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Broker Bankruptcy: What happens to your investments?

Baptiste Wicht | Updated: |

(Disclosure: Some of the links below may be affiliate links)

When you plan on living on your investments, you need to consider the safety of these investments. Some of them will be in your retirement accounts. But the bulk of your investments will be in your broker account.

So, what happens if your broker goes bankrupt? Will we lose everything?

In this article, we see what happens to your securities if a broker goes bankrupt.

Broker Bankruptcy

An online broker (or a bank offering brokerage services) can go bankrupt like any other company. In that case, it is important to know what would happen to our assets. It is especially important for people who want to retire based on these assets. If these people suddenly lose everything, they may be in big trouble.

Online brokers are regulated. Now, the regulations will depend on where the broker is from. So, how well you are protected will depend on where your broker is located.

In this article, I will look at some of the regulations and protections in case of broker bankruptcy.

Swiss Brokers

We start to see what would happen in the case of a Swiss Broker Bankruptcy.

In Switzerland, Swiss Banks are registered with FINMA. FINMA is the supervisory authority. If you have cash in your broker account, it will be protected by Swiss Deposit Insurance.

For securities, FINMA forces banks to use asset segregation. It means that the bank assets are held entirely separate from the client’s assets. The bank only acts as a custodian. This segregation will be done for most assets like stocks, ETFs, and bonds. But it will not be done by investments directly from the bank, such as structured products.

And if your Swiss Broker is not a registered bank, it will use a licensed custodian bank to hold these assets in your name. In that case, it is more complicated to have the custodian bank go bankrupt than the broker going bankrupt since the broker holds no assets.

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Interactive Brokers is available to Swiss Investors but is not a Swiss broker. As such, it will have different regulations. With Interactive Brokers, it is a bit complicated because they have several entities in different countries. For instance, the main entity is IB US, which the United States regulates.

As a Swiss Investor, we invest with Interactive Brokers UK. These accounts are regulated by the United Kingdom’s regulatory services. But we have an extra layer of security provided by the Securities Investor Protection Corporation (SIPC) from the United States.

It is due to the way IB is organized. Indeed, IB does not segregate clients by country.

With SIPC, you have protection for up to 500K USD if the broker goes bankrupt. There is a limit of 250K of cash on that. So, you have excellent protection, currently the best available.

On top of that, Interactive Brokers also segregate assets from clients. However, that segregation is less strict than on Swiss brokers. Indeed, in the US, brokers us so-called omnibus accounts. These accounts are segregated from the brokers, but each account can contain assets from multiple customers.

Due to Brexit, many accounts are moved from IB UK to other IB entities in the European Union, such as Luxembourg (IB LUX). So, if your account is moved from the IB UK entity to an IB EU entity, you will now be protected like any other EU broker. It is sad because you will lose the extra SIPC protection. You can look at the next section to see what that means.

It is important to understand that SIPC insurance only kicks in if the assets are missing. In most cases, in case of a failure, assets are not missing. If a brokerage firm goes bankrupt, it generally transfers all assets to a new firm. It may take a while, but your assets should be safe. The SIPC will assist in making sure the funds will reach their owners.

For more information, I have a full review of IB.


DEGIRO is a broker from the Netherlands. In August 2020, DEGIRO was bought by Flatex Bank AG. Since then, it is regulated by the financial author of Germany, BaFin.

DEGIRO has the standard European layer of protection. With this protection, 100’000 EUR of cash and 20’000 EUR of assets are insured in case of broker bankruptcy.

Once again, DEGIRO assets are held separately (asset segregation) from the client’s assets. A different legal entity (SPV) is used for that. So, again, if DEGIRO bankrupts, your shares will be held in the custodian legal entity.

For more info, read my review of DEGIRO.

Asset Segregation

As you can see, the main protection against broker bankruptcy is asset segregation. Your assets should be held separately from the broker’s assets themselves.

