Every regulated retail broker and bank in the United Kingdom, the United States and the European Union belongs to a compensation scheme designed to protect customers if the firm fails. The schemes exist because the alternative, which is for individual customers to chase their own money through an insolvency process that can last a decade, is bad for confidence in the financial system. The schemes work, in the sense that they have paid out billions of pounds, dollars and euros over the past several decades to customers of failed firms.
The schemes are also widely misunderstood. The most common misconception is that they cover investment losses. They do not. They cover the failure of the firm holding the assets. The distinction is the entire point of the regime, and getting it wrong is the source of most of the disappointment we see when readers compare what they thought they were protected against to what the small print actually says.
This piece walks through the three regimes that cover most retail customers reading us: the Financial Services Compensation Scheme (FSCS) in the UK, the Securities Investor Protection Corporation (SIPC) in the US, and the national investor compensation schemes implementing EU Directive 97/9/EC across the European Economic Area. The figures and rules are taken directly from the schemes' own published documents.
FSCS (United Kingdom)
The Financial Services Compensation Scheme is the UK's statutory compensation scheme for customers of authorised financial services firms. It is funded by levies on the industry and operates under the supervision of the Financial Conduct Authority and the Prudential Regulation Authority. The full rules are set out in the FCA's Compensation sourcebook (COMP); consumer-facing summaries live at fscs.org.uk.
FSCS protection is split by product type, and the limits per category are different. The headline limits as of 2026 are:
- Deposits (current accounts, savings accounts, cash ISAs at UK-authorised banks and building societies): up to £85,000 per person per authorised firm. Joint accounts get £85,000 per holder, so £170,000 in total. Temporary high balances (such as the proceeds of a house sale) are protected up to £1 million for six months.
- Investments (stocks, funds, corporate bonds held at UK-authorised investment firms): up to £85,000 per person per firm, but only where the firm has failed and the customer is owed money the firm cannot return.
- Insurance: 100% of long-term insurance claims (life, pensions, annuities) and most general insurance claims, with no upper limit on the protected amount.
The phrase that catches most readers off guard is "where the firm has failed and the customer is owed money the firm cannot return." FSCS does not compensate a customer who lost £30,000 because the fund they bought went down. It compensates a customer who, after the firm failed, finds that the firm is unable to return assets that were supposed to be held in their name.
In well-run UK investment firms, customer assets are held in trust, segregated from the firm's own balance sheet, under the FCA's Client Assets Sourcebook (CASS) rules. When a firm fails and CASS has been followed, the customer's assets are returned via an administrator and FSCS may not need to pay out at all. FSCS pays where the segregation has broken down, where there are shortfalls in custodian holdings, or where the customer is owed cash the firm cannot return. The historical pattern, visible in the FSCS's annual reports, is that most investment compensation goes to customers of small firms whose record-keeping was deficient, not to customers of major retail brokers.
SIPC (United States)
The Securities Investor Protection Corporation is a non-profit corporation created by Congress under the Securities Investor Protection Act of 1970 (SIPA). Membership is mandatory for nearly all US-registered broker-dealers. Detailed rules are at sipc.org.
SIPC protection is, in headline form, simpler than FSCS:
- Up to $500,000 per customer per failed broker-dealer, of which a maximum of $250,000 may be cash (claims for cash held at the broker awaiting investment or resulting from securities sales). The remaining $250,000 is the limit for the value of missing securities.
- Multiple accounts at the same broker held in different "separate capacities" (individual, joint, IRA, trust) each get the full $500,000 limit. So a customer with an individual account and an IRA at the same broker has up to $1,000,000 of combined protection.
The same fundamental restriction as FSCS applies: SIPC covers the failure of the broker-dealer, not investment losses. SIPC's own guidance is unusually direct on this point. Its published consumer materials state, in plain English, that "SIPC does not protect against the decline in value of your securities" and "SIPC does not protect against losses caused by a decline in the market value of your securities."
SIPC also does not cover commodities futures, fixed annuities, currency or any investment that is not a security as defined under SIPA. Customers of US futures brokers (FCMs) rely on a different regime entirely, the customer segregation rules of the Commodity Exchange Act, with no equivalent of SIPC for the futures industry.
