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FSCS protection for Cash in Brokers

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mc2fool
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FSCS protection for Cash in Brokers

#157506

Postby mc2fool » August 6th, 2018, 1:07 pm

As I am about to move a pension into an IWeb SIPP that will come into it as a large amount of cash, and I don't want to invest it in one big dollop but spread doing so over a period of (probably) a couple of years, I started wondering (more seriously than before) about the FSCS protection for cash deposits in brokers.

(I'd appreciate it if folks didn't sideline into investments to use to avoid holding cash and just stuck to the topic question, as I think it's of general interest anyway).

Now, my understanding was that investments were covered up to £50K while cash deposits were covered up to £85K. It's (only) the latter I was wondering about, and in particular 'cos, like others here I expect, I also have savings in various banks, so wanted to know how FSCS protection for cash in IWeb might be shared with other banks, especially as IWeb is run by Halifax, which is a brand of the Bank of Scotland, which itself is part of the Lloyd's Banking Group but actually BoS and LBG have separate banking authorisations, https://www.fscs.org.uk/what-we-cover/p ... -societies.

So, I figured I'd contact IWeb with the question. Here's the exchange so far:

>>>>> Me to IWeb
Hi. Could you please let me know under which banking authorisation cash deposits in an IWeb SIPP are held under for FSCS protection cover, and if that authorisation is shared with other brands under the same banking license. Regards & thanks...

<<<<< IWeb to me
As we are administered by Halifax Share Dealing Limited (HSDL), the cash held within an IWEB SIPP is covered as part of HSDL’s license with the FSCS.

>>>>> Me to IWeb
Hi. I don't believe that's correct. As far as I can figure out from the FSCS, FCA & PRA sites HSDL doesn't have a banking licence and the FSCS protection that applies under HSDL's license is the £50K cover for investments, not the £85K for cash deposits.

The IWeb website says "Cash - all customer money is held in bank accounts specifically designated as holding client money."

My understanding is that cash deposits in an IWeb SIPP would be covered by the FSCS under the license(s) of the bank(s) that IWeb holds the customer money in, up to £85K per customer per bank -- and that is shared with other brands under the same banking license(s).

So, e.g. if IWeb held the cash in my SIPP in, say, a Halifax bank account and I happened to also have deposits in a Birmingham Midshires a/c then, as both are under the Bank of Scotland banking license, the two would be pooled for FSCS protection purposes.

So, can you please confirm that this understanding is correct, and please tell me in which bank(s) IWeb/HSDL holds customer money.

<<<<< IWeb to me
Thank you for your email. As per your understanding that “if IWeb held the cash in my SIPP in, say, a Halifax bank account and I happened to also have deposits in a Birmingham Midshires a/c then, as both are under the Bank of Scotland banking license, the two would be pooled for FSCS protection purposes” – CORRECT. You understood it correctly.

To elaborate on how it works: Both Stock and Cash are segregated to protect the customer assets. In the unlikely event segregation was to fail and HSDL went bust then customers would be able to make a claim under the FSCS.

HSDL, along with most other investment firms, pass customer’s cash out to other banks to hold as retail cash deposits, as firms like HSDL are generally only allowed to hold a maximum of 20% of client money with any one bank. The money held by these external banks is held in ‘Trust’ for HSDL clients and is ring-fenced from other banking money.

Therefore in a situation where, for example, a stockbroker were to go bust but has been adhering to CASS rules a customer would ordinarily expect to get 100% of their assets back. It would only be where they haven’t been adhering to CASS rules where a customer might have to call upon FSCS and get back up to £50k.

All brands within Lloyds Banking Group are covered under one license and would therefore have a cash deposit cover of £85,000 across all brands. We, in Stockbroking Team, are covered for £50,000 across all brands therefore if you have a Bank of Scotland Share Dealing account and an IWEB ISA then the value of your assets would be viewed together by the FSCS.

------- End of exchange, so far --------

What do folks make of this? It appears that the response is mixing up the £50K for investments and £85K for deposits, and the last paragraph "All brands within Lloyds Banking Group are covered under one license and would therefore have a cash deposit cover of £85,000 across all brands" doesn't appear to be true from the above linked-to FSCS pages.

