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What if my broker goes bust?

Choosing the right broker is one of the essential steps on the road to managing your own investments.

It can also be a tricky one.

Firstly, there’s the matter of costs. Everyone has a different portfolio, with differing levels of trading, in different tax wrappers. So finding the cheapest broker will be dependent on your own personal circumstances. Which is why I recommend people consult either Monevator’s broker comparison table, which has a great table of the UK brokers and their charges, or Broker Library’s broker cost calculator, which does all the number crunching for you.

But aside from the cost of each broker, there’s also the risk of the broker themselves. It’s all well and good going with the cheapest option, but costs don’t matter very much if your broker declares insolvency and takes all your cash with them. What if your broker goes bust?

It’s worth understanding the process of what happens in this scenario, for two reasons. 1) So we can figure out how at-risk we are of losing our investments in a worst-case scenario, and 2) so we can work backwards and minimise the chances of picking a broker which goes belly-up.

So this post is split into two sections – firstly, what happens when a broker goes bust, and secondly, how to figure out how risky a broker is.





What happens if my broker goes bust?


The nominee account – in theory


When you buy shares through a broker, you don’t actually legally own the shares.

The shares you buy are legally owned by a non-trading subsidiary of your broker, known as a nominee company. Although this nominee company is now the legal owner of the shares, you remain the beneficial owner.

The broker will keep records of which client is the beneficial owner of which shares, so has the ability to tell how many shares you own, and keep track of all your trades.

Nominee companies are used to keep your assets separate from those belonging to the broker – known as “ring-fencing”. If this weren’t the case and the broker went bust, then your assets could be used to pay back the creditors (the people who the broker would owe money to in the event of its bankruptcy).

Nominee companies are non-trading entities, so can’t run up liabilities of their own – a nominee company can’t go bust. Because assets held in a nominee account are segregated, and the assets held in them are separate to those of the broker, the creditors can’t touch your assets held in the nominee account in the event of their bankruptcy.

(NB: This is different to how it works when you deposit cash in your bank account. In this circumstance, you’re technically lending money to the bank (for them to lend out), meaning you’d be a creditor of the bank were it to go bust.)

Because your assets are segregated, if your broker goes bust your assets can either be liquidated and the cash returned to you, or they can be transferred to another broker. Your uninvested cash is similarly held in a pooled client money account – it’s also segregated from the broker’s own cash accounts.

The segregation of client assets is the first line of defence in the event of a broker’s bankruptcy.


The nominee account – in practice


So far, so good.

All your assets are safely ring-fenced from those belonging to the broker in a segregated nominee account, and uninvested cash is held at a large bank.

And most of the time, this should be more than enough to protect you.

Assuming the broker hasn’t done anything illegal, and the broker goes bust for commercial reasons (like, it doesn’t make any money), then these safeguards ensure client assets are protected and investors are likely to have no problems getting their shares back.

But in a couple of specific circumstances, things might get a bit trickier.

  1. Fraud

Although your assets are held in a nominee account, nominee accounts are importantly still under the broker’s control.

This means that, although it’s illegal, the broker is still able to transfer assets away from nominee accounts. There’s nothing physically preventing them from mixing client assets with the firm’s assets. So the system is still open to fraud.

Although the regulator will check up on the broker’s activity occasionally, they obviously can’t keep track of which assets are in which accounts all the time. The level of security is dependent on the system of controls in place at the broker.

Your broker committing fraud is an unlikely scenario, but it’s worth bearing in mind that it’s most likely to happen when the broker is on the brink of bankruptcy, when investors’ assets are in need of the most protection. So the point at which the segregation of clients’ assets is the most important, is also at the time at which the segregation is most likely to fail.

  1. Poor record-keeping

Even if there hasn’t been outright fraud when the broker goes bust, there may be difficulties in investors receiving their shares back.

As we’ve seen, nominee companies pool all client assets together. This means it’s up to the broker to keep track of who owns what.

In the event of them going bust, it may take the broker some time to figure out which shares are held on behalf of which client if they haven’t kept accurate records. This all depends on the record-keeping abilities of the broker. If they’re diligent then there should be no problems, but if not, then it may cause difficulties in figuring out which shares belong to which client.

In addition, there may be a shortfall between what the broker thinks is held in the nominee account, and what’s actually there.

