Are shares and securities protected by the FCA protection scheme if the broker goes bust?

[Nico Albrecht]

I am wondering if investing in shares through an FCA-approved broker would result in the shares and securities held on my behalf being protected by the FCA compensation scheme.

Despite spending the last hour searching on Google and the FCA website, I have encountered conflicting information. While it appears that some ISA share funds may be protected, my question pertains to shares purchased and held on my behalf.

If the broker were to become insolvent, would I receive compensation as a consumer from the FCA? For instance, if I deposited £5,000 into my account and used that balance to buy shares of equal value, what protection would I receive if the broker went bankrupt? Would my shares be protected, or only my cash balance for funding or selling?

While the FCA acknowledges that some share funds may be protected, it is unclear whether this applies to common shares held on a broker's behalf. I would appreciate any clarification on this matter. I assume that the broker in question is both FCA-approved and regulated.

As an example let's use a company like ||||||freetrade||||||.io|||| I added some |||| to make sure it's not a link just an example for an FCA approved and regulated company.

 

[Mark T Jones]

Are they covered by fscs? I know that Hargreaves are

 

[Nico Albrecht]

fscs

Yes

Hargreaves

Could you post a link please of that link that clearly states that shares are covered. Not talking about pensions funds and some shares isa's they offer.

I found " In the unlikely event that we (HL Savings Ltd) fail, your money in the cash hub is not covered by the FSCS. Instead, it's protected through the FCA's safeguarding rules. " The key is cash hub as in money balance but what about the actual shares held.

I can only find with Hargreaves that money and cash deposits are protected but no clear statement that shares are protected hence my question.

 

[WaveJumper]

Have a look here and you can use their checker facility:

Investments

Find out if you are eligible to claim investment compensation. It’s free and simple to claim with FSCS. Visit us now to see how much you could be entitled to.

www.fscs.org.uk

In short you can check any type of investment to ensure its covered, the only other advice I would offer is be very careful in choosing the "platform" you are going to use, ie is it covered etc etc (you can check on the link) there's a lot of APPS / platforms popping up which may not when you read the small print be connected to the UK

 

[Nico Albrecht]

Have a look here and you can use their checker facility:

Done that before and when I run it and choose shares I get a " it may be protected " but no clear answer hence why I'm asking here. They are clear about my efunds being protected and money but if it comes to "shares" we only get a "may" at best. It seems such a simple question to find out but no clear answer is provided about the protection of common share held on my behalf.

 

[Newchodge]

Done that before and when I run it and choose shares I get a " it may be protected " but no clear answer hence why I'm asking here. They are clear about my efunds being protected and money but if it comes to "shares" we only get a "may" at best. It seems such a simple question to find out but no clear answer is provided about the protection of common share held on my behalf.

Why not ask the broker?

 

[Nico Albrecht]

Why not ask the broker?

If a company is authorized by the FCA, I expect to be able to independently verify this on the FCA website. Unfortunately, the website does not provide a clear answer to this, which raises questions about the usefulness of the protection scheme. It is concerning that I have to rely solely on the seller's word and cannot independently verify their liability for shareholding . This issue seems straightforward, and the FCA is clear on other matters such as gold, so why can't they provide a simple answer for a "common share" that is sold by UK FCA regulated companies? It should be a simple yes or no answer and not a complicated process.

 

[Newchodge]

If a company is authorized by the FCA, I expect to be able to independently verify this on the FCA website. Unfortunately, the website does not provide a clear answer to this, which raises questions about the usefulness of the protection scheme. It is concerning that I have to rely solely on the seller's word and cannot independently verify their liability for shareholding . This issue seems straightforward, and the FCA is clear on other matters such as gold, so why can't they provide a simple answer for a "common share" that is sold by UK FCA regulated companies? It should be a simple yes or no answer and not a complicated process.

I agree. But if the broker says no, you know where you are. If they say yes, ask for proof.

 

[Nico Albrecht]

I'm in no dispute with any company and happy to accept either way. Just my personal interest that came up today in a discussion are my shares held by the broker protected by the FCA scheme if the broker goes bust. Seems such a simple question .

 

[Nico Albrecht]

If they say yes, ask for proof.

I might have to do that and pick a random company like Hargreaves and ask but was hoping somebody would post a link with a clear answer to that.

 

[Gyumri]

my question pertains to shares purchased and held on my behalf.

If you have appointed an agent to buy shares on your behalf, your agreement with your agent should provide the answer as to what happens to "your" shares if your agent goes belly up.
If the agreement is still a mystery after you have read the terms then it might not be worth using your agent to buy shares on your behalf and spend your £5000 on something else - turnips we're a good investment recently.

There are a lot of ifs and buts to read here which is not for the faint hearted:

How safe is your investment?

Key protections for private investors including details of our FCA registration and how your investments are covered by the FSCS.

www.hl.co.uk

 

[WaveJumper]

As stated on their website you are correct:

You might be protected, depending on the circumstances​

If you were dealing with a regulated firm, and your investment product meets the relevant regulatory definition, you may have some FSCS protection if the regulated firm fails.

But this will depend on what regulated activity the firm was carrying out for you and whether any exceptions apply. You'd also need to meet our eligibility criteria, so protection will vary depending on your individual circumstances.

