If a bank or brokerage holding my retirement savings collapses, can the bank's creditors take my money to pay the bank's debts?

Plain-English summary

Representative Stephen Meeks asked whether customers, public investments, and retirement systems could lose assets when a financial institution collapses, and whether legislation would help. The AG explained Arkansas UCC Article 8's rules for securities accounts, while cautioning that contract and federal law generally control an actual insolvency.

For an investor who holds a financial asset through a securities intermediary, the AG says the investor has a “pro rata property interest” in assets held “in fungible bulk.” Those assets “are not the property of the securities intermediary.” Under the Arkansas UCC, that generally puts the entitlement holder ahead of the intermediary's secured creditors. Article 8 does not cover ordinary savings or checking accounts.

The opinion identifies three circumstances in which a creditor can have priority: a clearing corporation creditor, an entitlement holder's agreement to let the intermediary use the asset as collateral, or a creditor with a perfected security interest through “control” of the asset. The AG said he could not opine on how likely a customer was to lose priority. He had found no case in which a court applied the UCC to deprive a customer of assets in favor of a creditor.

The AG concluded that answering the collapse questions fully would require federal-law analysis. In the hypothetical, federal law would typically control the creditor process instead of the Arkansas UCC. He listed SIPA, federal deposit-insurance law, securities rules, and bankruptcy law as potentially relevant, but expressly declined to decide whether any specific federal law applies. He gave no conclusion about customer recovery, retirement benefits, taxpayer liability, or the need for legislation.

What this means for you

If you hold investments through a broker or custodian

The Arkansas UCC gives a securities-account entitlement holder a property interest in the assets held through an intermediary. That does not guarantee recovery if the intermediary fails. The AG points to limited priority exceptions and says other law and account contracts often control the outcome. The opinion's Article 8 analysis does not apply to an ordinary savings or checking account.

If you manage public investments or a retirement system

Identify whether the assets are held through a securities account, what agreements govern them, and whether a clearing corporation or secured creditor may claim priority. The AG's answer does not quantify the risk to state investments or retirement benefits and does not decide whether taxpayers would bear a loss.

If you advise on a potential insolvency

Start with the applicable federal regime and the relevant contracts. The AG says federal law would typically control the creditor process in his hypothetical, but he declines to say which federal law applies or what protection it affords. His discussion of Arkansas UCC priorities is conditional on that law governing the dispute.

If you are considering legislation

The representative asked whether legislation should remove exceptions to protect investors. The AG described the UCC framework but did not recommend a bill or identify a proven gap. His response says the actual collapse questions require analysis outside his opinion.

Common questions

Are securities in my brokerage account the broker's property under Arkansas Article 8?

The AG says the entitlement holder has a property interest in financial assets held through the intermediary and that those assets “are not the property of the securities intermediary.” This describes the Arkansas UCC rule, subject to the opinion's creditor-priority exceptions and other applicable law.

Can a creditor ever rank ahead of an entitlement holder?

Yes, in the limited situations the AG identifies involving a clearing corporation, an agreement to use the asset as collateral, or a creditor with a perfected interest through control. He did not estimate how often these situations cause an investor to lose assets.

Did the AG find cases where UCC priority rules deprived a customer of assets?

No. He wrote that he had been “unable to locate cases in or outside Arkansas where a court applied the UCC to deprive a customer of his or her assets, giving priority to creditors over customers.” He also said he could not opine on the likelihood of the risk.

Does SIPA, deposit insurance, or bankruptcy law protect me in this scenario?

The AG lists federal regimes that may matter but declines to analyze whether a specific federal law applies. This opinion supplies no coverage amount, recovery guarantee, or federal-law eligibility decision.

Does Article 8 apply to a checking or savings account?

No. The opinion says A.C.A. §§ 4-8-501 to 4-8-511 apply to “securities accounts,” and not to “savings accounts” or “checking accounts.”

Background and statutory framework

Arkansas adopted the 1994 revision of UCC Article 8 through Act 425 of 1995. The AG distinguishes direct securities ownership from indirect holdings through intermediaries. Part 5 of Article 8 governs the securities entitlements at issue in the representative's questions. The opinion also warns that another jurisdiction's law may apply and that the Arkansas UCC does not eliminate theft or fraud risk.