I also wonder if it's the FSCS coverage of the "external banks", that they only hold a maximum of 20% of client money with any one of, that is the matter of concern in regards to pooling with other savings. E.g. if I have £85K in a savings a/c in, say, Barclays, and IWeb have put up to 20% of client cash deposits, inc. up to 20% of mine, into Barclays, does the FSCS consider me as having more than the £85K in Barclays, should it go belly up? Their reply doesn't address this directly but seems to imply both yes and no in different parts of the answer....

ursaminortaur
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Re: FSCS protection for Cash in Brokers

#158733

Postby ursaminortaur » August 11th, 2018, 12:34 pm

mc2fool wrote:As I am about to move a pension into an IWeb SIPP that will come into it as a large amount of cash, and I don't want to invest it in one big dollop but spread doing so over a period of (probably) a couple of years, I started wondering (more seriously than before) about the FSCS protection for cash deposits in brokers.

(I'd appreciate it if folks didn't sideline into investments to use to avoid holding cash and just stuck to the topic question, as I think it's of general interest anyway).

Now, my understanding was that investments were covered up to £50K while cash deposits were covered up to £85K. It's (only) the latter I was wondering about, and in particular 'cos, like others here I expect, I also have savings in various banks, so wanted to know how FSCS protection for cash in IWeb might be shared with other banks, especially as IWeb is run by Halifax, which is a brand of the Bank of Scotland, which itself is part of the Lloyd's Banking Group but actually BoS and LBG have separate banking authorisations, https://www.fscs.org.uk/what-we-cover/p ... -societies.

So, I figured I'd contact IWeb with the question. Here's the exchange so far:

>>>>> Me to IWeb
Hi. Could you please let me know under which banking authorisation cash deposits in an IWeb SIPP are held under for FSCS protection cover, and if that authorisation is shared with other brands under the same banking license. Regards & thanks...

<<<<< IWeb to me
As we are administered by Halifax Share Dealing Limited (HSDL), the cash held within an IWEB SIPP is covered as part of HSDL’s license with the FSCS.

>>>>> Me to IWeb
Hi. I don't believe that's correct. As far as I can figure out from the FSCS, FCA & PRA sites HSDL doesn't have a banking licence and the FSCS protection that applies under HSDL's license is the £50K cover for investments, not the £85K for cash deposits.

The IWeb website says "Cash - all customer money is held in bank accounts specifically designated as holding client money."

My understanding is that cash deposits in an IWeb SIPP would be covered by the FSCS under the license(s) of the bank(s) that IWeb holds the customer money in, up to £85K per customer per bank -- and that is shared with other brands under the same banking license(s).

So, e.g. if IWeb held the cash in my SIPP in, say, a Halifax bank account and I happened to also have deposits in a Birmingham Midshires a/c then, as both are under the Bank of Scotland banking license, the two would be pooled for FSCS protection purposes.

So, can you please confirm that this understanding is correct, and please tell me in which bank(s) IWeb/HSDL holds customer money.

<<<<< IWeb to me
Thank you for your email. As per your understanding that “if IWeb held the cash in my SIPP in, say, a Halifax bank account and I happened to also have deposits in a Birmingham Midshires a/c then, as both are under the Bank of Scotland banking license, the two would be pooled for FSCS protection purposes” – CORRECT. You understood it correctly.

To elaborate on how it works: Both Stock and Cash are segregated to protect the customer assets. In the unlikely event segregation was to fail and HSDL went bust then customers would be able to make a claim under the FSCS.

HSDL, along with most other investment firms, pass customer’s cash out to other banks to hold as retail cash deposits, as firms like HSDL are generally only allowed to hold a maximum of 20% of client money with any one bank. The money held by these external banks is held in ‘Trust’ for HSDL clients and is ring-fenced from other banking money.

Therefore in a situation where, for example, a stockbroker were to go bust but has been adhering to CASS rules a customer would ordinarily expect to get 100% of their assets back. It would only be where they haven’t been adhering to CASS rules where a customer might have to call upon FSCS and get back up to £50k.

All brands within Lloyds Banking Group are covered under one license and would therefore have a cash deposit cover of £85,000 across all brands. We, in Stockbroking Team, are covered for £50,000 across all brands therefore if you have a Bank of Scotland Share Dealing account and an IWEB ISA then the value of your assets would be viewed together by the FSCS.