The blogger Finumus (now at Monevator), has an excellent post on this exact scenario. He gives an example of how there can end up being an unreconciled difference on the broker’s books for someone dealing in Lloyds shares:

The break account will be called something innocuous like the ‘reconciliation account’ or whatever, nonetheless, there will be a ‘break’. Where did this break come from? Nobody knows.

Over the years, there have been millions and millions of transactions in Lloyds at this broker. Clients have had shares transferred, out to, and, in from, other brokers. Sent in certificates. There have been right issues, tender offers, stocks splits, stock consolidations (what Americans charmingly call reverse-stock-splits), and all sorts of other corporate actions. A single mistake on a single one of those transactions leaves a balance in the break account. 

There’s also all the entries from that smaller broker they bought in 2002, that one the regulator persuaded them to buy in 2008 (those books where a real mess), then there’s that client book that they bought from a US broker that was quitting the UK, back in, when was it, 2010, or whenever.”

Unreconciled differences can and do happen. I had a read of a few brokers T&C’s, and they all contained the following clause (my emphasis):

“Any investments held on your behalf may be pooled with those investments of other customers. This means your entitlement may not be individually identifiable on the relevant company register, by separate certificates or electronic records (other than ours, where they will be identifiable) and, in the event of an unreconciled shortfall caused by the default of a custodian, you may share proportionately in that shortfall.

Clearly this scenario is something the brokers have foreseen. So it’s not an impossibility that you’d have to shoulder some of the financial burden for a company’s poor record-keeping.

But there is one way to mitigate this risk. It’s possible to ensure your assets are kept separate from the pooled nominee account by opening what’s known as a CREST account with the broker.


CREST accounts


A CREST account is an individually segregated account.

CREST is the central securities depository and settlement system in the UK, and are responsible for transferring ownership of shares when stocks are traded through a broker.

When brokers use nominee accounts, the legal owner of the shares is recorded through CREST as being the broker’s nominee company. But by setting up your own CREST account, the shares are now recorded in your own name, and not that of the nominee company.

This means your investments aren’t co-mingled with the assets of the broker’s other customers. Not only does it mean your assets are likely to be better protected from having to share the cost of record-keeping snafus in the event of the broker’s insolvency, it also means the return of your investments should be quicker.

Because your assets aren’t in the pooled account, the broker doesn’t have to spend the time figuring out who owns what. You should be able to recover your investments more quickly, and not have to suffer the time and potential stress of your investments sitting in limbo.

Another advantage of a CREST account is that you’re on the register of shareholders. As a result, you’ll be able to receive annual reports, the right to vote at company meetings, notification of corporate actions, and the right to any shareholder perks the firm offers. Owners of shares held in nominee accounts depend on their broker to pass these rights on, which not all do.

The downsides are that 1) not many brokers offer a CREST account, 2) those who do charge quite a bit extra for it, 3) holdings in CREST accounts are still accessible by your broker (otherwise they wouldn’t be able to execute trades for you). A rogue employee could still transfer assets from your CREST account, meaning it only protects against unreconciled differences on the pooled client money account, not from fraud.

Of the 10 brokers I had a look at (more on that below), only 3 offered CREST accounts. Charges were £500 per year, £1,200 per year, and £5,500 per year. So they’re not for small portfolios.


Financial Services Compensation Scheme


Let’s say your broker has gone bust, and it was either due to the company fraudulently using client money to pay its staff’s bonuses, or due to Larry the intern accidentally deleting the Excel file which contains records of beneficial ownership in the nominee account.

The Financial Services Compensation Scheme (FSCS) is your last resort.

In the event your broker is subject to fraud (your assets weren’t segregated) or negligent record-keeping (they lost your shares), and your assets can’t be recovered, there is some recourse available through the FSCS.

In the UK, the FSCS will cover any losses up to a limit of £85,000 per person per broker. You can verify the amount on the FSCS website.

But the scheme is only there as a last resort – it only protects investors in the event of fraud.

It should go without saying, but just to be clear – the FSCS will only compensate investors if their broker becomes insolvent due to fraudulent activity. It won’t cover losses due to investment performance. If you plough all your savings into Gamestop and AMC, then those losses are on you.


Is my broker covered by the FSCS?


You’re only covered by the scheme if your broker is authorised by the UK’s Financial Conduct Authority (FCA).