In the response, the AG says: “While an entitlement holder of a financial asset could lose his or her property interest to a creditor under the Arkansas UCC in limited circumstances, other areas of law, such as contract law and federal law, generally control” the outcome. He therefore declines to opine on the application of particular federal laws.

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

BOB R. BROOKS JR. JUSTICE BUILDING
101 WEST CAPITOL AVENUE
LITTLE ROCK, ARKANSAS 72201
Opinion No. 2025-010
August 8, 2025

The Honorable Stephen Meeks
State Representative
51 Wadesfield Drive
Greenbrier, Arkansas 72058

Dear Representative Meeks:

I am writing in response to your request for my opinion on A.C.A. §§ 4-8-501 to -511, provisions of the Arkansas Uniform Commercial Code (Arkansas UCC). You ask five questions:

1. Hypothetically speaking, in the event of the collapse of a financial institution, are the assets of Arkansas citizens at risk of being seized or confiscated, either in whole or part, by the collapsed financial institution or an appointed receiver to pay off the creditors of the collapsed institution?

2. Are Arkansas citizens at risk of losing all or part of their life savings or retirement savings should a failed financial institution have to pay its creditors?

3. Similarly, would the state's investments or those held in our various retirement systems be subject to having assets seized by the failed financial institution to pay the financial institution's debts?

4. Would the participants in our retirement systems face a potential reduction in benefits due to the loss, or would the taxpayers of the state be liable for the cost of the loss?

5. Would legislation be appropriate to remove certain exemptions to ensure Arkansas citizens have first right of and to their property and investments?

RESPONSE

While an entitlement holder of a financial asset could lose his or her property interest to a creditor under the Arkansas UCC in limited circumstances, other areas of law, such as contract law and federal law, generally control whether these individuals will lose all or part of their investments held by an insolvent financial institution. Under the hypothetical presented, federal law would typically control the creditor process in lieu of the Arkansas UCC. But because an analysis of federal law is generally outside the scope of an Attorney General opinion, I will not opine on whether specific federal law applies here.

DISCUSSION

The General Assembly passed Act 425 of 1995, adopting the 1994 Revision of Article 8 of the Uniform Commercial Code (UCC). Article 8 (referenced in Arkansas statutes as "Chapter 8") concerns investment securities. All fifty states have adopted the 1994 Revision of Article 8. The U.S. Treasury has also adopted revised Article 8 for its rules governing security interests in Treasury securities.

Whether an individual with investments held by an insolvent financial institution will lose all or part of those investments generally has little to do with the Arkansas UCC and more to do with other areas of law, such as contract law and federal law. Chapter 8 of the Arkansas UCC has a limited role in the grand scheme of law governing financial transactions. And even then, the law of Arkansas may not apply if the insolvent financial institution or issuer of securities in question is based in another jurisdiction, as the law of another jurisdiction could apply. The Arkansas UCC also does not eliminate the risk of theft or fraud of a customer's financial assets.

1. Chapter 8 of the Arkansas UCC. Chapter 8 of the Arkansas UCC applies to certain financial assets, such as securities, that one may hold either directly or indirectly. For instance, someone who holds securities directly, via a certificate (if certificated) or other evidence of ownership, such as by electronic book entry (if uncertificated), has certain rights in those securities that run directly from the issuing company of the securities to the holder. Thus, "when securities are directly held, notices, annual reports, and dividends" are sent directly to the holding investor "as registered on the books of the issuing" company. Parts 2, 3, and 4 of Chapter 8 generally concern the direct holding of securities.

2. Part 5 of Chapter 8 of the Arkansas UCC. Your questions concern Part 5 of Chapter 8 of the Arkansas UCC, specifically, A.C.A. §§ 4-8-501 to 4-8-511. While the direct holding Arkansas UCC provisions discussed above apply only to securities, "the indirect holding system rules of Part 5 apply to a broader category of financial assets" in a multi-tiered system. Before the 1994 revised Article 8 to the UCC, which Arkansas adopted, the code had not been updated from the old system, where everyone directly held securities, to the modern system, where most investors hold financial assets indirectly.

