Client Asset Protection Map: Deposits, Safeguarding and Investor Compensation

Bank Claims and Asset Entitlements

Three legal regimes protect client assets through different mechanisms. A bank deposit is covered by a guarantee scheme that pays a fixed sum out of a fund the industry has already contributed to. An e-money or payment balance is covered by nothing of the kind: what exists is safeguarding — the mandatory separation of customer money from the operator's own funds into a segregated pool — and a rule that puts the customer first in the queue against it. A brokerage position is covered mostly by the fact that the asset never entered the intermediary's balance sheet, with a compensation scheme sitting behind that as a small backstop for property that has gone missing.

The three are routinely spoken of as though they were versions of one idea. The differences between them are fundamental, and they decide which provider is appropriate for which money. The regimes differ in the payer and source of funds, the trigger for payment or return, and the timing.

Comparing payment sources reveals the practical hierarchy. Only the first row involves somebody else's money arriving to make the customer whole. The other rows describe rules about the customer's own property — where it sits, whose estate it is in, and who gets to it first. That is why a bank with a modest limit can be safer for cash than a payment institution with an impeccable balance sheet, and why a broker with no compensation scheme at all can be safer for securities than one with a generous limit.

How money reaches a safeguarding account — the correspondent chain, omnibus accounts and virtual IBANs — is covered in correspondent banking, the UK's CASS 15 reform in the UK regime overview, and what happens as a licence is surrendered in licence withdrawal and wind-down.

Deposit Guarantee Schemes: Limits and Scope

The limit is per depositor per licensed entity unless the row says otherwise. Currency coverage and depositor eligibility change the outcome more often than the headline figure. The comparison includes each scheme's limit, covered currencies, dated primary source and eligible depositors.

The comparison of eligible depositors excludes the UAE because it has no federal scheme.

Currency coverage varies: Singapore covers Singapore dollars and nothing else, Bermuda covers Bermuda dollars, and Kazakhstan splits the ceiling by currency, with the foreign-currency limit at half the limit for other tenge deposits and a quarter of the savings-deposit limit. Depositor eligibility also varies: Jersey and Guernsey exclude ordinary companies and trusts outright, the Isle of Man admits them at a fifth of the individual limit, Kazakhstan excludes legal entities altogether. Structures are covered at length in offshore banking jurisdictions. The existence of a scheme is a separate condition: the UAE has none at federal level, and the DIFC provides insolvency priority instead of a fund.

Quoted payout periods can measure different events: a transfer to a liquidator, the dispatch of an instrument, or receipt of money the customer can spend.

The remaining schemes in this comparison publish no target, and the per-scheme qualifications, the branch-and-subsidiary question and the temporary-high-balance rules are worked through in personal bank accounts abroad. The role of a bank's own capital and the ranking of claims in insolvency for amounts above the limit is covered in bank reliability.

Safeguarding: what a payment licence secures and what it does not

A bank uses deposits in its operations and is liable to the depositor with all its assets, which is why a guarantee scheme stands behind a deposit. A payment institution or an e-money institution (EMI) is forbidden from funding itself out of customer money: the funds are kept outside working capital — segregated, or covered by insurance or a guarantee. The customer's protection depends on the quality of that arrangement and the priority of the customer's claim. Regimes differ in the composition of the pool and whether a trust applies. Nobody makes good a shortfall.

Two methods and one pool

In the EU both methods are set out in Article 10(1) PSD2 as replaced by Regulation (EU) 2024/886, which now expressly binds EMIs as well. Segregation means the funds are never commingled with anybody else's and, if not passed on by the end of the business day following receipt, are held in a separate account at a credit institution or, at its discretion, a central bank, or in secure liquid low-risk assets, insulated by national law from other creditors. The alternative is an insurance policy or comparable guarantee from an insurer or bank outside the operator's group. How both methods look in practice for actual licensees is covered in the comparison of EMIs in Lithuania and Bulgaria and in the Bulgarian EMI licence.

