What You Need To Do If Your Broker Fails
Broker bankruptcy is quite a stressful time for the investor who has their funds deposited at that broker.
Believe me, I’ve been there when it seemed I lost all my money due to broker insolvency!
So as usual with questions about finance, what happens if your broker goes bankrupt depends on a variety of factors.
As a rule, the best regulators to get your funds back from are for brokers who are regulated by Financial Conduct Authority (FCA) of The UK or FINMA of Switzerland. So this are the two regulatory bodies that we will concentrate on.
The main consideration of what to do if your broker goes into liquidation is the regulation of the broker that you hold your account with. Your broker can fall under the purview of several jurisdictions so it’s imperative for you to find out from your broker where you are regulated.
Of course it’s also important to know that your account manager will tell you the truth. You will be subject to lies if you have signed up with a scam or clone firm.
In this article
- 1 It’s critical to check your regulation and broker safety before depositing your funds.
- 2 How do I get my funds back if my FCA regulated broker goes bankrupt?
- 3 Step 1: Contact your broker directly
- 4 Step 2: Establish if your broker is still operating
- 5 3. Establish if you are a retail of professional client
- 6 Step 4: Contact the FSCS
- 7 Step 5: Decide how you will make the claim for your broker deposit
- 8 Step 6: Be aware there are limits
- 9 FINMA Regulated Brokers
- 10 How do I get my funds back if my FINMA regulated broker goes bankrupt?
- 11 2 Simple Steps
- 12 Conclusion
It’s critical to check your regulation and broker safety before depositing your funds.
How do I get my funds back if my FCA regulated broker goes bankrupt?
If your broker is regulated by the FCA then you should be entitled to compensation as all brokers regulated by The FCA are required to join the Financial Services Compensation Scheme (FSCS).
An exception is if your broker is regulated by the FCA to operate in the EEA (European Economic Area). If your broker is EEA registered then you will be covered by the compensation scheme of where the broker is domiciled. This is of course in the event that the country offers such a scheme.
For FCA regulated entities you should be covered under the (FSCS) for up to £85,000 GBP of your remaining deposit. The steps that you need to take are as follows:
Step 1: Contact your broker directly
Contact the broker and see if they have the funds available to reimburse you.
If the FCA authorised broker will not or cannot pay you then you can contact the UK Financial Ombudsman.
Step 2: Establish if your broker is still operating
Check if the firm is still trading. You may be able to find out by checking their website, their social media or even at Companies House which is the UK’s repository of companies registered in UK
If your broker has ceased trading you will still need to contact them. At this point the FSCS will not pay because it could still be possible that the broker has the reserves to pay the customer.
3. Establish if you are a retail of professional client
The FSCS is only available for retail clients. The FCA describes retail clients as ‘a client who is not a professional client or an eligible counterparty.
You will have chosen your client status upon signup to your broker. Professional clients have to follow certain criteria which is outlined here. However, the vast majority of traders will fall into the retail category.
If you are a professional client you will not have recourse to FSCS protection. You can see the FSCS Eligibility Rules for more details.
If you are a retail client and have followed the above steps to no avail, then the next step is to contact the FSCS yourself.
Step 4: Contact the FSCS
The FSCS is available for individuals who are or were clients of an FCA regulated broker that has been declared ‘in default’.
Essentially this means that a firm is “unable or likely to be unable to pay claims made against it”.
The FSCS will try to contact each customer in order for them to fill in a compensation application form. If you are not contacted by the FSCS then you need to ensure that you contact them directly in order to make a claim yourself.
Step 5: Decide how you will make the claim for your broker deposit
There are 3 main ways in which you can make your claim for FSCS protection.
1. Contact FSCS yourself. They will dispatch an application form which you need to fill in and send back. You can also fill this in online.
2. Use a Claims Management Company [CMC]. You can employ the services of a Claims Management Company who will liaise with the FSCS on your behalf. 70% of claims made to the FSCS come in the way of CMC applications. CMCs can charge up to 40% of your claim for this service.
3. Alternatively you can use our services for free where e can also help you fill in your form for free. You can then submit yourself ensuring you will receive 100% of your remaining deposit if you choose our free, optional service.
Whichever method that you use you just need to make your claim once. There is no need for multiple applications via these methods.
Step 6: Be aware there are limits
Compensation is paid out in financial loss incurred as a result of broker failure. The maximum you can claim per person per firm is £85,000. Any surplus you will not be covered.
As a side note, we recommend that if you have or plan to have over £85,000 invested in an FCA regulated broker then it is prudent to have a second account at a different broker so that any funds over £85,000 are protected.
These limits apply to each person, per authorised firm and product category.
Compensation is only paid to cover financial loss. For investment claims, the compensation paid will try to return you to the financial position you would have been if you did not invest.
FINMA Regulated Brokers
How do I get my funds back if my FINMA regulated broker goes bankrupt?
All Swiss based brokers are regulated by The Swiss Financial Market Supervisory Authority (FINMA). As a result of FINMA regulation it is mandatory for all firms to join a scheme called ‘esisuisse’.
Esisuisse is the insurance scheme mandated by FINMA for all brokers who operate from Switzerland. If the failed broker cannot pay it’s clients due to bankruptcy, then all clients will have their deposits returned to them by the liquidator.
All deposits made to Swiss regulated brokers are covered by esisuisse up to 100,000 CHF.
Esisuisse implements these protections to customers regardless of whether they live in Switzerland or not. This means that if you have a FINMA regulated broker but you are based in another country then your funds will also be covered by esisuisse.
If a FINMA regulated broker experiences bankruptcy then all broker funds are seized and transferred to the FINMA appointed regulator. This happens within 20 days. It is the liquidator’s responsibility to then transfer those funds back to broker clients upon receiving banking instructions from the broker client.
2 Simple Steps
For Esisuisse claims the process is simple.
Step 1. Contact esisuisse with your banking details and proof of holding your account. It is quite a simple process that you can do yourself or if you prefer, you can get us at Eusle to help you with your claim.
Step 2. Be aware there are limits
The 100,000 CHF limit applies for one client per broker.
So, we recommend that if you have or plan to have over 100,000 CHF invested in an FINMA regulated broker then it is prudent to have a second account at a different broker so that any funds over 100,000 CHF are protected.
Clients opening accounts with brokers with FCA or FINMA regulation are covered by funds compensation up to £85,000 GBP and 100,000 CHF respectively.
The process to get your funds back is fairly simple at both regulators. For clients of FINMA regulated brokers you send your proof and banking details over to esisuisse and they will process the transfer of your funds for you within 20 days.
For clients of FCA regulated brokers, you need to fill in your forms online or on paper. You can do this yourself for free, use a CMC who charge up to 30% fees or if you signed up for your FCA regulated broker via Eusle, then we will prepare the documents for you so that you will receive 100% of your initial deposit.
As usual, prevention is always better than cure. You should check your regulation with your broker. That way you will know if your funds are safe or not.