2.1. Indirect holding systems–generally. In an indirect holding system, instead of directly owning a physical certificate of a particular stock or financial asset, a person holds an interest in a financial asset through an intermediary, which in turn may indirectly hold that asset through another intermediary or two. The phrase "financial asset" includes securities, market-traded interests, investments, and certain "property that is held by a securities intermediary for another person in a securities account."

Ultimately, unlike the direct holding system, the indirect holding system often contains multiple parties along the chain who will "have competing interests in the underlying financial assets": at the top is the issuer of the securities; then the Depository Trust Company through its nominee, who has the actual physical certificate issued by the issuer; in the middle are the securities intermediaries, typically banks, broker-dealers, or both; and finally the individual investor or institutional investor who hold a securities entitlement. It is not uncommon for there to be multiple tiers of securities intermediaries, and an intermediary could itself be an "entitlement holder" with another intermediary.

2.2. Part 5 of Chapter 8 of the Arkansas UCC applied to indirect holding systems.

When an intermediary, a "securities intermediary" under the Arkansas UCC, credits a financial asset to an investor-customer's account, that investor customer becomes an "entitlement holder" and acquires a "securities entitlement" against only the securities intermediary. The entitlement holder does not have a direct relationship with the issuer under the UCC.

The entitlement holder has a property interest in the financial assets that make up its security entitlement. It is a "pro rata property interest" in the financial asset held by the securities intermediary "in fungible bulk." An entitlement holder's financial assets "are not the property of the securities intermediary." Thus, even if a securities intermediary gives a security interest to a creditor in a financial asset contained in a security entitlement, the entitlement holder will have priority over the secured creditors of the securities intermediary.

Importantly, A.C.A. §§ 4-8-501 to 4-8-511 do not apply to "savings accounts" or "checking accounts." Rather, they apply to "securities accounts."

2.3. Creditor priority under Part 5 of Chapter 8 of the Arkansas UCC. If there are conflicting claims over an asset and someone fails to deliver money or securities, certain creditors will have a priority to a financial asset over an entitlement holder in three circumstances: first, when the securities intermediary's creditor is a clearing corporation; second, when the entitlement holder agrees to allow a securities intermediary to use his or her financial asset as collateral in certain instances; and finally, when the creditor has perfected its security interest by having "control" of the financial asset [contained in the securities account]. "Control" and "ownership" do not have the same meaning, one may own a financial asset while transferring control over that asset. Thus, even if a customer (as an entitlement holder) has control over a financial asset, he or she could still lose priority to a "clearing corporation" if the corporation is a creditor that "has a security interest in that financial asset."

Under the Arkansas UCC, when a securities intermediary fails and there exist conflicting claims over an asset, an entitlement holder in an indirect holding system has some risk of losing priority to a securities intermediary's secured creditor. But I cannot opine on the likelihood of such a risk. Further, I have been unable to locate cases in or outside Arkansas where a court applied the UCC to deprive a customer of his or her assets, giving priority to creditors over customers.

3. Conclusion. Is it possible that an entitlement holder loses out on a property interest to a creditor, which can be another entitlement holder or institutional investor, under Part 5 of Chapter 8 of the Arkansas UCC? Yes, if someone consents to or allows a securities intermediary to take control over his or her financial assets, or if the creditor is a clearing corporation that lacks sufficient assets to satisfy both its entitlement holders and its creditors. But to adequately answer your questions would require me to analyze and opine on federal law, which, under the hypothetical presented, typically controls the creditor process in lieu of the Arkansas UCC. Such federal law includes the Securities Investor Protection Act of 1970 (SIPA); the Federal Deposit Insurance Corporation Act (FDIC), if applicable; the Securities Exchange Commission (SEC) rules and other federal securities law; and if the financial institution files for bankruptcy, federal bankruptcy law. Additionally, the Arkansas UCC relies on federal law, contract law, and private insurance to maintain certain safeguards for customer securities assets. But because an analysis of federal law generally falls outside the scope of an Attorney General Opinion, I will not opine on whether specific federal law applies here.

Assistant Attorney William R. Olson prepared this opinion, which I hereby approve.

Sincerely,

TIM GRIFFIN
Attorney General