Seeking clarification regarding FSCS protection for funds in a Stock & Shares ISA

Rollswiththepunches

Hello. I'm considering opening a Stocks and Shares ISA with a view to eventually maxing out my annual ISA allowance, which is currently £20,000. I have no other ISAs currently. I am somewhat confused as to how FSCS protection works with regards to money invested in an S&S ISA. On the FSCS website, there is a page which - rather unhelpfully - states that "you might be protected, depending on the circumstances".

Here is the scenario I am wondering about. If I was to open an S&S ISA on Trading 212, deposit £20k into it, then use the £20k to invest in shares in an ETF (exchange-traded fund). Would the funds be protected if either Trading 212 itself was to go bust, or if the company operating the ETF (Vanguard for example) was itself to go bust? The Trading 212 website only mentions "uninvested funds" which aren't FSCS protected. I am asking about "invested funds" specifically - in my case, money which would be used to buy shares in an ETF. I've been unable to find a definitive answer anywhere.

malcolmK

With UCITS and UK UCITS and similar retail collective investment schemes, a fund’s assets are held separately from those of the fund manager.

https://ukdepositary.org/about/role-of-the-uk-depositary.html

masonic

ETFs are considered to be company shares and they are not UK domiciled, so if Vanguard went bust, the ETF would still own its portfolio of underlying shares, but the FSCS wouldn't come into play. If there was a shortfall in the ETF, or winding-up costs, then you would incur a loss.

If T212 were to go bust, you'd still own your ETF, and would also have FSCS protection up to £85k to cover any administrators fees or missing assets the platform was supposed to be holding for you.

dunstonh

On the FSCS website, there is a page which - rather unhelpfully - states that "you might be protected, depending on the circumstances".

It is the correct answer though as some investments have no FSCS protection whilst others get 100% FSCS protection with no upper limit.

Here is the scenario I am wondering about. If I was to open an S&S ISA on Trading 212, deposit £20k into it, then use the £20k to invest in shares in an ETF (exchange-traded fund).

That is nice and easy. There is no FSCS protection on ETFs. A general rule of thumb is that investments you trade don't have FSCS protection (e.g. shares, ETFs, ITs).

Most consumers use OEICs or Unit Trusts, which do have FSCS protection (£85k per fund house). However, on DIY investment sites, you tend to see ETFs being more popular as those types of investors tend to be more cost focused and are willing to give up protections or functionality that they do not value as highly. (or with newbies - often they don't know that they are not FSCS protected or that there are certain types of ETF that are best avoided or at least restricted in the amount held - e.g. synthetic replication)

poseidon1

Stocks and shares comprising Vanguards unit trusts/etfs are held via third custodians such as J P Morgan and BNY Mellon. Vanguard do not 'own' the underlying assets of the funds they manage. They (as is the case for most fund managers) do explain this themselves if you search -

https://www.vanguardinvestor.co.uk/need-help/answer/what-happens-to-my-money-if-vanguard-become-insolvent

Although you state you have no other ISAs, hopefully this S&S ISA is not neccessarily the first time you have invested in the markets, so are you are aware of investment risk generally, for which there can no protection if things go sour.

Albermarle

In practical terms if T212 went bust, they would most likely be bought/saved by a competitor. ( they are actually quite profitable)

If Vanguard went bust, it would probably mean WW3 had started/ended, so your ETF would be the least of your worries.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81993521#Comment_81993521

Your question isn't connected to the thread topic of FSCS coverage so would be better in another thread - there are plenty of other T212 ones or you could start a new one…

Albermarle

At the top right hand side of the page there is a red box, that says 'Create New'

If you click on this, you can start a new thread with your query.