If the broker goes bankrupt, the segregated assets cannot be claimed by the creditors of the failed broker. After settling the bankruptcy, they must find another broker to handle the assets. Once this is done, you will have access to your shares again.

We do not have good examples of how well this will work in practice. I expect that this process will last a long time. I would not be surprised if it would take more than a year to regain access to the shares.

Remember that asset segregation does not mean assets are held in your name. Most brokers will pool all the securities in a big account (called omnibus or nominee accounts generally). Of course, there is still an indication as to which customers have which share linked to this account. But for cost reasons, most brokers will not have individual custodian accounts.

Asset Segregation is a great tool for normal bankruptcies. But, in the case of fraud or possible negligence, this asset segregation could have been compromised. In that case, the process can be extremely complicated. And at least part of the assets would likely be lost.

Securities Lending

When a broker lends your shares to another investor, the share is not entirely yours during the loan duration. So, what happens if the broker goes bankrupt during this time?

For instance, securities lending is something DEGIRO is doing by default with its DEGIRO Basic account. When they lend your shares, they borrow your securities from the legal entity. Now, if DEGIRO goes bankrupt, the loan borrower still owes you that loan.

But there is still the extra risk of the borrower going bankrupt too. And investors borrowing shares are more likely to go bankrupt than others.

There is a definite extra risk in a broker bankruptcy if this broker uses securities lending. It is not a huge risk, but it will make it more complicated to recover all your shares.

Direct Registration

Many people think that all their shares are directly registered in their names. But in most cases, this is wrong.

As mentioned before, your assets are generally held in big omnibus accounts. And only the segregation legal entity knows which investor holds which shares.

There are some systems by which you can register shares in your name.

For instance, in the United States, the Direct Registration System (DRS) can do just that. It is like an official registration system for share ownership. And with U.S. brokers, you can arrange your trades to be registered in this system. That way, your shares are held in your name.

Doing so will help in case of broker bankruptcy since then your claim is direct with the company of the share and not the intermediary (the broker).

In Switzerland, we have a system of share registers. With some brokers, you can register the ownership of your shares in a share register. These are public registers for publicly-traded companies. It is a very different system since the share will still be held by the broker. But you will have a public official trace of the shares.

Now, this system will make it more complicated to buy and sell shares. And there is no unified share register for all stock exchanges. So, the rules will be different from country to country.

I do not think it is necessary or practical to do that for all your shares to protect against broker bankruptcy.

Protect against Broker Bankruptcy

What can you do to protect yourself against broker bankruptcy?

The best protection against broker bankruptcy is to use a well-established and reputable broker. For me, Interactive Brokers is excellent in that regard. It was established more than 40 years ago and has an excellent reputation.

And you need to use a broker that enforces asset segregation. It is essential. Asset Segregation is the best protection against broker bankruptcy. Any broker that does not segregate assets should not be considered safe.

If you want an extra layer of security, the only thing you can do is have several broker accounts. For instance, you could have some of your investments with Interactive Brokers and some Investments with a large Swiss Broker. In that case, if one of them goes bankrupt, you can still live from your investments in the second broker account.

However, having two broker accounts will make your investing significantly more complicated. And this will mean that you will not only use the best broker in Switzerland but a second one. But this could be worth the cost if it helps you sleep at night.


The main protection against broker bankruptcy is asset segregation. The assets of the broker’s clients are not held in the same entity as the assets of the broker itself.

So, in case of the broker goes bankrupt, the creditors of the bankrupt will not be able to claim the assets of the client. This is an essential protection.

This protection is enforced for Swiss Brokers, Interactive Brokers, and DEGIRO.  If you use another broker, you should verify that your assets are segregated. I would not recommend using a broker where this is not the case.

In this article, I talked mostly about broker bankruptcy. But there is another risk in the case of broker fraud or negligence. In that, asset segregation may not work since the segregation could have been compromised. We have seen some levels of protection for these assets (20K EUR for European brokers, for instance), but it is unlikely to be enough.

