Investor compensation schemes: what SIPC, FSCS and others cover

What a compensation scheme is for

An investor compensation scheme steps in when an authorised investment firm fails and the money or investments it was holding for clients are missing. It is not insurance against falling prices: every scheme below says so in its own words. Each scheme has a limit and covers only firms that belong to it, so what matters is the company that holds your account, not the brand.

United States: SIPC

The Securities Investor Protection Corporation “protects against the loss of cash and securities – such as stocks and bonds – held by a customer” at a failed member brokerage firm.

• Limit: “The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash”.
• Non-US clients: there is no requirement that a customer live in or be a citizen of the United States; a non-US citizen with an account at a member firm is treated the same as a US customer.
• Not covered: “SIPC does not protect against the decline in value of your securities.” It also does not cover worthless stocks you were sold, losses from bad advice, foreign exchange trades, commodity futures (except in a special portfolio margining account) or crypto assets that do not qualify as securities.
• Membership: broker-dealers registered with the SEC are automatically members, with narrow exceptions — one of them is a firm whose principal business is conducted outside the United States. Check the exact company name in SIPC’s list of members.

United Kingdom: FSCS

The Financial Services Compensation Scheme says: “We can pay up to £85,000 per person, per firm.” That limit applies to firms that failed after 1 April 2019; its page lists lower limits for earlier failures.

• What it covers: “We may be able to protect you if a provider goes out of business and there’s a shortfall in the money or assets it’s holding for you.”
• Conditions: the FCA or the PRA must have authorised the provider and regulated the service and product it provided.
• Not covered: “We can’t accept any claims that are for poor investment performance”. The FSCS also warns that “some investment products aren’t protected at all.”

European Union: the investor compensation directive

Directive 97/9/EC requires each member state to have at least one officially recognised investor compensation scheme, and an authorised investment firm may not do investment business unless it belongs to one. A scheme pays when the authorities or a court find that a firm, for reasons related to its finances, cannot meet investors’ claims.

• Minimum: schemes must provide “cover of not less than ECU 20 000 for each investor” (the directive is from 1997 and states amounts in ECU). A country may pay only a percentage of a claim, but at least 90% while the payout is below that minimum, and may offer more.
• Per investor, per firm: cover applies to an investor’s total claim on the same firm, whatever the number of accounts or the currency.
• Information: firms must tell investors which scheme covers them, including the amount and scope of the cover. Ask for it in writing.

Kenya and Nigeria

• Kenya: the Capital Markets Authority states that one of its core functions is “to operate a compensation fund to protect investors from financial loss arising from the failure of a licensed broker or dealer to meet his contractual obligations.” The pages we checked do not state a payout limit; ask the CMA.
• Nigeria: the Investors’ Protection Fund of the Nigerian Stock Exchange is a statutory fund for investors who lose money when a dealing member firm has its registration revoked, becomes insolvent or bankrupt, is negligent, or misappropriates clients’ assets. Its FAQ, published on the NGX Group website with figures dated 2019, gives the maximum as N400,000 per claimant “or such sum as may be determined by the BOT of the IPF from time to time”, paid in cash only. Check the current figure with the exchange.

Other countries

For South Africa, Egypt, the United Arab Emirates and Mexico we could not confirm a scheme for brokerage clients, or its limit, on an official page we were able to read. Whatever country your broker is in, ask its regulator what happens to client assets if the firm fails, and how claims are paid.

Before you rely on any scheme

1. Find the legal company that holds your account and its regulator; our guide on checking a broker’s licence shows how, and how to avoid a clone firm.
2. Look up that company on the scheme’s own website, not on the broker’s.
3. Check that the product you hold is covered — schemes exclude some products entirely.
4. Remember what a scheme does: it replaces missing money or investments up to its limit, never losses from falling prices.