What happens if your broker goes bust?

Broker failures are rare but not theoretical. When they happen, three layers of protection decide whether you get your money back and how quickly: segregation, the insolvency process and compensation schemes.

#Layer 1: Segregation of client assets

EU and UK rules require investment firms to keep client money and client securities separate from the firm's own assets:

• Client money is held in designated client bank accounts. It is not available to the firm's creditors.
• Securities such as shares and ETFs are held in custody in client accounts, usually with a third-party custodian.

If segregation was done properly, a failure should mean delay and inconvenience rather than loss. Note that for CFDs your "position" is a contract with the broker, not an asset held in custody: open CFD positions are closed at the point of insolvency and your claim is the resulting cash balance.

#Layer 2: The insolvency or special administration process

An administrator takes control of the failed firm, reconciles its records and returns client assets. The UK has a special administration regime for investment firms designed to speed up the return of client assets. In EU countries, national insolvency law applies, sometimes with specific rules for investment firms. Expect weeks to months, not days.

#Layer 3: Compensation schemes

If there is a shortfall – because of fraud, errors or unpaid costs of the process – the investor compensation scheme of the firm's licensing country pays eligible clients up to its limit: from the EU minimum of €20,000 (sometimes 90% of the claim) to €100,000 in Spain, or £85,000 under the UK's FSCS.

#Lessons from real failures

• January 2015 – the Swiss franc shock. When the Swiss National Bank removed its floor under EUR/CHF, prices gapped so far that many client accounts went deeply negative. Alpari's UK arm went into insolvency within days, and other brokers took heavy losses. One legacy of that episode is the negative balance protection now mandatory for EU retail clients.
• 2011 – MF Global. The US futures broker's collapse revealed a shortfall in customer segregated funds; customers eventually recovered their money through the liquidation, but only after a long process. Segregation rules and their enforcement were tightened afterwards.
• 2024 – FlowBank. Switzerland's FINMA opened bankruptcy proceedings against the Geneva online bank in June 2024. Custody assets were separated from the bank's estate and deposits were protected by the Swiss deposit guarantee, illustrating how a bank licence changes the process.

#How to protect yourself

1. Use firms licensed in the EEA, UK or Switzerland – see our broker register.
2. Prefer larger, well-capitalised or listed groups for large balances; our Protection Score rewards these factors.
3. Don't leave more cash with a broker than you need for margin; keep savings elsewhere.
4. Download statements regularly so you can prove your balance.
5. After a failure, deal only with the official administrator and the compensation scheme – never with "recovery" services that contact you.