The choice decides the outcome: under segregation an administrator distributes the pool, under insurance the customer holds a claim on the insurer or guarantor. The central-bank route is closed within the Eurosystem: ECB Decision 2025/222 forbids Eurosystem central banks to offer safeguarding accounts to non-bank PSPs. The replacement of PSD2 and EMD2 by PSD3 and the PSR was agreed on 27 November 2025; until the new texts apply, Article 10 governs.

In the UK segregated funds, low-risk assets and insurance proceeds form the asset pool under regulation 23 of the Payment Services Regulations 2017 and the Electronic Money Regulations 2011. Users' claims are paid from the pool ahead of every other creditor, the only insolvency expense charged to it is the cost of distributing it, and no set-off runs against it save for account fees. There is no statutory trust: the Court of Appeal so held in Re Ipagoo, and the FCA did not introduce one in PS25/12. CASS 15, in force from 7 May 2026, only supplements the PSRs and EMRs, and the FSCS does not cover the failure of the payments firm itself.

When the bank holding the pool fails

The operator's failure and the failure of the bank holding the safeguarding account are different events: in the second, the depositor of record is the operator. The PRA Depositor Protection rules require the FSCS to look through a safeguarding deposit at a UK establishment of a bank and consider each customer's share separately, within the limit. Under rules 6.2(6) and 6.2A the FSCS pays that share to the customer directly only once the payment firm itself is insolvent; while the firm is still trading, the money goes into another safeguarding account the firm maintains, provided customers are left no worse off, and the payout period for such funds is three months instead of the usual seven business days.

Directive (EU) 2026/804, in force since 10 May 2026, adds Article 8b, under which a deposit held on a segregated account for identified clients is covered per client, paid either to the account holder for the client's benefit or to the client directly. Member States must transpose it and apply it from 11 May 2028; until then Article 8b does not apply.

From 30 June 2026 a UK relevant person opening a new pooled account for a customer must, under the SI 2026/621 amendments to regulation 29 of the Money Laundering Regulations, understand its purpose and intended use, assess the risk and consider whether controls are needed. An EMI's safeguarding account is exactly such an account; how banks view payment clients more broadly is covered in banking for payment companies.

The United States, Canada and Asia

The US has no federal safeguarding regime. According to CSBS, 31 states have enacted the Money Transmission Modernization Act in full or in part; Massachusetts law holds a licensee's permissible investments, even if commingled, in trust for holders of outstanding transmission obligations. The FDIC pays only when an insured bank fails. On a pooled FBO (for benefit of) account, cover passes through to the end customer if the agency nature of the account is disclosed in the bank's records and the owners' interests are ascertainable.

After Synapse filed for bankruptcy in April 2024, the FDIC published a proposed rule on custodial-account recordkeeping on 2 October 2024. In a joint statement of 25 July 2024 the Federal Reserve, FDIC and OCC flagged end-user confusion and misrepresentation of deposit insurance, while stating that they were not establishing new supervisory expectations.

Canada's RPAA, in section 20, offers three routes — a trust account, a separate account backed by insurance or a guarantee at least equal to the balance, or a prescribed method — and bars set-off against the account; the duty has applied since 8 September 2025.

Under the MAS guide, a Singapore major payment institution safeguards domestic and cross-border transfers and merchant acquisition as well as e-money. Under section 23 of the Payment Services Act 2019, money received for transfers and merchant acquisition must be safeguarded no later than the next business day after receipt, and money for e-money issuance from the time it is received; e-money itself is not a deposit and carries no deposit insurance.

In Hong Kong the MSO licence requires no segregation at all, and the Deposit Protection Scheme does not cover money in an SVF either.

