A ring-fenced account is a specific way of protecting certain accounts and client funds from difficulties elsewhere in the business. For example, a bank may ring-fence its consumer retail accounts from its merchant banking and investment activities.
For money transfers, some currency exchange providers ring-fence clients funds away from their operations, costs and any associated risks. This separation means that if a financial services provider experiences difficulties in one part of the organization, money in the ring-fenced accounts will not be impacted.
Ring-fenced accounts are often a requirement for licensing a financial services business. For example, the Financial Conduct Authority in the UK has strict requirements on large financial institutions protecting consumer accounts through ring-fencing.
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