Investment protection

[Binlid]

Hi EthicsGradient,
I thought it was Financial Conduct Authority (FCA) and I'm talking about the 85k protection
So in the example below, if HL, Fidelity, Vanguard or Fundsmith all went bust
The FCA would not apply the 85K because I still own the underlying assets (Shares and bonds, etc)
I would have to go through a lengthy process to get control and therfore my money back
However if one of the lowest level entities went bust, then the 85k would kick in
I apologise for labouring this but would like to understand the detail
Many thanks
Binlid

[Alaric]

I apologise for labouring this but would like to understand the detail

The detail is that there's a major legal difference between placing money on deposit or holding an insurance policy and holding assets in the form of ETFs and OIECs via a Brokerage.

[EthicsGradient]

Hi EthicsGradient,
I thought it was Financial Conduct Authority (FCA) and I'm talking about the 85k protection
So in the example below, if HL, Fidelity, Vanguard or Fundsmith all went bust
The FCA would not apply the 85K because I still own the underlying assets (Shares and bonds, etc)
I would have to go through a lengthy process to get control and therfore my money back
However if one of the lowest level entities went bust, then the 85k would kick in
I apologise for labouring this but would like to understand the detail
Many thanks
Binlid

No, the 85k limit is the FSCS (though rules are written by the FCA):

We may be able to protect you if a provider goes out of business and there's a shortfall in the money or assets it's holding for you.

https://www.fscs.org.uk/what-we-cover/investments/

In the unlikely event that we become insolvent, your money and investments would be returned to you as quickly as possible, or transferred to another provider.
This is because your money and investments are held separately from our own. Any funds you own with us are registered in a nominee account and held in accordance with FCA rules. And any cash you hold with us is held in trust accounts at an authorised bank in accordance with FCA rules.

So if we were to become insolvent, an insolvency practitioner would be able to identify all the assets belonging to you and other investors and make sure they remain fully protected until returned to you or transferred to another provider.

Administration costs - in the event of insolvency
In certain circumstances following the insolvency of a firm, the appointed insolvency practitioner may be entitled to utilise a proportion of assets and/or your client money to cover administration costs associated with returning or transferring your investments. You may be entitled to compensation from the Financial Services Compensation Scheme (FSCS), up to the prescribed limits, in the event that there is a shortfall in either your assets or your client money resulting from such action

https://www.vanguardinvestor.co.uk/need ... -insolvent

So it could be possible that the expenses of sorting out the insolvency fall first on the client money, and that then would have to be claimed back from the FSCS. This would be a relatively small amount of the total investments, though, so it would not get close to the 85k limit.

"if one of the lowest level entities went bust" - who do you mean by that? If, for instance, a fund was partly invested in a plc that went bust, then, no, you don't get compensation for that. But maybe you mean something else.

[GeoffF100]

If the Vanguard owned limited company that runs Vanguard's UK investment platform went bust, it would almost certainly be bailed out by Vanguard, and the FSCS would not be involved at all. If Vanguard itself went bust, that should not affect the solvency of the investment platform, unless it is already running at a loss.

[absolutezero]

Given all the big ETFs are Irish domiciled, you might want to take into account the likelihood of the Irish economy collapsing and the Irish government appropriating your assets!

[GeoffF100]

Given all the big ETFs are Irish domiciled, you might want to take into account the likelihood of the Irish economy collapsing and the Irish government appropriating your assets!

The Irish Republic is a tax haven and richer on a per capita basis than the UK. I would worry more about the UK government appropriating my assets. Perhaps if you are really worried, a third in the UK, a third in Ireland and a third in Luxembourg would make sense. Perhaps our government will allow us to buy US domiciled ETFs again one day.

[Lootman]

Given all the big ETFs are Irish domiciled, you might want to take into account the likelihood of the Irish economy collapsing and the Irish government appropriating your assets!

The Irish Republic is a tax haven and richer on a per capita basis than the UK. I would worry more about the UK government appropriating my assets. Perhaps if you are really worried, a third in the UK, a third in Ireland and a third in Luxembourg would make sense. Perhaps our government will allow us to buy US domiciled ETFs again one day.

Note that US-domiciled ETFs are mandated to distribute capital gains annually, in the same way as all US funds are. By the structural nature of ETFs it usually does not happen. But it can. Be careful what you wish for.