Investor compensation scheme: what it covers

How an investor compensation scheme works

An investor compensation scheme steps in to pay clients if a regulated investment firm collapses and can't return your cash or assets. This could happen because of insolvency or a court-ordered wind-down. Funding typically comes from other firms in the industry, rather than taxpayers. But no scheme pays out right away. Authorities like regulators or courts first need to confirm the firm really can't return your investments before the scheme gets involved.

Investor compensation schemes don't work like deposit guarantee schemes that protect money you keep in bank accounts. If you want to know how savings are covered by bank protection, see how deposit guarantee schemes protect your savings.

Limits and the EU minimum

By law in the EU, each country sets a minimum level of investor compensation. Right now that's 20,000 euros per person, per firm. States are allowed to increase this limit, and a few do. In places outside the EU, like the UK, there's a separate scheme with its own rules and caps, so check exactly where your provider is licensed or regulated before you rely on cover.

For example, if you lost 25,000 euros in investments after a provider collapsed, and the scheme only covers the EU minimum, you could only claim back 20,000 euros. The scheme's published limits and the actual situation decide the final amount paid out.

What is not covered: losses, gold and crypto

These schemes only apply when a regulated firm can't return your money or securities, not if your portfolio drops in value. Losses from market falls or bad investment choices are on you. They also don't cover cases involving scams or fraud by unregulated firms.

Physical gold, like gold bars or coins bought for home delivery, is usually not covered unless they're linked to a regulated investment service. Commodities like oil or silver aren't typically included either. Crypto is a special case: protection sometimes exists if a regulated investment service holds your assets, but for more detail on digital assets, see what happens to your crypto if an exchange goes bankrupt. Both gold and crypto can lose value quickly, so always check both the scheme's terms and the company's regulatory status in a public register before you move money.

Frequently asked questions

Does an investor compensation scheme cover losses from a bad investment?

No. These schemes don't reimburse you for poor returns, market crashes, or choices that just didn't pay off. They're there for situations where a regulated provider fails and can't return your money, not typical investment risk. Always read the specific rules for the scheme and check with your provider to clarify which compensation scheme, if any, applies to your account. Keeping written copies of what you agreed to and what was promised is a good habit.

Is gold bought from a dealer covered by an investor compensation scheme?

In most cases, no. Physical gold bought from a dealer isn't treated as a regulated investment under these schemes. The question of whether your gold is covered can also depend on how it's stored or held. Ask your dealer directly what would happen to your metal if they went out of business, and always use the public register to verify if your dealer is regulated. Never take protection for granted without confirming it in writing first.