What you'll learn
- Know which regulators run a scheme and its limit
- Understand what a scheme does and does not cover
- Place schemes correctly in the hierarchy of protections
The main schemes
| Jurisdiction | Scheme | Limit |
|---|---|---|
| United Kingdom (FCA) | Financial Services Compensation Scheme | 85,000 pounds per person per firm |
| Cyprus (CySEC) | Investor Compensation Fund | 20,000 euros per person |
| Other EU states | National investor compensation schemes under EU rules | Typically 20,000 euros |
| Australia (ASIC) | No statutory scheme; complaints body can award compensation | Varies |
| Singapore, Japan, most offshore centres | None for forex clients | Nothing |
What is covered
Schemes pay when a firm is insolvent and cannot return client money or assets. They do not pay for trading losses, for a broker's bad prices, or for a dispute over a single trade. They pay per person, so a 200,000-pound balance at a failed UK broker recovers 85,000 from the scheme plus whatever the insolvency returns. And they take time: claims are processed after the firm's failure is declared, often months later.
Private insurance
Some brokers, particularly offshore entities of large groups, buy private insurance that pays clients up to a stated limit, sometimes a million dollars, if the broker fails. It is better than nothing but it is a commercial policy the broker can cancel, with conditions you cannot see, from an insurer whose obligations are to the broker. Treat it as a bonus, not as equivalent to a statutory scheme.
The hierarchy
- Capital requirements and supervision make failure less likely.
- Segregation keeps client money out of the failure when it happens.
- A compensation scheme pays if segregation was not enough or was not honoured.
- Negative balance protection is a separate protection against market gaps, not against broker failure.
Key takeaways
- The FCA and EU regulators run compensation schemes with fixed limits; ASIC and most others do not.
- Schemes cover broker insolvency, not trading losses or disputes.
- Private insurance is weaker than a statutory scheme.
Knowledge check
Trading forex, CFDs and other leveraged products carries a high risk of losing money. This lesson is general education, not advice. Risk disclosure.