Capital Management

How your account is protected if your broker cannot continue

By Walid Mograbi · 2026-06-16 · 3 min read

The key to this lesson is separating two risks: loss of your assets because a broker fails, and normal investment value movement. The coverage frameworks are different, and they are limited to specific failure scenarios.

1) Core idea of the lesson

Your money can be at risk in two different ways:

• **Market risk**: the investment value moves up and down.
• **Broker/settlement risk**: the investing firm cannot meet its obligations and needs to be liquidated.

This guide focuses on the second case and how compensation applies.

The goal is to help you identify the framework that matches your situation before assuming you are fully protected.

2) SIPC in the U.S.

**SIPC (Securities Investor Protection Corporation)** is an American protection scheme with a defined limit.

• It applies when a **member brokerage** can no longer meet client obligations during an organized liquidation.
• The trigger is the firm’s failure and inability to deliver client assets.
• It covers replacement of missing assets up to **$500,000** total, with a **cash cap of $250,000** at most.
• This protection is tied to broker membership and the legal scope of the scheme.

3) What SIPC does *not* cover

SIPC is not market insurance.

• It does not compensate for normal market losses.
• It does not protect the performance of a stock or another security itself.
• Its protection is limited to losses linked to missing assets caused by broker failure or misconduct, not price volatility.

4) FSCS in the UK

In the UK context, **FSCS** protection is linked to a regulated setup under **PRA/FCA** rules.

• The protection is connected to approved and licensed regulated activity.
• It applies when the provider cannot return your money or assets.
• The framework is activated through this regulatory failure context, not as a general market guarantee.

5) What FSCS does not cover

As with SIPC, the idea is not to replace every investment loss.

• FSCS is not a blanket refund for poor investment outcomes.
• It applies under defined compensation conditions tied to authorized activity.
• In some cases, investment claims are covered up to **£85,000** for eligible entitlements after **1 April 2019**.

6) Quick account-safety checklist

Use this three-step check before relying on a protection claim: 1. Confirm regulatory coverage: SIPC in the US or FSCS in the UK, including license and membership. 2. Identify the loss type: failure of the execution/settlement provider (bankruptcy/liquidation) or normal price movement. 3. Check limits and scope first, then verify the legal/regulated boundaries before acting on any broad protection promise.

7) Important warning

No scheme protects against weak portfolio performance or normal market fluctuations. In broker default cases, asset recovery is often estimated at **1 to 3 months** after liquidation starts, depending on the file case.