Opening a segregated bank account

Opening a segregated bank account is a complex and time-consuming process; however, it is absolutely vital for the successful operation of any financial institution – be it a bank or a payment system.

What is a Segregated Account?

An account opened as a result of the signing of a contract between a payment system and a correspondent bank is referred to as a correspondent bank account. By opening segregated accounts, payment systems are able to connect to international banking networks and make money transfers or payments on behalf of foreign banks.

Why is it Necessary to Open a Segregated Account?

For a payment system to be able to service customer payments abroad, it must open a segregated bank account there. Financial institutions can use such accounts for making international payments.

How Does a Segregated Account Work?

Here is a very simple example of how a segregated bank account works:

A client of a payment system wants to transfer money to another country. Using a local bank, the payment system instructs its correspondent bank in the country of a recipient of funds to transfer a certain amount of money. After that, a correspondent bank deducts the commission for the transfer and pays the recipient a corresponding amount in a local currency from a segregated account.

By registering a payment system in Germany, you will be able to transfer money to any country (e.g. Australia) if an agency has access to the destination market or if it has opened a segregated account with an Australian bank.

This reduces the amount of work involved in establishing direct agreements with other financial institutions and eliminates the need to create a registered office abroad.

Advantages and Disadvantages of Having a Segregated Account

Having this kind of relationship with banks enables payment systems to gain access to financial services in different countries. It also provides them with an opportunity to offer cross-border payment services to their clients.

They can benefit from offering various services, such as transfers in foreign currencies, even if payment systems abroad do not have a banking license.

Another advantage of opening a segregated bank account is that a financial institution can gain access to a wider range of AML and KYC compliance procedures.

The main problem with connecting a payment system to a bank is that it requires compliance with stringent AML/CFT and KYC policies. Therefore, not all banks are willing to even consider entering into this kind of relationship. This is especially true in the case of European banks which are regularly checked for compliance with the above policies by the relevant regulatory authorities.

What Does It Take to Open a Segregated Bank Account?

Despite all the challenges, opening a segregated bank account in the Eurozone or any other economic region like this does pay off. Many banks located in Europe, America, Asia and the Caribbean have the capabilities and resources to provide services to other financial institutions in accordance with their needs and policies.

To open a segregated bank account, you will need to conduct thorough research, identifying priorities and assessing opportunities. After preparing the required documents and consulting experienced lawyers, you will have to come up with a detailed plan describing all your subsequent steps and procedures for opening segregated accounts.