The UK's FSCS and Cyprus's ICF protect clients when a firm fails. Neither covers trading losses, and the limits differ by a factor of four.
Broker marketing often mentions compensation schemes. They are real protections, but they cover a narrower risk than many clients assume: the failure of the firm, not the performance of the trades.
A compensation scheme pays out when a regulated firm cannot return the money or assets it holds for clients, usually because it has failed. The UK’s Financial Services Compensation Scheme says it may help “if a provider goes out of business and there’s a shortfall in the money or assets it’s holding for you.”
What none of them covers is losing money by trading. The FSCS is explicit: “We can’t accept any claims that are for poor investment performance.” A client who loses their deposit on leveraged trades with a solvent, well-run broker has no claim.
Cyprus investment firms, which include many of the brokers serving EU retail clients, are members of CySEC’s Investor Compensation Fund.
| FSCS (UK) | ICF (Cyprus) | |
|---|---|---|
| Maximum per client, per firm | £85,000 | €20,000 |
| Share of the claim paid | 100% up to the limit | 90%, up to the limit |
| Covers trading losses | No | No |
The EU baseline is set by the Investor Compensation Schemes Directive (97/9/EC), which requires member states’ schemes to cover at least €20,000 per investor. Cyprus pays at that level; individual member states may pay more.
The entity matters again. Cover attaches to the regulated entity and its scheme membership. A client of a group’s UK company is in the FSCS; a client of the same brand’s Cypriot company is in the ICF; a client onboarded to an offshore entity of the same brand may be in neither.
Compensation is a backstop, not a substitute. The first line of protection is segregation: client money held separately from the firm’s own funds, so it is not available to the firm’s creditors if the firm fails. Compensation pays only for what segregation fails to protect.
For firms, scheme membership is part of the pitch. For a client choosing between entities of the same broker, the difference between £85,000 and €20,000 of cover can decide which entity they want to contract with.
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