Risk Management and Client Money: Balancing the Two

Self-service account opening and segregation of funds

An issue that affects companies managing client money is the necessity to segregate client accounts to avoid co-mingling of funds owned by different clients. This is often a legal requirement for law firms, property management companies, insurance companies, pension administrators and the like. Often referred to as Client Money Management (CMM) it usually involves the creation of multiple physical client bank accounts to keep funds separate to adhere to regulations. They are also referred to as Escrow accounts or services.

CMM not only increases the number of accounts that need to be maintained but those accounts need to be tracked for interest allocation and of course they must be reconciled.

The management of client money is a headache for many companies as bank reconciliation, bank account management becomes increasingly complex as the business expands. With account opening comes the Know Your Customer (KYC) process which has been highlighted by responders in our “The future of corporate cash management” survey in 2022 as being “slow, cumbersome and fragmented”. This also creates additional costs for treasury. In addition, the more bank accounts the greater the risk of fraud events.

Banks have struggled to help their clients with this problem for years and their hands have been tied because many of the processes involved have been by nature manual and labour intensive. Until now that is, CMM virtual account can solve many of the problems highlighted above.

With CMM virtual account the process of setting up an account is given to the corporate client, and they can do this easily and without the many issues of KYC. As the account is virtual many of the regulations that exist for physical accounts are not necessary. It’s what we call “self-service account opening”. Accounts can be opened in a matter of minutes not days.

In addition, the challenges of segregating accounts are made simpler as accounts being virtual can be limitless reflecting the way business is conducted. So, for example, if a property management company wants to create property portfolios linked to a master account but keeping client money segregated this is possible and quick to set up. Powerful reporting means that clients can slice and dice information in whatever way they desire. This ensures that any regulatory reporting requirements are easy and quick to produce.

CMM virtual account solves many of the challenges for these companies’ ensuring segregation of accounts to avoid co-mingling of funds owned by different clients. So, businesses can create account structures that adhere to the regulations but more quickly and less costly than before. Clients are looking to their banks for innovative solutions to difficult problems and CMM virtual account is one example where banks can add value.

Alongside the benefits already identified there are further advantages that clients are looking as highlighted in our survey, they include

	Rationalisation and simplification of physical bank accounts and banking relationships leading to cost reduction.
	Segregation and aggregation of clients and client money holdings
	Trackable and transparent transaction data.
	Allocation of transactions with incomplete referencing to the correct underlying client account, based on pre-defined rules.
	Interest allocation on the client accounts according to flexible interest set-up.
	Enhanced reporting making it easier to report regulatory information.

Example: Client money management