Investing term
What is Investor protection scheme?
A legally-mandated fund that reimburses retail clients (up to a cap) if a regulated broker fails.
An investor protection scheme is a legally mandated fund that reimburses retail clients, up to a cap, if a regulated broker fails or misappropriates their assets. It's a backstop: if the firm holding your money goes under or is found to have stolen client assets, the scheme steps in to compensate you within its limit.
Crucially, it protects against the firm failing — not against your investments falling in value. Market losses are your own risk to bear; the scheme covers the specific danger of the custodian collapsing or committing fraud. It's a key reason to use brokers covered by a recognised scheme in a strong jurisdiction, because unregulated offshore brokers typically offer no such protection at all — which is exactly the risk they carry.
If a regulated broker collapses or misuses client assets, an investor-protection scheme reimburses you up to a cap. It covers firm failure, not market losses — and only regulated brokers qualify.
For example
A regulated broker collapses; because it's covered by an investor-protection scheme, your eligible assets are reimbursed up to the scheme's cap — a backstop an offshore broker wouldn't provide.
Learn it by doing
That's Investor protection scheme in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 9, Fees, Scams & Protecting Your Money).
Try the free lesson →Why it matters to you
Investor protection schemes matter because they're a major part of what makes trusting a broker with your savings reasonable. The knowledge that a recognised scheme would reimburse you (up to a cap) if the firm failed is a genuine safety net that unregulated platforms lack. Checking that a broker is covered — and understanding the scheme protects against firm failure, not market losses — is a basic, high-value safeguard when choosing where to hold your money.
⚠ Expecting it to cover market losses
An investor-protection scheme reimburses you if the broker fails or steals assets — not if your investments simply fall in value. Some investors wrongly believe the scheme protects them from losing money in the market. It doesn't: market risk is yours to bear. The scheme covers the failure of the custodian, up to its cap, and nothing more.