I will discuss broker fraud and protection against it in a future article.

Are you afraid of broker bankruptcy? How do you protect against it?

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Baptiste Wicht started in 2017. He realized that he was falling into the trap of lifestyle inflation. He decided to cut his expenses and increase his income. This blog is relating his story and findings. Since 2019, he has been saving more than 50% of his income. He made it a goal to reach Financial Independence. You can send Mr. The Poor Swiss a message here.

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63 thoughts on “Broker Bankruptcy: What happens to your investments?”

  1. Hi Baptiste

    Can you tell me please if Schwab International has Asset Segregation? And how do the bankruptcy issues affect portfolios that include U.S. Treasury bonds, notes and bills?

    Thank you very much.
    Patricia W

  2. Hi Baptiste,
    It looks like we are protected in the US as you mention but it’s not what happened with the Silicon Valley Bank. Do you know why exactly ?


    1. Hi David

      We are protected in case of bankruptcy, but banks can still bankrupt. SVB bankrupted indeed, but I think that all private customers got their deposits back. This is the protection I am talking about.

      1. I found the answer:

        “Unfortunately, most of the accounts in Silicon Valley Bank held more than $250,000 of deposits, meaning most of the funds were uninsured. 12 In most cases, this would mean account holders would lose any money above that threshold.”

  3. Dear Baptiste,

    I got reply from IB regarding the protection:
    “Your IBKR account is protected by the Securities Investor Protection Corporation (“SIPC”) for a maximum coverage of $500,000 (with a cash sublimit of $250,000). There is a primary (obligatory) insurance of SIPC which covers up to $500K of cash and positions, of which $250K can be a cash-only claim. SIPC insurance, as primary, must be exhausted before secondary insurance can be applied.

    Secondary insurance is offered under Lloyds of London company and covers each customer account up to $30 Million USD, of which $900K can be a cash only claim. As mentioned above, a customer would need to exhaust all insurance coverage under SIPC first. If SIPC doesn’t cover all of the customer’s assets, meaning the client had over $500K in the account, then Lloyds of London policy would be applied. The Lloyd’s insurance policy is what we have for IBLLC-US as a whole. The limit of $150 million would be spread across all accounts under the entity IBLLC-US and the allocations made is determined by regulators.”

    I have already over 50K USD in investment in IB. But however the limitation 150 milion USD of the secondary insurance can not be large enough for all clients. So the second insurance is actually useless. What is your opinion when you have a lot over 50K USD?


    1. Hi Lena,

      You are saying 50K, but it’s 500K for SIPC protection.
      So, the second protection will only cover customers with more than 500K.

      I would not say it’s useless, it’s a small extra level of protection. In fact, I think it willl protect more people that are between 500K and 1M rather than people that have many millions. So, it’s nice, but not foolproof indeed.

      1. Hi Baptiste and Lena,
        Would this cover clients on the Irish branch (as I’m currently an EU resident) ?

      2. Hi Max,

        I think the protection for IB EU is different from the protection under IB UK (under which CH customers are). I think you only get European protection in that case.

  4. Dear Baptiste,
    Thanks for this blog.

    I have a question about this sentence:

    Once again, DEGIRO assets are held separately (asset segregation) from the client’s assets. A different legal entity (SPV) is used for that. So, again, if DEGIRO bankrupts, your shares will be held in the custodian legal entity.

    What happens to my assets, if the SPV goes bankrupt?
    Best regards

  5. Dear Baptiste,
    Thanks again for this thought provoking blog.
    It seems for me, my main concern is fradulent/incompetent lack of separation of assets as I only ETFs in my Swissquote and IB ( I’m currently a resident of France) accounts.
    Do you know if the FINMA and the equivalent Irish authority regularly check to see that all/some/ a cross section of assets are segregated by SWISSQUOTE and IB IE respectively? What is the probability of fraud or mismanagement falling under their radar screen? Maybe I should open a third account with an investment broker just to be on the safe side….

