What an investor compensation scheme is
An investor compensation scheme is a fund set up under a country's law to pay eligible clients when an authorised investment firm fails and cannot return their money or assets. People also call it an investor protection fund or broker bankruptcy protection.
The scheme steps in only when the firm is in default, for example when it is insolvent and client money is missing. It is not insurance against trading losses.
| A scheme may pay when | A scheme does not pay when |
|---|---|
| The firm becomes insolvent and client money or assets are missing | Your trades lose money |
| Client funds were not kept properly and the firm cannot repay | Leverage causes a stop-out (automatic closing of positions when margin runs out) |
| The firm is declared in default by the scheme | You used a firm the scheme does not cover |
Leveraged forex and CFD trading can lose money fast. No compensation scheme covers those losses.
The main schemes traders hear about
FSCS (United Kingdom)
The Financial Services Compensation Scheme covers eligible clients of firms authorised by the Financial Conduct Authority (FCA). Whether a firm is FCA-authorised can be checked on the FCA Register. See our guide to the FCA Register.
ICF (Cyprus)
The Investor Compensation Fund covers eligible clients of Cyprus investment firms that are members of the fund and supervised by the Cyprus Securities and Exchange Commission (CySEC). See our guide to the CySEC Register.
Other jurisdictions
Some regulators run or require a similar fund and many do not. Offshore regulators, such as those covered in our guides to the FSA Seychelles Register and the FSC Mauritius Register, should not be assumed to offer one. Check the regulator's official site before relying on any protection. More registers are listed in Other Regulator Registers.
Limits: what "up to" means
Every scheme has a maximum payout per eligible person per firm. The limit is set by each scheme, it changes over time, and it may differ by type of claim. Because limits change, we do not quote figures here. Read the current limit on the scheme's own official site.
Points that matter for experienced traders:
- The limit applies per person and per failed firm, not per account.
- Money above the limit may not be repaid in full.
- Claims usually go through the scheme's process after the firm is declared in default, and that can take time.
- Some client categories, such as professional clients, may be excluded or treated differently.
Eligibility: the legal entity decides
Many broker groups run several companies under one brand, each licensed by a different regulator. Your protection depends on which company holds your account, not on the brand name.
- A client of a group's UK company may be eligible for the FSCS.
- A client of the same group's offshore company is usually not covered by the FSCS or ICF, even if the website looks the same.
- Your client agreement names the company you contract with. Check it.
Clients from Pakistan are usually onboarded through an offshore entity, so they usually fall outside these schemes. Read more in Offshore vs Onshore.
The position in Pakistan
Forex and securities are supervised in Pakistan by the Securities and Exchange Commission of Pakistan (SECP), with trading in listed securities and commodities only via SECP-licensed securities and futures brokers. Official statements relevant to offshore trading:
- Platform status: per the SECP, offshore forex/CFD platforms operate without regulatory approval in Pakistan.
- Protection: per the SECP, offshore platforms have no Pakistani licence or oversight and offer no legal protection or recourse.
- Buying offshore products: per the SBP, the purchase of offshore forex/margin/CFD products by Pakistani residents violates section 4(1) of FERA 1947.
- Remittances: per the SBP, remitting foreign exchange to overseas forex/margin/CFD platforms is not allowed through any payment channel (FERA s.5(1)).
In practice, a Pakistani resident using an offshore forex or CFD platform should not expect a Pakistani compensation scheme or a foreign one to repay losses if the firm fails. For licensed local brokers, per the SECP, lists of licensed brokers are on the PSX and PMEX websites. See Law and regulators.
Compensation vs segregated funds
Segregation means the firm keeps client money apart from its own money. That helps if the firm fails, but it is a different protection from a compensation fund. A firm can segregate funds and still have no scheme behind it. See Segregated Funds and What Regulation Protects.
How to check your own protection
- Find the legal entity named in your client agreement.
- Look that entity up on the regulator's official register. Our Verify a Broker guide explains how.
- On the compensation scheme's official site, confirm the firm is a member and read the current limit and eligibility rules.
- Confirm whether your client category and country of residence are eligible.
- Treat a broker's own claim of "protection" as unconfirmed until the official source matches. Use the Broker Checklist.
Be careful with anyone who promises to "recover" money through a compensation fund for a fee. See Recovery Scams.
Frequent questions
Does an investor compensation scheme cover trading losses?
No. It covers missing client money or assets when an eligible firm fails, up to the scheme's limit.
Is there a forex broker compensation fund for traders in Pakistan using offshore brokers?
Usually not. The SECP states that offshore platforms offer no legal protection or recourse in Pakistan, and offshore entities are generally outside schemes like the FSCS or ICF.
What is the FSCS or ICF limit?
Each scheme sets and updates its own limit. Check the current figure on the scheme's official site.
If a broker brand is FCA-regulated, am I covered?
Only if your account is with the FCA-authorised company and you meet the eligibility rules. Accounts held with the brand's offshore company are usually not covered.
Where can I complain if a broker refuses to pay me?
See File a Broker Complaint and Report a Scam.
