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Opening a segregated bank account

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

What is a segregated account?

This account, which was opened as a result of the signing of the contract between the payment system and the correspondent bank, has the properties of a correspondent bank account. Segregated accounts should be opened, so that the payment system can connect to the international banking network and make money transfers or payments on behalf of a foreign bank.

For what purposes is it necessary to open a segregated account?

In order for the payment system to be able to service customer payments outside the jurisdiction (abroad), a segregated bank account is required. Financial institutions use such accounts for international payments.

How a segregated account works?

The easiest way to understand the principles of work on a simple example. The client of the payment system wants to transfer money to another country. A payment system, using a local bank, instructs its correspondent bank in the country of the recipient of funds to transfer a certain amount. After that, a correspondent bank deducts the commission for the transfer, and from the segregated account pays the recipient the appropriate amount in local currency.

Thus, if you have registered a payment system in Germany, then the opportunity to transfer money to the country of destination, for example, to Australia, will be, if only the institution has access to the destination market –- that is, it has an open a segregated account in one of the banks in Australia.

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

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Advantages of a segregated account and related difficulties

Such relations between banks and payment systems allows the second to gain access to financial services in different jurisdictions, and to provide cross-border payment services to their clients, thereby supporting international business and trade.

Direct benefits can be derived from the offer of various services, such as operations with foreign currencies and its transfers, even though an institution, such as a payment system, may not obtain a banking license in a foreign country.

The next major advantage of opening a segregated bank account is that the financial institution gains access to a wider range of AML and KYC compliance procedures.

The main problem, that can be encountered at present, when connecting a payment system to a bank, is related to strict AML/CFT and KYC policies. Not all banks immediately go towards the formation of such ties. This is especially true of European banks, which are often subjected to serious checks by regulatory authorities.

How to open a segregated bank account?

Despite all the difficulties, opening a segregated account in the Eurozone or another region is a doable task. 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 need to conduct a study, identify priorities and tasks, and clearly assess the opportunities. After preparing the documents, evaluating and structuring the information by experienced lawyers, a detailed plan of further actions is drawn up and the corresponding procedures for opening segregated accounts are carried out.

Please note, that in order to achieve maximum results in a short period during opening an account for a financial institution, you need to contact experienced specialists.

Legal aid

IQD Consulting team has established communications with market players around the world, who specialize in providing correspondent banking services at an international level.

Our lawyers are ready to provide consulting and legal support in opening of a segregated account, as well as provide assistance at any stage of the procedure.

Contact us in any way convenient for you at the contacts below, if for the development of your financial institution you need to establish relations with a correspondent bank and open a segregated account.

  • The information outlined in the article is actual at the time of its publication.
  • Please refer to our specialists for checking possible solutions for your business.
  • Still have any questions?

    Fill out the form or contact us as you find convenient. Our experts will help you resolve the issue.

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