Investor compensation scheme
A safety net that may pay eligible clients if a regulated investment firm fails and cannot return their money or assets. It does not cover trading losses.
Investor compensation schemes exist for one situation: a regulated investment firm goes out of business, or otherwise cannot meet its obligations, and clients' money or assets cannot be returned. They are a last line of defence behind segregated funds and the firm's own capital.
In the EU
The EU Investor Compensation Schemes Directive (97/9/EC) requires each member state to have at least one scheme covering clients of investment firms, with a minimum coverage of 20,000 euros per investor. Countries can set higher limits.
In Cyprus, Cyprus Investment Firms regulated by CySEC are generally members of the Investor Compensation Fund (ICF). Its payout is limited to 20,000 euros or 90% of the covered claim, whichever is lower, per eligible client.
In the UK
The Financial Services Compensation Scheme (FSCS) covers clients of firms authorised by the FCA. For investment claims it pays up to 85,000 pounds per eligible person per firm.
Worked example
Illustratively, a CySEC-regulated broker fails holding 15,000 euros of your money that cannot be recovered. The ICF limit is the lower of 20,000 euros and 90% of the claim, so the maximum payout is 13,500 euros. With a 50,000-euro claim, the maximum would be 20,000 euros.
What these schemes do not do
- They do not compensate for losses from trading, however large.
- They usually do not cover professional clients or firms outside their jurisdiction, and they do not help if you dealt with an unregulated firm or a clone firm.
- Claims take time, and eligibility rules apply.
Check which entity holds your account and which scheme applies. See how to check a broker licence.
Not investment advice. This is general information and education, written without knowledge of your circumstances. It is not a recommendation to buy or sell any instrument. Past performance is not a reliable indicator of future results. Trading leveraged products carries a high risk of losing money. Risk warning