Is My Money Safe With My Broker? Custody and Investor Protection Explained

It’s the question most people only ask after they’ve already funded an account, if they ask it at all. What happens to my money if the broker goes under? The short answer is reassuring, and the detail is worth understanding so you can tell a genuinely safe setup from one that just looks slick.

The short answer

In a properly regulated broker, your investments are held separately from the broker’s own money. They sit in custody on your behalf, not on the company’s balance sheet. So if the broker fails, your shares and funds are not theirs to lose, and they don’t disappear into the wreckage. On top of that, an investor compensation scheme acts as a backstop if something does go wrong, such as fraud or an administrative failure.

That is the system working as designed. The rest of this page is about how it actually works, where the limits are, and how to check that your broker is one of the safe ones.

How your investments are actually held

When you buy a fund or share, you usually don’t hold it directly in your own name at the exchange. The broker holds it for you, and there are a few moving parts worth knowing:

• Segregation. Regulated brokers must keep client assets ring-fenced from their own. Your holdings live in separate client accounts, so the firm cannot use them to pay its own debts.
• Nominee structure. Your investments are typically held by a nominee company whose only job is to hold assets on behalf of clients. You remain the beneficial owner, which is the legal way of saying the assets are yours even though the nominee’s name is on the register.
• Custodians. Many brokers use a separate, often large, custodian bank to safekeep the underlying assets, adding another layer between your holdings and the broker’s own finances.

The practical upshot is that a broker becoming insolvent is not the same as a bank you’ve lent money to going under. Your assets should be identifiable as yours and returned to you or transferred to another provider.

The compensation backstop

Segregation is the first line of defence. Compensation schemes are the second, there for the rarer cases where client money goes missing through fraud, error or a shortfall during a failure. Cover depends on where your broker is regulated:

• United Kingdom: the Financial Services Compensation Scheme (FSCS) covers eligible investments up to £85,000 per person, per firm, if an authorised firm fails and can’t return your assets.
• European Union: under the Investor Compensation Schemes Directive, every member state runs a scheme with a minimum of €20,000 of cover. Many countries pay 90% of the loss up to that limit. The exact figure and rules vary by country, so check the scheme that applies to your broker.
• Ireland: the Investor Compensation Company (ICCL) follows the EU model, covering 90% of eligible loss up to €20,000.

One thing to be clear about: these schemes cover the failure of the firm, not the performance of your investments.

What protection does not cover

This is where people get caught out, so it’s worth stating plainly:

• Market losses are never covered. If your ETF falls 30%, that’s investment risk, not a failure of the broker, and no compensation scheme will make you whole.
• Limits are real. Above the scheme cap, you rely on segregation and the administration process to return your assets, which usually works but can take time.
• Cover is per firm, not per account. Holding several accounts at the same firm doesn’t multiply your protection.

Your uninvested cash is a separate question

Cash sitting in your account, waiting to be invested, is treated differently from your investments. Depending on the broker it might be held as client money, swept into a partner bank, or held by the broker itself. Where it sits decides which protection applies, and whether it’s the investment scheme or the bank-deposit one (in the UK, FSCS also covers bank deposits up to £85,000). If you keep a meaningful cash balance, it’s worth knowing exactly where it goes.

Which entity are you actually with?

Some of the larger brokers operate through more than one legal entity, and which one holds your account can change your regulator and your compensation scheme. A broker might serve UK clients through a UK-regulated entity and EU clients through one based in Ireland, Cyprus or elsewhere. It’s not a problem in itself, but it does mean the protection you get is the one attached to your contracting entity, not the brand on the app. Check the small print, or the account-opening documents, to see who you’re really dealing with.

How to check your broker in five minutes

1. Confirm it’s regulated. Look for authorisation by a known regulator (FCA in the UK, BaFin in Germany, the Central Bank of Ireland, CySEC, and so on) and verify it on the regulator’s own register.
2. Find the compensation scheme and limit that applies to your account, and check it’s a real, named scheme.
3. Read how client assets are held (segregation, nominee, custodian). Good brokers explain this clearly.
4. Check where your cash sits and which protection covers it.
5. Identify your contracting entity if the broker operates several.

We list regulator and protection details on every broker page, so you can compare them at a glance on Brokerlens.

The bottom line

A regulated broker with properly segregated client assets and a real compensation scheme is a genuinely safe place to hold long-term investments. The risk you should focus on isn’t the broker vanishing with your money, it’s choosing an unregulated or opaque provider in the first place. Get that part right, and you can stop worrying about the platform and get on with the actual job of investing.

Educational information, not personal advice. Compensation limits and rules change, so always check the scheme that applies to your broker.