------- End of exchange, so far --------

What do folks make of this? It appears that the response is mixing up the £50K for investments and £85K for deposits, and the last paragraph "All brands within Lloyds Banking Group are covered under one license and would therefore have a cash deposit cover of £85,000 across all brands" doesn't appear to be true from the above linked-to FSCS pages.

I also wonder if it's the FSCS coverage of the "external banks", that they only hold a maximum of 20% of client money with any one of, that is the matter of concern in regards to pooling with other savings. E.g. if I have £85K in a savings a/c in, say, Barclays, and IWeb have put up to 20% of client cash deposits, inc. up to 20% of mine, into Barclays, does the FSCS consider me as having more than the £85K in Barclays, should it go belly up? Their reply doesn't address this directly but seems to imply both yes and no in different parts of the answer....


As I understand it there are two situations in which FSCS compensation might be paid out for cash with a broker.

Firstly if the broker was holding the cash temporarily itself without having paid it into a bank when it went bust or alternatively fraud or negligent behaviour had occurred. In those circumstances I believe that only the £50K investment compensation would be paid.
See for instance what happened with Strand Capital limited

https://www.fscs.org.uk/what-we-cover/products/investments/strand-capital-limited/


The following provides some more details about Strand Capital Limited's collapse and also raised the prospect that compensation could also come from the firm's indemnity insurance - though I haven't checked as to what actualy happened on that front.

https://www.getclaimsadvice.co.uk/strand-capital-insurance-may-pay-claims-over-companys-collapse/

The news could be just what some Strand clients are hoping to hear, as more details about the collapse become apparent, including a lack of full client records, and £8.5m of funds not under Strand’s full control.
Also revealed was that client holdings for “previously unknown clients” were discovered, made up of 37.509.586 units in Menasat Gulf Group Holdings, apparently a weapons manufacturer.


If on the otherhand the broker had paid the money into one or more banks then the only circumstances where FSCS compensation would be paid would be if one (or more) of those banks had gone bust. In that case the broker would probably be OK and the FSCS limit would be the £85K deposit limit. The broker should hopefully be able to tell you which banks it uses to deposit client money. My understanding is that the FSCS would obtain a list of clients from the broker and treat them as if they were individual clients of the bank as far as the FSCS compensation was concerned and hence the amount of compensation you would be eligible to receive would depend upon what other deposits you had with that bank (or other banks covered by that institution's banking license).

https://fscs.org.uk/what-we-cover/questions-and-answers/qas-about-deposits/

11. Do you cover deposits made through solicitors and other professionals?

We generally cover client account arrangements (such as pooled accounts), which may be set up by solicitors, stockbrokers, landlords or other professionals, provided the deposit-taker (e.g. bank or building society) is authorised to accept deposits, which would normally be the case. The identities of the underlying clients and details of their respective entitlements to the deposit monies can be provided to the FSCS at the time a claim is made.
The Law Society has its own compensation scheme for its members' investment business, that only applies in the case of dishonesty of a solicitor. In those circumstances claims against solicitors in England and Wales should be referred to it. Claims against solicitors in Scotland should be referred to The Law Society of Scotland.
However, if the solicitor is holding your money in a client account with an authorised deposit-taker that fails, then your claim is against the deposit-taker and you should ask us to deal with it. The Law Society provides further guidance on this.
Claims against some other professionals can be made to us, but only if the claim arises on or after 1 December 2001. If your claim is for activities before this date, look at our Claiming compensation booklet for details of the organisations to contact.
Further guidance for landlords, managing agents, resident management companies and others charged with the collection of service charge monies.

mc2fool
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Re: FSCS protection for Cash in Brokers

#158746

Postby mc2fool » August 11th, 2018, 1:35 pm

ursaminortaur wrote:As I understand it there are two situations in which FSCS compensation might be paid out for cash with a broker.

Firstly if the broker was holding the cash temporarily itself without having paid it into a bank when it went bust or alternatively fraud or negligent behaviour had occurred. In those circumstances I believe that only the £50K investment compensation would be paid.

