pressures override that authority, the controls are decorative.
Record-keeping and reconciliation
Every payment in and out of the client account is reconciled, on the day it moves, to a specific engagement reference. Unmatched payments are held in a suspense account and investigated. Nothing is applied to an engagement without a documented match.
Retain payment records for at least the period required by local tax, AML and consumer-protection rules — typically no less than five to seven years. Longer retention rarely causes problems; shorter retention frequently does.
Practical checklists
- Segregated client-funds account named and in use.
- Written client-funds policy circulated to staff.
- Dual authorisation thresholds for outbound transfers.
- Call-back verification procedure for changed instructions.
- Weekly reconciliation calendar in force.
- Deposit and balance schedule stated in contract.
- Cleared-funds requirement disclosed to client.
- Every payment reconciled to the engagement reference on receipt.
- Refunds paid only to the account of original receipt.
- Suspense entries investigated before period close.
Frequently asked questions
- Do I need a legally-designated client account?
- It depends on jurisdiction and, in some markets, on membership of a professional body. Where a formal structure is available, use it. Where it is not, the operational discipline of segregation is still expected of a professional brokerage.
- Can I refund a client to a different account than the one they paid from?
- As a rule, no. Refunds are paid to the account of original receipt. Departing from that rule requires independently-verified written instructions and, in higher-value cases, additional AML checks.
- What if the operator asks to be paid directly by the client?
- Direct client-to-operator payment can be appropriate in some structures and unwise in others. Where it is used, the contractual position on refunds, cancellation and disputes must be clear on the record before the payment moves.
- • Client funds are held, not owned.
- • Segregate the account and reconcile the ledger.
- • Never commit against uncleared funds.
- • Independently verify every change in payment instructions.
- • Refund to the account of original receipt.