What happens, step by step, when a UK broker fails?
An insolvency practitioner takes control of the firm. Open positions are normally closed, client money held in segregated accounts is identified, and it is returned to clients rather than paid to the firm's creditors. If the segregated money falls short of what clients are owed, eligible clients can claim the gap from the Financial Services Compensation Scheme (FSCS), up to its limit.
That is why the first thing to check about any broker is the legal entity and its regulator. If you want an FCA-authorised broker that states its segregation and FSCS position clearly, you can open a Pepperstone account with its UK entity, Pepperstone Limited.
How a UK broker failure usually unfolds
| Stage | What happens | What it means for you |
|---|---|---|
| 1. Appointment | An insolvency practitioner takes over | Trading usually stops |
| 2. Positions closed | Open trades are closed out | Your balance is fixed at that point |
| 3. Client money identified | Segregated accounts are reconciled | This money is for clients, not creditors |
| 4. Distribution | Client money is returned | It can take time |
| 5. Shortfall claim | Eligible clients claim from the FSCS | Up to £85,000 per person, per firm |
What happens to my money if a broker goes bust?
It depends almost entirely on where the broker is regulated. Outside the UK, protections are set by the local regulator, and compensation schemes, where they exist, have their own rules and limits. An unregulated firm may offer no protection at all.
This is why the entity in your client agreement matters more than the brand. Pepperstone, for example, has seven regulated entities. A UK resident signs with Pepperstone Limited under the FCA, and the protections on this page apply to that company. XS is not FCA-authorised; it is regulated in Seychelles, Cyprus, South Africa and Mauritius, so a UK client there would rely on those regulators' rules instead.
Are client funds protected by FSCS at UK brokers?
Often, yes, but only for a shortfall after the firm fails, and only for eligible clients. The current FSCS limit for investment claims is up to £85,000 per eligible person, per firm, according to the FSCS. The FSCS will not pay claims for poor investment performance, so it never covers trading losses.
Pepperstone's UK site states that eligible clients may be covered by the FSCS for losses up to £85,000 if funds cannot be fully returned after a liquidation. For any other broker, check its UK site and the FSCS website before you deposit, rather than assuming.
Which brokers hold client money in segregated accounts?
Every FCA-authorised broker must segregate retail client money. Among the brokers we rank, both UK entities say so on their own sites. Pepperstone states that client money is held in segregated bank accounts with top-tier banks, separate from its own capital. Capital.com's UK site states that client funds are held in segregated accounts at regulated banks.
What each broker's UK entity states
| Broker | UK regulator | Segregated client money | FSCS statement |
|---|---|---|---|
| Pepperstone | FCA, FRN 684312 | Yes, with top-tier banks | Eligible clients may be covered up to £85,000 |
| Capital.com | FCA, 793714 | Yes, at regulated banks | Not stated on the page we checked; confirm with Capital.com |
| XS | Not FCA-authorised | Check XS's own documents | Not applicable as a UK firm |