How funds leave an escrow account: instructions, verification and payment security

Every escrow arrangement is, in the end, an arrangement about a payment. Most questions about safety are really this one question in different clothing: what has to be true before money leaves the account. The answer is worth setting out plainly, because it is documented rather than discretionary, and because the discipline it imposes is most of what the arrangement is for.

What a valid instruction is

The escrow agreement defines it. It names the people authorised to instruct, the form an instruction must take, and the conditions under which the agent may act on one. Funds are released in accordance with the agreement and valid authorised instructions, or against documentary evidence expressly specified in the agreement, and on nothing else. An instruction from the wrong person, in the wrong form, or outside what the agreement contemplates is not a defective instruction to be repaired by goodwill. It is not an instruction.

Who may give one

The authorised signatories are settled at drafting stage, alongside the other matters counsel settle at appointment, and the time to think hard about them is then. Which individuals, acting singly or jointly, in what combinations for what actions; whether electronic signature is acceptable and in what form; and how a signatory is added or replaced, which should itself be a documented process under the agreement rather than an email from whoever remains. People change roles mid-arrangement more often than parties expect (the two-year instalment schedule signed by a director who has since left is a routine event, not an edge case), and an agreement that anticipates it saves an amendment later.

What is checked before funds move

The agent’s review is a comparison of the instruction against the agreement: the right signatories in the right combination, the form the agreement specifies, and a payee and amount fixed in the documented instruction. It is one step in the lifecycle described in how we work, and it is the step this note is about. Where release turns on a document rather than an instruction, the agent checks that the document produced answers the description the agreement gives. What does not match does not move funds. This is the practical meaning of a non-discretionary role: the agent has no authority to improvise around a defect.

Account details and the email problem

Payment redirection is a persistent fraud pattern in transactional work: a convincing email, apparently from a known counterparty, notifying a change of bank details shortly before a payment falls due. Against that pattern, the value of the arrangement is the discipline already described: a payee and amount fixed in a documented instruction, in the form the agreement specifies, from the people it authorises. Treat any unexpected change to payment instructions as a reason to pause and confirm before sending funds.

What this reduces, and what remains yours

Documented instruction mechanics reduce the opportunity for a redirected payment, because the payee and amount are fixed in an instruction that has to satisfy the agreement’s own requirements, not in the most recent email anyone received. Reduce is the accurate word. No control removes the risk that lives in your own systems: your inbox, your people, and the verification habits of whoever handles your side of the correspondence. The counterparty discipline that serves you everywhere else serves you here, and the arrangement works best when both ends of it are careful.

What the agent will not act on

Instructions that conflict, instructions from one party where the agreement requires both, and instructions to depart from the documented mechanics. The workable position, set out in the release conditions note, is that the agent holds, notifies the parties of what it has received, and continues to hold until it receives a joint instruction or a determination it may act on in the form the agreement specifies. An agent that can be argued into acting on less is an agent whose account offers less than it appears to.

Outside the role

Titanium does not provide fraud prevention services, does not monitor the parties’ own communications, and gives no legal, tax or investment advice. It holds funds under the applicable client money arrangements and releases them in accordance with the escrow agreement and valid authorised instructions, or against documentary evidence expressly specified in the agreement, subject to applicable law and regulatory requirements.

Before your next closing: who, exactly, is authorised to instruct on your escrow account, in what combination, and would your own team treat an emailed change of bank details as a red flag or a routine update? Ask us how the instruction mechanics would be documented for your transaction.