In Korea a registered issuer of prepaid payment instruments has, since 15 September 2024, had to hold 100% of users' prepaid balances, discounts and reward points included, in a trust, a deposit or payment-guarantee insurance, beyond set-off and attachment and with users paid first. Payment gateways must do the same with unsettled seller funds from 17 December 2026, phased in at 60% in the first year and 80% in the second, and in full from the third.

Comparison of Eight Regimes

The comparison covers the backing for the balance and the customer's rights if the operator fails; capital and passporting for the same licences are in the financial licence regime map.

What all eight share is that priority operates within what is actually in the pool and promises no full recovery.

When the pool is short

In Re Ipagoo the pool is enlarged out of the general estate by a sum equal to relevant funds that ought to have been safeguarded and were not; beyond that the customer is an ordinary unsecured creditor. The figures below are invented and serve the arithmetic.

A UK EMI stops trading owing users £10,000,000. Its safeguarding accounts hold £8,200,000; a further £1,100,000 should have been safeguarded and was not. The general estate has £1,400,000 of free assets, so the £1,100,000 is restored to the pool and £300,000 remains in the estate. From the £9,300,000 pool the costs of distribution come first, here £600,000, leaving £8,700,000 for claims.

Every user receives 87 pence in the pound: a customer with a £50,000 claim receives £43,500 and keeps an unsecured claim for £6,500 against the remaining £300,000. With an empty estate the pool would stay at £8,200,000 and recovery would be 76 pence — £38,000. Had the intermediary been a commercial agent excluded from the UK payment services perimeter, or a Hong Kong MSO, there would be no pool and no priority at all. Timing of returns on surrender of a licence is covered in licence wind-down.

Two failures: the ledger and the freeze

Recordkeeping failure is one of the risks of safeguarding. Synapse Financial Technologies was the middleware through which US neobanks reached partner banks, and the reconciliation of who owned what inside pooled accounts rested on its own books. After Synapse filed for bankruptcy in April 2024, the court-appointed Chapter 11 trustee put the gap between those books and the banks' balances at US$65–96m. The funds were in the right kind of account and formally segregated; reliable records of fund ownership were missing. The structure that produced this outcome is analysed in the article on the BaaS model, and the place of client-money records in a licensee's controls in the compliance stack.

Another risk is a freeze. When the FCA imposed requirements on Wirecard Card Solutions Ltd on 26 June 2020 — the firm was not to dispose of any assets or funds and was not to carry on regulated activities — the cards of many consumer apps stopped working over a weekend. The regulator consented on 29 June and the restriction lifted at 00:01 on 30 June 2020, four days later, once the firm's compliance with the safeguarding rules had been verified. Nobody lost money to a shortfall. While funds are frozen, even an intact pool cannot pay for Saturday groceries, and a payment balance is no place for savings even when safeguarding is flawless.

Investor Compensation: Scope and Limits

Securities protection differs from deposit protection. The primary protection is that the asset is not the intermediary's: client securities are segregated and, on a failure, are returned without becoming part of the estate. A compensation scheme is a backstop for property that has gone missing; it does not insure the portfolio. That is why the compensation limits are small compared with real portfolios and why it is a mistake to choose a broker on them.

Coverage exclusions are decisive. Every scheme in the table excludes a fall in market value. Bad advice is treated differently: the UK's FSCS accepts bad-advice claims against a failed firm where the advice was given on or after 28 August 1988, while SIPC and CIPF exclude such claims in terms. Several schemes exclude the professional client, the firm's own insiders and anybody holding 5% or more of it; Canada, the Netherlands and the United States each exclude crypto-assets in terms. The limits span two orders of magnitude, from €20,000 to C$1,000,000, and on a seven-figure portfolio all of them are negligible.

What matters is whether the securities leave the intermediary's balance sheet. Swiss law issues them to the client regardless of the bank's fate, MiFID II forbids an investment firm from taking title-transfer collateral from a retail client, and a US margin account expressly permits the broker to reuse pledged stock. The entity-by-entity analysis is in international brokerage accounts, the custody chain in securities custody, and intermediary licences by jurisdiction in the investment firm licence map.

