Shares ISA

sre30016

I have a shares ISA with a major highstreet bank. My question is, if (which hopefully wouldnt happen), the bank goes bust, am I covered for my shares? I kind of thought that the bank doesn't actually own the shares as they are in the stock market, and they would be fine but can someone confirm this please?
Thanks,

Rachael

edinburgher

According to this FSCS webpage you are covered for up to £50k with any one provider for investments (which would include shares).

dtsazza

Asides from that, I believe that the banks are holding your shares as a trustee. Consequently you still have full rights of ownership and they aren't the bank's assets - if the bank went bust, you still have 100% claim over them and the creditors have none. So while it would probably take some time to sort out the transfers etc., you shouldn't be at risk of losing your shares (above and beyond the FSA protection).

Unfortunately I can't find a link explaining this in more detail - anyone else know where this is laid out?

dzug1

But note the FSA protection doesn't extend to the value of the shares - if widgets plc goes bust and its shares become valueless you've lost your money

sre30016

hi,
Thanks for clearing that up guys,
Cheers.

jimjames

edinburgher wrote: »

According to this FSCS webpage you are covered for up to £50k with any one provider for investments (which would include shares).

Clicking on that link gives some more info

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

For an investment claim to be eligible to receive compensation from us, it must meet ALL of the following criteria:
(a) the advice you received to buy the investment must have been given on or after 28 August 1988; AND
(b) the firm that advised you must have been authorised by the appropriate regulator to do so at that time; AND
(c) you must have lost money as a result of the advice you were given; AND
(d) the firm (or its principals) no longer has sufficient assets to meet claims for compensation.

This would imply that you are not covered if you self invest ie do not use an IFA but as I mentioned in my previous post you need to assess what the risks are if the bank was to fail. I would suggest they are pretty small.

fozzeh

dtsazza wrote: »

Asides from that, I believe that the banks are holding your shares as a trustee. Consequently you still have full rights of ownership and they aren't the bank's assets - if the bank went bust, you still have 100% claim over them and the creditors have none. So while it would probably take some time to sort out the transfers etc., you shouldn't be at risk of losing your shares (above and beyond the FSA protection).

Unfortunately I can't find a link explaining this in more detail - anyone else know where this is laid out?

Really?

jimjames wrote: »

I mentioned in my previous post you need to assess what the risks are if the bank was to fail. I would suggest they are pretty small.

Really really? How many of the 50 safest banks are UK registered for basic consumer use? You can use one hand I think...

dzug1 wrote: »

But note the FSA protection doesn't extend to the value of the shares - if widgets plc goes bust and its shares become valueless you've lost your money

Oh, some sense!

dtsazza

fozzeh wrote: »

Really?

I think so. If you're buying an equity derivative from the bank, something like those with-profits structured products, then that's the bank providing you with the product and it's subject to the FSA protection just like a bog-standard savings account.

However if you're trading directly in shares, then the bank isn't providing you with an investment product but is merely providing a service by acting as a stockbroker. They hold the shares for you in a nominee account, but the shares are not actually part of their assets as they still legally belong to you. Consequently in the event of bankruptcy, creditors wouldn't have any claims on them. Of course, any cash that you held on the account would be treated the same as other cash investments.

The important part, as I understand it, is that shares have legal title and are externally registered, whereas some numbers in an account do not. Hence you own the shares even while the bank looks after them for you, while you don't own £1000 of credit in an account in quite the same way.

I'll have another look now to see if I can find some sources on this.


Edit: I can't find anything concrete (i.e. actual FSA regulations), however I did find this article from the Motley Fool, and a bunch of forum posts and articles that say the same thing, e.g. MSE1, MSE2, TMF1, TMF2.

edinburgher

This would imply that you are not covered if you self invest ie do not use an IFA but as I mentioned in my previous post you need to assess what the risks are if the bank was to fail. I would suggest they are pretty small.

Argh! I hadn't realised, doesn't exactly fill me with confidence

barak

sre30016 wrote: »

I have a shares ISA with a major highstreet bank. My question is, if (which hopefully wouldnt happen), the bank goes bust, am I covered for my shares? I kind of thought that the bank doesn't actually own the shares as they are in the stock market, and they would be fine but can someone confirm this please?
Thanks,
Rachael

Rachael - I don't think you should worry! Even if your major high street bank went bust, you should be confident that your shares are held in a nominee account and you are the beneficial owner. They are not part of the bank's assets.

jimjames

fozzeh wrote: »

Really?

Really really? How many of the 50 safest banks are UK registered for basic consumer use? You can use one hand I think...

Oh, some sense!

If you read what I said rather than what you think I said it may make more sense. Not the risk of the bank failing but the risk of what might happen if they did. Bank goes bust you do not lose your shares that are held in nominee or with fund from another company.

1) Fund manager fraud? Pretty unlikely but possible although fund management group would probably cover any loss

2) Fund management group collapses? Possible but funds would not be affected

3) Shares crash? Likely at some point but not covered anyway

If the £50,000 limit applied then it would be the management group that it covered so you'd need to make sure no more than £50000 in that company not fund.