    1. Hi,

      I believe they do audits, but I do not know how frequent and thorough these are.
      It’s a good point that fraud is a very big risk and in that case we would not be covered by standard protection.
      To protect against fraud, we should only use very reputable brokers.
      And the second level of protection is as you said, to have several brokers.

      1. Dear Baptiste,
        Thanks for your reply. Just to make sure I’ve understood correctly, the Swiss Deposit Insurance would not kick in in case of a fradulent non separation of assets?

      2. I am not entirely sure. My understanding before was that it would not kick in if the bank was fraudulent and the money was simply not there. But in case of bankruptcy and fraud, I am really not sure what woudl happen. I will have to research that more.

  6. What is the scope of the protection? Is it per account or per cusotmer? In other words, if I have two accounts with IB-UK does it mean I have a protection of 1M or still 500K?
    Thank you

    1. The protection is per entity. If you have two accounts in your name, they both fall under the same entity. But if you and your wife have two different accounts, each in a different name, you can double the protection because each entity is protected separately.

  7. i’m confused with these statements:

    1) “But we have an extra layer of security provided by the Securities Investor Protection Corporation (SIPC) from the United States. It is due to the way IB is organized.
    With SIPC, you have protection for up to 500K USD if the broker goes bankrupt.”

    and then…

    2) “It sucks because we will lose the extra SIPC protection.”

    Does IB UK (for swiss domiciled clients) give the 500K SIPC protection or not ?

    or are you saying that non swiss (EU, for example France) will have to register in IB LUX and therefore not get the SIPC insurance ?

    just want to know what is the protection given all the US bank turmoil

    thank you!

    1. Hi Jaggy,

      This is in case we are moving to another entity which did not happen so far with Brexit.
      IB UK gives SIPC protection to Swiss investors. But if we were moved to the IE entity, we would lose that protection.
      And indeed, European investors will likely lose the protection (I do not know for sure).

      1. Hey Baptiste
        I’m about to transfer all assets to IB (currently UK account) from a swiss broker, to save some costs. If we were transfered to LUX/IE, that would be announced and we would have some time to decide right? Cause then I would transfer at least like 50% to a Swiss broker I think.
        Thank you and kind regards

      2. I am not working at IB, but I would expect such a change to be announced and we would have some time to decide. If I was moved out of IB UK, I would also likely transfer some assets to a Swiss broker.

      3. Hi Baptiste, you said “If I was moved out of IB UK, I would also likely transfer some assets to a Swiss broker.” and I wonder why. Does it mean you don’t trust the asset segregation, or is there another reason?

      4. But in case, one has everything invested in stocks / ETFs without no (or almost no) cash (and no margin loans), then it does not matter whether it is the UK or LUX entity because assets are segregated, right?

        As I understand it, the protection is only relevant for cash since the other assets are segregated anyway. Or am I missing something?

      5. Hi Noah,

        Indeed, segregation should be the same for stocks bonds.
        The other difference is that IB LUX or IB IE don’t have access to US ETFs last time I heard.
        Nevertheless, it’s an important protection and important difference if you are going to ever hold cash in your account.

  8. Hi Baptiste

    What are your comments on when / if a wealth management fund like True Wealth were to become bankrupt? It has a link with the BL Kantonale Bank (which I understand has an insurance limit beyond 100k CHF for payout), hence my question.
    Many thanks for your good advice and posts.

    1. Hi Linda,

      If True Wealth itself goes bankrupt, the impact should be minimal. In that case, all the funds (cash and securities) are deposited in your name in the custody bank. So, if TW goes bust, the funds should be accessible at the bank directly. It may take a while to get the money back but it should be good. The only time where it would be difficult is if TW is scamming customers. In that case, the money may not be there anymore, but the chance is very low with a reputable robo-advisor.

      It may be more complicated if the custody bank itself bankrupts. In that case, standard bankruptcy rules for a bank will apply.

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