For non-US customers of US broker-dealers (for example, a UK resident with an account at Interactive Brokers LLC or Charles Schwab), SIPC protection still applies. Whether SIPC will pay out to a non-US customer is determined by SIPA and SIPC's rules, not by the customer's residence. Non-US customers should still verify with the broker which legal entity holds their account, since accounts may be opened with a non-US affiliate (for example, Interactive Brokers UK or Interactive Brokers Ireland) which sits under a different regime.
EU Investor Compensation Schemes (Directive 97/9/EC)
The European Union does not have a single pan-European investor compensation scheme. Instead, EU Directive 97/9/EC requires every member state to operate a national investor compensation scheme covering investment firms authorised in that state. The directive sets a minimum level of cover of EUR 20,000 per investor per firm, and member states are free to set higher limits. The directive's text is on EUR-Lex.
This means the answer to "what protection do I have at my European broker?" depends on which member state authorised the broker, not on where the customer lives. A few examples of how member states have implemented the directive:
- Ireland: the Investor Compensation Company DAC (ICCL) covers eligible claims at 90% of net loss, capped at EUR 20,000. Many Irish-authorised brokers serving European retail customers are covered here.
- Germany: the Entschadigungseinrichtung deutscher Banken (EdB) for banks and the Entschadigungseinrichtung der Wertpapierhandelsunternehmen (EdW) for non-bank investment firms cover up to EUR 20,000 (or 90% of the claim, whichever is lower).
- Cyprus: the Investor Compensation Fund (ICF) covers up to EUR 20,000. Many CFD providers serving European customers are authorised in Cyprus and sit under this scheme.
The same point as FSCS and SIPC applies: the schemes cover the failure of the firm where assets cannot be returned, not investment losses. The lower headline limit (EUR 20,000) compared to FSCS (£85,000) and SIPC ($500,000) is the most important practical difference for a retail customer choosing between brokers in different jurisdictions.
Bank deposits in the EU are covered by a separate scheme under Directive 2014/49/EU, which sets a deposit protection minimum of EUR 100,000 per depositor per credit institution. This is a different scheme from the investor compensation scheme and applies to cash held in a bank account, not to securities held at an investment firm.
What none of these schemes cover
The schemes are designed for failures of regulated, authorised firms. They do not cover:
- Market losses. If your equity fund went down 30% and the broker is healthy, no scheme is involved.
- Bad investment advice that turned out to be wrong. Where regulated advice was given negligently, the firm itself may be liable, and FSCS/SIPC/ICS may pay only if the firm subsequently fails. The Financial Ombudsman Service (UK) or equivalent ADR routes (EU) handle the underlying complaint.
- Most cryptocurrency holdings at most exchanges. Crypto-specific consumer compensation schemes are limited and patchy; the failures of FTX, Celsius and several smaller exchanges left customers as unsecured creditors of the bankruptcy estate, with recoveries that took years and were typically less than the lost balance.
- Holdings at unregulated entities. Whether the firm is registered with the local regulator can be checked on the regulator's public register: the FCA's Financial Services Register in the UK, FINRA's BrokerCheck in the US, or the relevant national regulator's register in EU member states.
What to actually check before opening an account
Three short questions, asked once when opening the account and re-checked every couple of years, give a customer the operationally useful answer.
- Which legal entity holds my account, and where is it authorised? The answer determines which compensation regime applies. A "Trade Republic" customer in France may be a customer of Trade Republic Bank GmbH, authorised in Germany, with German deposit protection rules and the EdB / EdW schemes for any investment business.
- Are my assets segregated under client money rules? For a regulated firm, the answer should be yes. The customer can ask for a written statement of how segregation works at the specific firm, and the firm is required to provide one.
- What is the per-customer limit of the relevant compensation scheme, and does my expected balance fit underneath it? A customer with a £200,000 portfolio at a single UK broker is partly outside the FSCS investment cap of £85,000. Splitting across two unaffiliated firms, or holding part of the portfolio in a different protected category, is one way to bring more of the balance under cover. A US customer with $750,000 at a single broker is partly outside the SIPC cap of $500,000.
The schemes were not designed to be a substitute for choosing a sound counterparty in the first place. They were designed to make the difference between a bad event and a financial catastrophe, for retail customers, less wide. They do that. They do not do anything else, and the customer who understands the boundary precisely is in a much better position than the customer who assumes they are protected against everything.