What Happens to Your Money If Your Broker Goes Bust?
✓ Last verified 2026-07-27
Most guides tell you to pick a “regulated” broker and stop there. But regulation isn’t one thing, and the part that matters when a firm actually fails is narrower than most traders assume: compensation schemes cover clients of the specific licensed entity, not clients of the brand.
That distinction decides whether you get anything back.
The two protections that exist
When a regulated brokerage becomes insolvent, two separate mechanisms may apply.
Client money segregation. Regulated firms are generally required to hold client funds in accounts separate from the firm’s own operating money. If the firm fails, segregated client money is meant to be returned to clients rather than absorbed by the firm’s creditors. This is the first line of protection and it applies regardless of the compensation scheme.
Compensation schemes. If segregation was breached, or there’s a shortfall, a statutory scheme may cover part of the gap. Two you’ll see named often:
- FSCS (United Kingdom) — covers eligible claims against failed FCA-authorised firms, up to a per-person limit
- ICF (Cyprus) — covers eligible clients of failed CySEC-regulated investment firms, up to a per-person limit
Limits and eligibility rules change. Check the scheme’s own site for the current figures rather than trusting a broker’s marketing page.
The catch that catches most Filipino traders
Large forex brands frequently operate several legal entities under one name. A typical structure looks like this:
- Broker Ltd (UK) — FCA authorised, FSCS eligible
- Broker (Cyprus) Ltd — CySEC regulated, ICF eligible
- Broker International Ltd (Seychelles / Vanuatu / St. Vincent) — offshore, no compensation scheme
The website is the same. The platform is the same. The logo is the same. But when you open an account from the Philippines, you are very often onboarded to the offshore entity, because the UK and EU entities generally cannot accept retail clients outside their own jurisdictions.
So the broker’s homepage truthfully says “FCA regulated.” And it’s also true that your account has no FSCS protection whatsoever. Both statements are correct at the same time.
Offshore licences from jurisdictions such as Seychelles, Vanuatu, Belize, or St. Vincent and the Grenadines are typically cheaper and faster to obtain, carry lighter capital requirements, and generally come with no compensation fund at all.
How to find out which entity holds your account
Don’t ask support. Read the documents.
- Open your client agreement / terms of business. The counterparty is named on the first page or in the signature block. That company name — not the brand — is your broker.
- Check the footer of the page you actually registered on. Regulated groups are usually required to state which entity serves which region, often in small print.
- Look at your deposit instructions. The receiving account name tells you which entity is taking your money. If it doesn’t match the entity in your agreement, stop and ask why in writing.
- Search that exact company name on the regulator’s register. Not the brand. If the entity isn’t on the register, no scheme covers you.
If the answer is an offshore entity, that’s not automatically a reason to walk away — but it means your only real protection is the firm’s own solvency and honesty. Size your exposure accordingly.
What the schemes do not cover
Even where a scheme applies, it is narrower than most people expect:
- Trading losses are never covered. Compensation schemes exist for firm failure, not for bad trades. If you lose money on a position, no scheme applies.
- Professional clients are usually excluded. Some brokers offer to “upgrade” you to professional status in exchange for higher leverage. That upgrade can remove both retail protections and compensation eligibility. Read what you’re giving up.
- Corporate and institutional accounts are frequently excluded from retail schemes.
- Prop firm evaluation fees are not covered by anything. A prop firm is not a broker holding your deposit — you are buying a product. If the firm disappears, there is no scheme.
The practical takeaway
Before you fund an account, you should be able to answer one question in a single sentence:
“My account is held by ________, which is regulated by ________, and my funds are/are not covered by ________.”
If you can’t fill in those blanks from your own documents, you don’t yet know what protection you have. That’s worth finding out before there’s a problem, not after.
Educational content only. This is not investment advice, and it is not legal advice. Compensation scheme rules and limits change — always verify current terms on the scheme’s official website.