what happens if the broker or fund go bust?

T

Tastebuds

Registered User
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hi all,

Let's use an example. You have €1M balance in a broker where:
  • 500K are invested in ETFs
  • 500K are cash funds
Then, the broker goes bust.

I guess that the cash is ring-fenced from the broker's own business, and the creditors could not access this money. So, what is the necessity of the investor compensation scheme (€20K for Degiro, £50K for TD...
What about the ETF shares? I assume you are still the owner of those shares. Do you recover them directly from the fund? (i.e: Vanguard )?


Then the other case. What happens when the fund goes bust (i.e: Vanguard ). What happens with the shares?
 
The ETFs should be OK as well as they should be held in a separate account with a depository holder the same as the cash. The investor compensation scheme is meant to cover cases where the broker did not invest your money in a fund but used it to cover his expenses. Not supposed to happen as the Financial Regulator is supposed to check that all broker hold clients monies and assets separately but history shows that it can.

I don't remember ever having heard of a reputable fund going bust although some money market funds did when they promised returns that could not be met when interest rates went to zero. If id did happen, then you would be in the same boat as a shareholder whose company goes bankrupt - last in line for any assets. It is hard to imagine a scenario where a Vanguard fund goes bust.
 
If you are with an Irish broker - see the Morrogh judgement. You could lose everything except for 90% of the first €20K.
 
Ravima said:
If you are with an Irish broker - see the Morrogh judgement. You could lose everything except for 90% of the first €20K.
Click to expand...

The creditors accessed the broker clients money? Woh.... i guess that makes it a precedent for other future cases?
 
No, tastebuds, read the judgement. Creditors did not access the client money. Clients are creditors!
 
Ravima said:
If you are with an Irish broker - see the Morrogh judgement. You could lose everything except for 90% of the first €20K.
Click to expand...
It's not really from the Murrough judgement that sets compensation limits. It's from how the then Irish government implemented an EU directive on investor compensation.
In response to this directive the then government set up the Investor Compensation Company Ltd., under the Investor Compensation Act 1988. The max. the ICCL can pay is: "The ICCL will pay you compensation for 90% of the amount you have lost. However, the most that we can pay each investor is €20,000. It will be the Administrator who will assess how much you have lost and calculate how much compensation you will receive..". http://www.investorcompensation.ie/compensation/compensation-limits.225.html

The amount of compensation available in the UK is 100% of the first £30,000 and 90% of the next £20,000 up to £48,000.
 
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I was commenting on the fact that liquidator was able to access client funds to pay his fees. It would be akin to a solicitor getting into trouble and liquidator selling the houses where deeds were in his office safe. Client funds should be sacrosanct. I'm not commenting on the compensation limits.
 
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