Crypto: segregation without a compensation fund

In the EU, crypto-assets held in custody are closest in design to the regime for securities outside the intermediary's estate. Article 75(7) of Regulation (EU) 2023/1114 (MiCA) requires a crypto-asset service provider (CASP) holding clients' assets to keep them legally segregated from its own estate, so that the provider's creditors have no recourse to them, in particular in insolvency. The same provision requires client assets to be held separately from the provider's own on the distributed ledger and to be operationally segregated. Article 70(1) adds a general duty to safeguard clients' ownership rights, especially in the event of the provider's insolvency, and not to use their assets for its own account.

The difference from the brokerage regime is a single one, and it matters: no compensation fund stands behind this arrangement. Where an asset is lost through an incident attributable to the provider, Article 75(8) makes the provider liable to the client up to the asset's market value at the time of the loss. That is a claim against the same provider, which may itself be insolvent. No guarantee or compensation scheme responds to a CASP's failure, and the regulation creates none.

Conventional schemes expressly provide for this exclusion. The Dutch investor-compensation scheme states that crypto-assets are not protected under it. The Canadian fund does not cover crypto assets held by a member firm that are missing at the time of the firm's insolvency. SIPC does not protect a digital or crypto asset that does not qualify as a security, and the statutory definition it works from excludes stablecoins and currency outright.

The protection of a crypto position is determined by the quality of its legal and on-chain segregation and the reliability of its custodian. Under MiCA segregation is mandatory and takes the asset outside the provider's estate; outside the EU its existence and strength depend on the local regime, and nothing stands behind an asset the provider failed to segregate or lost. The difference between an exchange balance and a qualified custodian belongs to crypto for private wealth. The EU licensing perimeter is in the MiCA CASP licence and, by example, the Bulgarian CASP licence; custody under the Hong Kong regime is in virtual asset dealing and custody in Hong Kong, and offshore regimes in offshore crypto licences.

Where to keep which money

Allocation depends on how the three protection regimes work and the purpose of the money; a ranking of providers is secondary. The same comparison should be made within one institution. A bank offering several asset services can organise that comparison account by account. For example, FV Bank supports transfers between a bank account and a separate digital-asset custody account. A shared interface simplifies operations; rights to each balance follow the product and its contract. Apply the same analysis when comparing another bank’s deposits, debt instruments and assets in custody. British Atlantic Bank combines payment accounts, deposits, financing and custody services under one relationship manager. Its records distinguish free payment balances, pledged cash, securities and allocated bars, so liquidity and encumbrances can be assessed together. Cash balances and deposits are claims on the bank; the Capital Note ranks below deposits and above equity. Custody rights for securities, metal and digital assets follow the relevant asset and custody agreements.

A worked example on US$2,000,000

In this worked example, an individual resident outside the EU and the United States holds US$2,000,000 across several providers. The conversions use round illustrative rates of £1 = US$1.35 and S$1 = US$0.78, and serve the arithmetic only.

Of the US$950,000 held in banks, US$412,000 is insured — 43% of the bank cash and 21% of the total. A further US$150,000 in e-money is not insured at all and depends on what the pool holds.

In this example, three changes increase cover without changing any asset class. Splitting the UK holding across two unconnected banking authorisations takes the covered amount there from US$162,000 to US$324,000. The Singapore balance is divided: about US$78,000 is converted into S$100,000 and stays at the Singapore bank inside the scheme, and the remaining US$222,000 moves to a second US bank, where it is covered in full. Moving all but a working float off the e-money balance shrinks the amount that depends on the pool if the operator fails. Insured bank cash rises from US$412,000 to US$874,000, or 92% of US$950,000; about US$76,000 of the UK holding above the two limits remains uncovered. The US$900,000 of securities was already protected by segregation without a cap.

Common Errors When Assessing Protection