I have around £175,000 spread across three Isas held by three different British brokers. I’d like to know whether my investments would be safe in the event of any of these companies going bust?
Without knowing which companies you hold your Isas with, they are likely to be regulated by the Financial Conduct Authority (FCA) and, as such, are potentially covered by the Financial Services Compensation Scheme (FSCS). This covers investments up to £50,000 per person per institution.
This is most likely to be paid where a regulated investment firm goes bust owing investors money as a result of having given bad advice or committing fraud.
Joe Rose, a chartered financial planner at Prest Financial Planning, explains that most brokers do not actually hold customers’ assets themselves and instead use a nominee account that ensures your money is ring-fenced from the broker’s own business.
This means that even if the broker were to collapse, creditors could not access your money.
Where investors lodge cash in their broker accounts, the situation is slightly different. With cash, the FSCS offers protection of £85,000. For brokers who use a third party, such as a bank, as the deposit taker, this limit applies.
It is worth double-checking what protections are in place at the brokers you invest with. While some will hold your assets in a segregated account in your name, others will pool these assets with those of other investors. This could make it difficult – and time-consuming – to identify your assets in the event that the broker goes bust.
Many nominee account providers will lend your investments back to the broker, which then lends the funds on to other institutional investors such as hedge funds.
In these cases, the broker should provide sufficient security to ensure the value of your assets are protected, but you ought to check this. Mr Rose added a warning to remember there is no such thing as “risk-free” lending.
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