You can check whether your broker’s authorised by searching the FCA’s register. Just plug in the broker’s name into the search bar and it’ll pop up in blue if it’s authorised.

If you do decide to diversify your money between brokers, then it’s worth checking they’re not part of the same financial group. If you choose to diversify between two brokers which happen to be part of the same institution, then your diversification is for nothing, as you’re only eligible to claim £85,000 in compensation per firm.

For example, iWeb Share Dealing, Lloyds Bank Direct Investments, Bank of Scotland Share Dealing, and Halifax Share Dealing are all part of Halifax Share Dealing Limited. So diversifying between any of those four brokers makes no difference when it comes to protecting against bankruptcy.

You can check which brokers are related by searching on the FCA’s register. After selecting your broker, you can expand the ‘Trading names’ subheading to see which brokers are also owned by the same firm. Here’s the result for Halifax Share Dealing Limited:

What if my broker goes bust - trading names table


Have brokers gone bust before?



In 2018, a UK broker called Beaufort Securities collapsed following a sting operation led by the FBI.

Undercover FBI agents revealed the company was complicit in an illegal “pump-and-dump” stock manipulation scheme – the same types of scheme Jordan Belfort, of The Wolf of Wall Street fame, was imprisoned for. Beaufort Securities employees then attempted to launder the proceeds of the crime through buying Picasso paintings, but were arrested just before buying them.

Following the broker’s bankruptcy, the US Department of Justice charged the company, and six of its directors, with conspiracy to commit securities fraud. According to the DoJ release, the company “engaged in an elaborate multi-year scheme to defraud the investing public of millions of dollars through deceit and manipulative stock trading, and then worked to launder the fraudulent proceeds through off-shore bank accounts and the art world, including the proposed purchase of a Picasso painting.”

Initially, the administrators (PwC) proposed to use clients’ assets held at the broker to pay their fees. Luckily, a deal was struck between the FSCS and the administrators to protect clients’ assets. But while investors were protected and eventually had their assets transferred to another firm, the saga did mean their investments were in limbo for a period and the experience was undoubtedly a stressful one.

The Beaufort Securities case shows that in the event of a broker’s bankruptcy, even the administrator can try coming after your cash.

One year later, another UK stockbroker, SVS Securities also went bust.

The FCA blocked the broker from doing new business after looking into the company’s “model portfolios” used in its discretionary fund management arm. The company had questionable commission arrangements with some of the bond issuers it used for its discretionary clients. It also promoted high-risk bonds to retail investors, and couldn’t explain how it valued illiquid assets.

According to the FCA, the company received 10% commissions from at least two of the bond issuers whose bonds were being used in discretionary client portfolios, with other investments in the model portfolio having SVS directors as shareholders or directors.

So yes, brokers can, and have, gone bust. It’s happened before and it’s bound to happen again. Which raises the question…


How can I check my broker is safe?


It’s pretty tough for a regular investor to gauge how likely a broker is to go bust or not. But there are a few things to look out for which can point you in the right direction.

To help you try and figure out how risky a broker is, I’ve put together a list of criteria which a broker can be measured against to help assess its safety.

Using these criteria, I got in touch with a few of the most popular UK brokers, and asked them to confirm anything which wasn’t available on their website or in their T&C’s. It took quite a bit of back-and-forth, as the front-line customer support workers were unsurprisingly not prepared for this level of questioning…

The table below is the result.

All the criteria mentioned are explained below. I obviously couldn’t do this job for all the UK brokers, but hopefully it gives you a useful framework when figuring out how your own broker looks if it’s not listed here (click to expand).

What if my broker goes bust - broker table 2

Ownership structure – Listed entities are subject to a tougher regulatory environment. Private companies don’t have to disclose as much about their operations as listed entities do, which means there are more pairs of eyes examining what’s going on in the company, and red flags are likely to be spotted sooner. Investors can download quarterly and annual reports to investigate the business themselves. They can also do this for private companies through Companies House filings, but those filings are often a year behind. Also, public companies have the advantage that any signs of distress are likely to be filtered through to the share price, which is easily trackable by investors.

Pure broker – A pure broker means the company transfers your trade to the market/exchange, but never buys or sells securities from you or to you — only “for” you. Some brokers also act as dealers, meaning they execute your trade for you by buying your shares from you, or selling its own shares to you – with the aim of making a profit for themselves. Neither Beaufort Securities nor SVS Securities were pure brokers, and it was the trading on their own behalf which got them both into trouble.

