Share dealing platforms – should I choose one with FSCS protection

AndrewAfresh2

Does FSCS have any relevance to share dealing platforms? I'm thinking of opening an account with Fineco but worried because https://www.fscs.org.uk/check-your-money-is-protected doesn't list them. I might choose iweb, but they share their FSCS protection with Halifax, with whom I already have cash bank accounts. Many thanks if you know about these things and can offer a helpful insight!

bowlhead99

Fineco is regulated in Italy rather than the UK and its permission to provide services to UK customers is simply 'passported' from the fact it has permissions from the Italian regulator to operate over there.

They should be covered for 100k euro under the Italian national guarantee fund (Fondo Nazionale di Garanzia) for the banking side (i.e. cash deposited), as that level of coverage for deposits is standard across Europe including Italy. So when you open a linked fineco bank account as part of the process of opening a trading account, the bank account will have €100k protection and cash in the trading account will hopefully also have that protection if it is treated as a 'cash at bank' deposit rather than a client money account.

That would be a bit better than what you would get from IWeb where any cash in your trading account which is banked by IWeb at the Halifax overnight would have to share the £85k cash deposit coverage with your other current account or savings money on deposit with Halifa on the same day.

However, most of what you would have in Fineco or IWeb would not be cash, but investments instead. Claims in relation to investment business have a separate path to cash depositary claims, and can only be made in specific circumstances - for example if you buy a share or ETF and it loses all its value because the company or fund in question simply performs badly and causes you investment losses, that's not covered by FSCS or the Italian equivalent. Gains and losses are part of investment risk that you sign up to when buying an investment.

The claims you could make against FSCS in relation to an investment firm (rather than bank depositary) in practice only really relate to bad advice on unsuitable investments (but IWeb and Fineco aren't selling you investment advice, only execution-only services) or a case where your money is lost due to their fraud or maladministration and then they go out of business without fairly compensating you. So the FSCS or Italian scheme would not always be something that could help you in the case of investment losses.

For the actual investments you hold via the broker (such as shares, ITs and ETFs), as distinct from cash on deposit, the Italian guarantee scheme is lower - for investment fraud or maladministration, the Italian scheme only offers the minimum required under the EU regulation (€20k) whereas IWeb assets would be covered by the UK scheme to our higher limit (£100k for investments, same as it is for cash).

Although a broker failure may feel like it's unlikely, there is a long running thread at the moment for customers of SVS Securities, a UK firm which went out of business a year ago. After the failure, it took an age for the administrators to get customer assets moved to another brokerage who were willing to take on the customers en masse, and is still not sorted for a lot of people a year later - thread has a lot of angry clients on it.

At SVS, as the administrators came in to pick up the pieces, their bill could run into millions and need to be paid for out of customer assets before investors could be reunited with what they own. For simplicity, as each FSCS-qualifying customer's share of the cost was under the £85k limit, the FSCS were able to simply say that they would settle up direct with the administrator so that generally no covered individual had to have their assets sold to fund the admin expenses and then go through the rigmarole of an FSCS claim to get it back However, if a different broker went bust in different circumstances with a different cost to rectify, it wouldn't necessarily be the case that the compensation scheme would definitely pay up front to make you whole, especially if the limit was much lower.

Some would say that to dissuade people from using a broker elsewhere in the EU is just scaremongering, as investor guarantee scheme coverage rarely comes into play anyway, as most brokers don't go bust or suffer fraud on sufficient scale to cause losses to individuals.

However, as a 'what if' scenario I'd suggest it wouldn't be ideal that the Italian administrators of the dead brokerage were based thousands of miles away from you, using a different legal system, looking to migrate your assets to a different Italian platform before you could access them again, and both they and the guarantee scheme would answer the phone in Italian and the compensation claim form published by the guarantee scheme is only available in Italian.

Some people would think that the likelihood of a problem is remote and the service offered by Fineco could be better or cheaper than a UK rival, so why ignore it? Others would counter that the extra risk is not zero, so why put your head in the sand and ignore that? At the end of the day, the extra potential risk or hassle is not zero, but it's certainly hard to quantify, so some would give up on the idea of using Fineco, while others would go ahead

Albermarle

whereas IWeb assets would be covered by the UK scheme to our higher limit (£100k for investments, same as it is for cash).

Presume you meant to say Euro 100K , currently UK equivalent being Pounds 85K ?

pip895

I can recommend iWeb - Unless you intend holding a lot of cash over a significant period I wouldn't be bothered - What big advantage does Fineco have?