Companies such Forex Brokers or Cryptocurrency Wallets and Exchanges must, unless the regulation specifies otherwise, have segregated accounts for holding the clients’ funds. By segregated we mean that clients’ funds must be kept separated from the company’s funds. As such, this type of organizations have in place qualified personnel responsible for monitoring and managing the safekeeping and administration of financial instruments, cash, assets and collaterals, for the account of Clients.
Through adequate procedures and internal organizations, organizations who acquire and/or hold clients funds or instruments as aforementioned, minimizes the risk of said funds resulted from misuse of the assets, fraud, poor administration, inadequate record-keeping or negligence, company insolvency etc. Also, the clients’ funds should not be used for the organization’s own use.
Through experience, it was noticed that most unregulated or outside EU regulated forex brokers/companies, apply the segregation method due to a series of reasons:
• Regulated financial institutions or brokers, operated supervised under specific requirements illustrated in their jurisdiction’s regulatory framework.
• In the case of non-regulated institutions that don’t require a license for their business activities under the laws of the jurisdiction in which they are incorporated and operate, it is noticed that they still abide by high standards and practices similar to the regulatory framework either of EU or other, even though they are not supervised. The reasons behind this are the common and international laws, anti-money laundering laws, etc. Another reason is to ensure that the organization’s internal books are in a healthy state and to establish trust with clientele through transparency and safety measures for protecting their funds and rights. Worth to mention is that it has become extremely difficult near to impossible to open bank accounts.
Simple money safekeeping rules and how to apply them
Simple steps can be taken by the organization’s safekeeping personnel, are the following:
- Review and ensure the safeguarding of Client’s ownership rights
- Perform periodical due diligence on the third parties to which Client funds and financial instruments will be held such as banks, e-wallets, online payment systems and other payment system providers (PSP) and their acquiring banks C
- Create a set of minimum requirements that PSPs and Banks should meet in order to be eligible for selection which must be followed to ensure effectiveness.
- Review agreements that are be signed between the organization and third parties
- Inform the client where their money is being held and how these institutions have been selected.
- Keep records and accounts in the organization’s systems that will allow the organization at any time and without delay to distinguish assets held for each one of the clients separately as well as distinguish them from its own assets
- Conduct as often as possible reconciliations between the organization’s internal accounts and records and those of any third parties by whom those assets are held such as PSPs. Ensure that the statements extracted from PSPs and/or banks, match the organizations’ records and the reflect the actual balance or equity of your clients and the trading platforms.