Securities lending – Lending out securities is how some of the newer brokers make money. They lend out your securities to short sellers, receiving interest on your loaned securities. The broker receives collateral for the loaned shares, of a higher value than the amount loaned in securities. The risk comes if there’s a market crash and there’s no liquidity for your security. In this event, the broker (or the broker’s counterparty) might not be able to recover your shares. You’re trusting the broker that they’re managing both the value of collateral properly and the counterparty risk properly.

Offers leverage – Offering leverage is essentially letting customers borrow money from the broker. Again, this is a way several newer brokers are making their money. The downside comes for investors having the added risk of the broker taking on higher counterparty risk from all the punters deciding to use leverage. There’s also the added financial risk of the FCA issuing fines for the broker offering inappropriate levels of leverage to retail investors, which has happened to several brokers in recent years.

Profitability – How profitable is the company? The better financial health the broker’s in, the less likely the company is to go bust, and the lower the incentive for fraudulent activity is. It’s easy to find out how profitable a company is for listed entities, as you’ll be able to download their annual report off their website. For private companies, it’s possible to download accounts through their Companies House filings, but a) they can be un-audited, and are subject to less scrutiny than for listed companies, and b) they’re often a year or so behind those released by listed entities.

Profits of parent – If the broker ends up going bust, it’s a lot more likely it’ll be bailed out by the corporate equivalent of the bank of Mum and Dad if its parent company is well-capitalised. Again, figures for parent companies (if they have one) tend to be easier to come by given their size.

Offers CREST accounts – As we saw in the section above, opening a CREST account means your investments aren’t co-mingled with the assets of all the other broker’s customers. Not only does it mean your assets are likely to be better protected from having to share the cost of record-keeping snafus in the event of the broker’s insolvency, it also means the return of your investments should be quicker. It’s expensive, but might be worth the peace of mind for cautious investors with larger portfolios.




We’re talking about low probability events here.

In order for you to lose money as a result of the broker going bust, the broker needs to:

  1. Go bust (low probability)
  2. Having gone bust, they must have insufficiently segregated client capital, or kept insufficient records (a further low probability)
  3. Having done either of those, the amount invested needs to exceed the £85,000 FSCS compensation limit (a further low probability if you’ve done your homework).

Firstly, there’s a low chance your broker goes bust in the first place.

What’s more likely is that long before it’s able to declare bankruptcy, the owners would’ve courted a buyer for the ailing business and it would’ve been bought (for a very good price) by a rival broker or some other financial intermediary. We’ve seen huge consolidation in the broker space over the last few years, with Cavendish Online, The Share Centre, and EQi all being acquired in the last two years. None of them seemed to be in financial distress, but there’s certainly appetite from rival brokers for buying client books.

In most cases, if your broker fails to find a buyer and does end up going bust, then the fact your assets are held in a segregated nominee account has a high chance of protecting your assets. Most of the time, your assets will simply be transferred to another broker. But asset segregation isn’t a guarantee of safety.

In cases where segregation isn’t enough to protect your assets, and the broker has either acted fraudulently or kept poor records of beneficial ownership in the nominee account, the FSCS is your only recourse. They’ll cover up to £85,000 – if you’ve invested more than that, you’re on your own.

It’s highly unlikely you’ll end up losing money as a result of a broker going bust, as it requires a string of unlikely events. But the probability isn’t zero. And we can’t be discounting non-zero probabilities if we’re planning on using a broker for a long time, and the impact of a broker’s bankruptcy is high. Given you may be investing a large percentage of your investments with a broker, it’s worth putting in your due diligence beforehand.

Assessing the risk of a broker is pretty tricky, but there are a few things to watch out for when selecting one:

  • Ownership structure – public is better.
  • Pure broker – yes is better.
  • Securities lending – none is better.
  • Offers leverage – none is better.
  • Profitability – higher is better.
  • Profits of parent (if applicable) – higher is better.
  • Offers CREST accounts – yes is better (but only for ultra-cautious investors with large portfolios).

At the end of the day, the segregation of client assets and record-keeping abilities are dependent on the control environment of the broker. As much as I’d like to trust my broker is doing everything above-board, I don’t want to stake my whole portfolio on it. Because of this, I’d personally want to limit the amounts held at riskier brokers to under the FSCS limits if possible.