This means we can't say for sure whether your investment is or isn't FSCS protected. But your firm should be able to tell you more (see the box beow).

You then need to follow the further links giving details about the products covered in your case shares, the type of shares (some forms are not covered) etc etc. It also states if in doubt speak to the broker in question. If and I say if they are just "normal" shares with a broker or platform regulated by the UK yes you will be covered, BUT and the big but, check the details of what your investing in to the details on the FSCS site,

My advice is never trade unless you know and understand the markets (and their products) and never invest all your money in one share, always do your own research, a trader will generally never invest more than 10% of their portfolio at any one time.

And this may sound strange but ask yourself are you going to be an investor or a trader.

 

[UK Contractor Accountant]

Aren't the shares held as nominee only by the Broker, usually via a separate arm of the Broking side of the business, which means they are effectively, ring fenced should the Broker go bust

 

[Nico Albrecht]

Ok this is getting interesting. If a mod wants to move it to time out happy with that.

My advice is never trade unless you know and understand the markets (and their products) and never invest all your money in one share, always do your own research

This is what I'm trying to do here just for testing from a consumer point with a low level investment. Tradings apps getting quite popular got an invite from a friend so we started this discussion how safe my shares are in there with an FCA approved broker actually.

These apps are for fun for most consumers, they throw in a couple hundred and watch. When you sign up they throw in your face we are FCA approved and protected but once you start digging around and do some due diligence it gets very grey area for shares. They also tend to use the word money a lot but wont mention shares for protection.

The FCA wont give me an answer I tried and the refer to take legal advise. Fair enough but how does that work if you have a couple hundred to invest and the legal advise cost much more than that from a consumer point while this company you approved operates on their advertising that money is safe.

Aren't the shares held as nominee only by the Broker, usually via a separate arm of the Broking side of the business, which means they are effectively, ring fenced should the Broker go bust

They are but can see 2 problems on that. What if I buy a fractional share it is now in a pool and also I did some checking for Hardgreaves. The hold them in a ring fenced company called hargreaves lansdown nominee limited. hargreaves lansdown nominee limited is not FCA approved. Which would indicate that my shares being now transferred into a holding cpmpany with no FCA approval or protection. With shares tit seems pooling them is getting more popular.


Of course I can go through a proper broker and buy them in my names but it is way more complicated and expensive where as the trading apps make it look they are FCA but once you start diffing around it gets more complicated

I'm happy to go with either way if they are not protected no biggy if they are happy days but it should not be that complicated for the average Joe to find that out. .

 

[Bobbo]

Generally any shares you purchase through a broker or cash balances they hold for you should be held by the broker on a nominee basis and segregated from the broker's own assets and liabilities, such that their insolvency has no impact on your investments.

The broker going into administration or liquidation might impact on you being able to access those shares or cash but it all should still be there.

 

[Frank Wessely]

@Bobbo is correct. However if your funds have been intermingled with the broker's own monies / assets your FSCS protection is limited to £85k.

In the event of a broker going into insolvency there could be a risk of the Insolvency Practitioner applying to Court/the FCA for authority to draw upon client funds to contribute towards the costs of the insolvency process if the broker's own assets are insufficient for that purpose. It does not happen very often but was utilised after the collapse of Beaufort Securities which you might want to research.

Thanks.

 

[WaveJumper]

Ok this is getting interesting. If a mod wants to move it to time out happy with that.


This is what I'm trying to do here just for testing from a consumer point with a low level investment. Tradings apps getting quite popular got an invite from a friend so we started this discussion how safe my shares are in there with an FCA approved broker actually.

These apps are for fun for most consumers, they throw in a couple hundred and watch. When you sign up they throw in your face we are FCA approved and protected but once you start digging around and do some due diligence it gets very grey area for shares. They also tend to use the word money a lot but wont mention shares for protection.

The FCA wont give me an answer I tried and the refer to take legal advise. Fair enough but how does that work if you have a couple hundred to invest and the legal advise cost much more than that from a consumer point while this company you approved operates on their advertising that money is safe.

They are but can see 2 problems on that. What if I buy a fractional share it is now in a pool and also I did some checking for Hardgreaves. The hold them in a ring fenced company called hargreaves lansdown nominee limited. hargreaves lansdown nominee limited is not FCA approved. Which would indicate that my shares being now transferred into a holding cpmpany with no FCA approval or protection. With shares tit seems pooling them is getting more popular.


Of course I can go through a proper broker and buy them in my names but it is way more complicated and expensive where as the trading apps make it look they are FCA but once you start diffing around it gets more complicated

I'm happy to go with either way if they are not protected no biggy if they are happy days but it should not be that complicated for the average Joe to find that out. .

One of the main issues with "are you covered or not" as you have found its not quite so straight forward this is due to the vast array of products which are now available to trade, ie options, ****** etc etc if you clicked the link on the FSCS page relevant regulatory definition this gives you the full ins and outs of what they do or do not cover within the markets act regs.

Hopefully when your friend signed you up to the trading App you got some free shares?

If I was advising you on a platform .......... I would recommend trading within a self-investing ISA especially if your not making use of your allowance, and all those profits you make will be tax free. Happy days ?