What Happens When Your Investment Firm Fails

Platform failures make alarming headlines, but your investments are usually safer than the news suggests. Here is what actually happens, and what to do if a firm you use collapses.

Summary

• Investments held on an FCA-regulated platform are kept separate from the firm’s own money and are usually transferred to another provider if it fails.
• The FSCS pays up to £85,000 per person, per firm, for losses caused by a failed authorised firm, but never for poor investment performance.
• Mini-bonds, crowdfunding projects and firms that were never authorised are normally outside FSCS protection.
• Claiming from the FSCS is free; claims management companies charge a fee for work you can do yourself.
• Deposit protection of £120,000 per person applies to bank accounts, not to investments, which carry their own limit.

When an investment platform or adviser collapses, the headlines tend to assume the worst, and many investors panic accordingly. In most cases the assets are not lost, and there is a formal process for recovering anything that is. This guide explains what happens when a firm fails, what the Financial Services Compensation Scheme (FSCS) covers, and the steps to take in order.

The First Thing to Know: Your Investments Are Usually Still Yours

Regulated platforms do not hold your investments in the same pot as their own money. Under the Financial Conduct Authority’s (FCA) client asset rules, a platform holds your shares and funds through a separate custodian, a firm that holds assets on your behalf. They legally belong to you, not to the platform, so they are not available to pay the failed company’s creditors.

In practice, that usually means the investments are transferred to another provider intact, and you carry on with a new record-keeper rather than starting again. The FSCS sits behind this arrangement as a backstop, covering up to £85,000 per person, per firm, if money is genuinely lost, for example through a shortfall in the client asset pool or fraud.

FSCS Protection for Investments: What Counts and What Does Not

The FSCS is the UK’s compensation scheme for customers of authorised financial firms. It was set up by government in 2001, is independent, and is funded by levies on the industry rather than charges to consumers. It steps in when an authorised firm fails and cannot pay claims against it, a situation known as being in default.

For investments, the headline limit is up to £85,000 per eligible person, per firm, where the firm failed on or after 1 April 2019. Older failure dates carry different limits:

• Firms that failed between 1 January 2010 and 31 March 2019: up to £50,000 per person, per firm.
• Firms that failed before 1 January 2010: 100% of the first £30,000 and 90% of the next £20,000, up to £48,000 per person, per firm.

Two conditions must both be met. The provider or adviser must have been authorised by the FCA or the Prudential Regulation Authority, and the specific activity it carried out for you, such as giving investment advice, must have been a regulated activity.

The scheme has limits on the other side too. It cannot accept claims for poor investment performance: a portfolio that loses value because markets moved is not a compensation event, however painful the loss. There are other gaps worth knowing about before you invest:

• Mini-bonds normally carry no FSCS protection. A mini-bond is an IOU issued by a company promising a fixed rate of interest over a set period. If the issuer fails, you could get nothing back. From 1 January 2020, the promotion of speculative mini-bonds to ordinary consumers was banned, so they can only be promoted to sophisticated or high net worth investors.
• Crowdfunding projects are largely unprotected. Where the underlying crowdfunding activity is not regulated, your payment may be protected but the project itself usually is not, so a failed venture is unlikely to trigger compensation.
• Firms that were never authorised have no access to the scheme at all.
• Some firm types are excluded, including e-money institutions, authorised payment institutions and providers of high-cost short-term credit.

What to Do Straight Away: Four Steps

The FCA recommends a four-step route when a firm you have used goes out of business:

1. Check the Financial Services Register. This shows whether the firm is or was authorised. If it was never authorised, the FSCS will not be available.
2. Work out whether the firm is still trading. If it is, and you think you have a claim, you complain to the firm first.
3. Contact the firm or its insolvency practitioner. An insolvency practitioner, often called an administrator, acts on behalf of a failed firm. The firm’s website often names who has been appointed.
4. Contact the FSCS. If the firm cannot pay claims, or you cannot reach it or its administrator, the FSCS may be able to pay compensation. Claiming is free and the team will help you through it.

How the Claims Process Works and What to Expect

The FSCS investigates each failed firm before it can assess individual claims, and it announces on its website when a firm is under investigation and open to claims. When the adviser firm Verus Financial Services Limited failed, for example, the FCA publicly encouraged former customers to check whether they could claim, and the FSCS opened the firm to claims while its investigation continued.

If you had already complained to the Financial Ombudsman about the firm, that complaint does not disappear. You still need to make a claim with the FSCS, but if the Ombudsman transfers your file you do not need to resubmit your evidence.

You may be asked for documents supporting your claim, such as proof that the firm gave you advice. Gathering statements and correspondence early makes the process smoother.

Cash and Investments Are Treated Differently

Investments held in your name should simply be moved to another provider. Money sitting uninvested on the platform depends on how the firm safeguarded it; if client money is properly segregated it should be returned, and the FSCS covers up to £85,000 per person against genuine shortfalls.

Deposit protection rules are separate and often confused with investment rules. For money held with UK-authorised banks, building societies and credit unions, the FSCS protects up to £120,000 per eligible person per firm, a limit that rose from £85,000 on 1 December 2025. Joint accounts qualify for protection up to the same limit per person, and certain qualifying temporary high balances are protected up to £1.4 million for six months from when the amount was first deposited.

None of that applies to investments with a failed platform or adviser, which sit under the £85,000 investment limit. If you sell investments and hold the proceeds in a bank account, that cash is treated as a deposit and follows the deposit rules instead. Investments inside an Individual Savings Account (ISA) are held the same way, so they should move to a new provider with everything else.

How to Check Your Coverage Before You Need It

The FSCS suggests three checks before you invest, and they take minutes:

1. Confirm the provider is authorised by the FCA or the Prudential Regulation Authority by searching the Financial Services Register.
2. Check that the particular activity the firm is carrying out for you, such as giving advice or arranging investments, is a regulated activity.
3. Ask the firm to confirm that the activity is regulated and FSCS protected.

The FSCS also publishes online protection checkers covering savings, investments and pensions. Running your existing accounts through them, and keeping statements in one place, means that if a firm ever does fail you will know your position from day one rather than reconstructing it under pressure.

Next steps

• FSCS Protection Explained: How Your Savings Are Covered sets out the deposit rules in detail, including the £120,000 limit and how per-firm protection works across bank accounts.
• ISAs Explained: Which Type Suits Your Savings Goal? covers how the different wrappers work, which matters when investments move between providers after a failure.
• Five Stocks and Shares ISA Myths That Cost You Money unpicks common beliefs about ISA protection and tax that can lead to expensive mistakes.

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