If a regulated platform becomes insolvent and owes money to an investor, the Financial Services Compensation Scheme has confirmed to FTAdviser that the limit of protection for investment business of £50,000 applies.
The limit of protection is, as usual, per claimant and per authorised firm. For example, if the supermarket misappropriated funds for investment, then the FSCS states any compensation would be limited to £50,000.
If funds are invested by the investment service or “fund supermarket” in accordance with an investor’s instructions, then it will hold the investment as nominee. If the provider of the investment becomes insolvent and a claim arises, the claim would be against the underlying provider, not the platform.
The claim would be in the name of the nominee, the FSCS states, but for the benefit of the investor, and up to £50,000 per investment provider.
In the event you are using an investment platform to invest, say, your stocks & shares Isa, then the FSCS states the stocks or shares will be technically held by a separate legal entity, and as such would not be affected should the platform provider or fund supermarket be declared in default.
If the assets were correctly ring-fenced, the FSCS states they would pass into the control of the liquidator and it would be for the liquidator to pass the assets back to you. In this situation, the FSCS argues it would not be involved as the investor should be reimbursed by the liquidator.
If the assets are not accessible to the investor (for example, because they are not correctly ring-fenced), the FSCS states it could compensate eligible investors on the basis of non-return of assets.
The FSCS also provides this £50,000 protection in the event your platform collapses while it holds some of your client’s uninvested money, for example if you leave a small portion of your pension in cash while the rest is invested.
This applies if the cash was unallocated in a client account, but if it were in the cash part of a client’s Isa account the £85,000 deposit limit would apply.
And the FSCS adds this also is the case if the platform misappropriates your money by stealing or embezzling your investment funds.
However the FSCS states it does not protect losses arising purely from investment performance, such as company shares that become worthless on collapse.
