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Are stockbrokers safe?

Investment | Specialist Helpful? 5

Asked by mrhat, submitted 04 January 2012.

Open Quote I have stockmarket investments exceeding £50,000 with one broker, and my understanding is that the FSCS scheme only provides protection up to £50,000 should the broker go bust. How significant is the risk that I could lose everything above the £50,000 protection ceiling? I'm concerned that my money could be lost in the same way that client money was lost when MF Global went bust.

End Quote

Answered by Justin on 30 August 2012

The answer depends on how you hold the shares. If you hold them via a certificate or Crest Personal Account then you are the registered owner, which is about as safe as you can get. Your holding would be unaffected if the broker goes bust (although you'd obviously need to use a another broker) and there's minimal scope for them to swipe your holdings via fraud.

However, it's far more common for shares to be held in a nominee account, especially if you trade online. This means the shares are owned by a nominee company, run by the broker, for your benefit. Assuming everything is above board the shares would be safe should the broker go bust, as the nominee company is separate from the broker company. However, if the broker committed fraud and dipped their fingers into the nominee company you could lose money. It's this possibility that's covered by the FSCS for up to £50,000 per person per institution. So yes, if the broker is fraudulent you could lose everything above £50,000 - albeit the risk is very small if you use an established company.

You can read more info in my nominee account article.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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