Having said that, it all comes down to your individual situation. If you have a £1m portfolio which represents 100% of your wealth, then it’s a big risk putting it with a smaller broker. But if you have a £50m portfolio, then putting that same £1m with a smaller broker isn’t so big of a deal.

Overall, I’d say for most people it’s worth keeping their main portfolio at a more established broker. They might be more expensive to trade with, but established brokers tend to be the best capitalised and have the highest levels of scrutiny through being listed companies.

But I also don’t see anything wrong with using a smaller broker for speculative punts. The smaller brokers have the advantages of lower trading fees, slick UIs, and (in my experience) great customer service. I’d just want to make sure it never exceeded the FSCS limit, or made up a significant portion of my portfolio.

As with all things in investing, we can’t eliminate all the risks completely.

But as long as investors approach the selection of their broker with a well-informed understanding of the risks involved, and weigh those risks against the financial costs based on their own situation, then I think that’s the best any of us can do.

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Past performance does not guarantee future performance and the value of investments can fall as well as rise. The information on this site is provided for information only and does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell, or otherwise transact in any investment including any products or services or an invitation, offer or solicitation to engage in any investment activity. Please refer to the full disclaimer on the disclaimer page.

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Minas Mina
April 23, 2023 11:28 am

Where have you seen that the profit for Trading 212 was -0.3 million?

I see in their 2021 report that Profit for the year 2020 was £21,897,883 and for 2021 was £45,287,966.

Am I missing something?

EDIT: Oh, I just saw that it was -0.3m in 2019 in one of their older statements. It would be great if you showed the year in the table.

Last edited 1 year ago by Minas Mina
March 2, 2022 8:47 pm

Hi Occam
just found your site and im loving it
been investing since 2014 and got a linker maturing so googling about lead me to your site about index linked etfs
im an avid monevator follower and MMM and The escape artiste and now you!
thanks for the broker going bust research youve done too. something that always niggeled me . Its been great to read through.

October 7, 2021 3:12 pm

Very interesting post, thank-you. I was particularly interested in the stuff about CREST accounts allowing one to own the shares directly. But then I read (here: https:/ that these cannot be used anyway to hold shares in a tax-free wrapper like an ISA or SIPP. Is that correct?

July 17, 2021 11:59 am

Again, great article! You mentioned uninvested cash is held at a large bank. Let’s say I hold £1000 uninvested cash in my Freetrade account. From your table I can see they bank with Lloyds. What would actually happen if Lloyds goes bankrupt? Is that cash money still FSCS protected too, or is it a 100% safeguarded (i.e. Lloyds can’t just lend out all of that money and I would be more likely to get 100% of the cash back?)

July 14, 2021 10:31 pm

Thanks for the great work. Would it possible also add Fidelity International to the table as I believe they are also very popular broker in the UK and very competitive for a share/ETF-only portfolio? Thanks.

July 14, 2021 6:58 pm

Thanks, very helpful. But … I can’t read the table at all. It doesn’t expand with a click.

July 14, 2021 1:24 pm

I was wondering about this the other day, so thank you for this timely (and very thorough) post – really enjoying your blog so far. A few thoughts:

1) It seems to me there are a few other links in the investment chain which could, in theory, create this sort of ‘tail risk’. In particular, if the underlying fund manager or the custodian bank were to go bust in circumstances involving fraud or bad record-keeping, even if your broker is still solvent, then we might end up with the same sort of mess to clear up and uncertainty about who should bear any losses, but if they’re not UK-based then it’s less obvious to me whether FSCS coverage would apply.

Also, if a very big fund manager or custodian were to go bust and ring-fencing failed in a major way then I suspect all bets are off in terms of the wider economic impact due to their sheer size and the way that the financial ecosystem is inter-connected – would the FSCS even be big enough to pay out in that sort of situation without government intervention? I appreciate these are much broader questions and you can’t cover everything in a single post!

2) With that said, personally I’m gradually moving towards the view that if I’ve split my assets across two or three big brokers/insurers and am invested in diversified funds operated by a similar number of different (well-established) fund managers then I’ve taken the obvious steps to mitigate this sort of risk and should focus on other things – I don’t have the amount of assets for a CREST account to make any sense. Of course, that’s the logical bit of my brain saying that, now just need the catastrophising part to get comfortable as well…