Ok, and possibly that may be what IWeb is referring to in the last sentence of:

"HSDL, along with most other investment firms, pass customer’s cash out to other banks to hold as retail cash deposits, as firms like HSDL are generally only allowed to hold a maximum of 20% of client money with any one bank. The money held by these external banks is held in ‘Trust’ for HSDL clients and is ring-fenced from other banking money.

Therefore in a situation where, for example, a stockbroker were to go bust but has been adhering to CASS rules a customer would ordinarily expect to get 100% of their assets back. It would only be where they haven’t been adhering to CASS rules where a customer might have to call upon FSCS and get back up to £50k.
"

If on the otherhand the broker had paid the money into one or more banks then the only circumstances where FSCS compensation would be paid would be if one (or more) of those banks had gone bust. In that case the broker would probably be OK and the FSCS limit would be the £85K deposit limit. The broker should hopefully be able to tell you which banks it uses to deposit client money. My understanding is that the FSCS would obtain a list of clients from the broker and treat them as if they were individual clients of the bank as far as the FSCS compensation was concerned and hence the amount of compensation you would be eligible to receive would depend upon what other deposits you had with that bank (or other banks covered by that institution's banking license).

Yes, and I've had a further exchange with IWeb on exactly that:

>>>>> Me to IWeb

Firstly, you seem to have conflated the £50K FSCS cover for investments with the £85K cover for deposits. I am concerned and asking only about the latter.

Also you say "All brands within Lloyds Banking Group are covered under one license and would therefore have a cash deposit cover of £85,000 across all brands", which I don't believe is true. The FSCS website says that Lloyds Bank and Bank of Scotland have separate licenses (with Halifax and some others only under BoS and not under LB) and so one could have £85K in (brands of) both and still be fully FSCS covered.

https://www.fscs.org.uk/what-we-cover/p ... societies/ (click on Bank of Scotland and Lloyds at the left)

That aside, so to be clear, you are saying that:

a) any cash in my IWeb SIPP (or ISA or dealing a/c) will be passed out to at least 5 external banks to hold as retail cash deposits, and,

b) my portion of those retail cash deposits in each of those banks will be pooled for FSCS protection purposes with any other deposits I may, totally separately to IWeb, also have in those banks.

So, if I had, say, £75K cash in my SIPP and IWeb passed £15K (20%) of that out to, say, the XYZ Bank to hold, and I also had £80K in a savings account with XYZ then the FSCS would pool those and say that I had £15K+£80K = £95K in XYZ, of which only £85K would be covered if XYZ went belly up.

So, I ask again: can you please tell me in which banks IWeb holds client money, as it is impossible for your clients to ensure that their exposure to any bank is under the FSCS compensation limit without knowing where IWeb will be putting their cash deposits in IWeb SIPPs, ISA & dealing accounts.

<<<<< IWeb to me

I feel I should clarify that HSDL, as the stockbroking arm of Lloyds Banking Group, have their own separate FSCS membership, we would not be able to comment on the FSCS status of any other area of the group.

a) Any cash in my IWeb SIPP (or ISA or dealing a/c) will be passed out to at least 5 external banks to hold as retail cash deposits, - This is correct

b) My portion of those retail cash deposits in each of those banks will be pooled for FSCS protection purposes with any other deposits I may, totally separately to IWeb, also have in those banks. –This is also correct

So, I ask again: can you please tell me in which banks IWeb holds client money. -We are unable to disclose the names of the banks we may use to hold client money, however I would like to reassure you that the banks we use are under constant review, to ensure the safety and minimise risk to customers and the business.

------- End of exchange --------

So, they've confirmed what you and I understand but refused to tell me with which banks any cash in IWeb/HSDL accounts is held. If I can get the motivation up I suppose I should also ask the other brokers I use (ATS & II) which banks they put client money into, although I have a suspicion I'll get the same answer....

I was wondering if the lack of responses to my OP (thanks for yours ;)) was 'cos people were thinking they were unlikely to keep more than £85K (or even £50K) in a broker account, but the issue isn't as simple as that.

If you have savings, just normal savings, in various banks and have been careful to cap your exposure to any one to £85K you may find that any amount of cash you have in a broker may take you over the £85K FSCS limit for a bank if the broker has, unknowing to you, parked some of it in that bank.

ursaminortaur
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Re: FSCS protection for Cash in Brokers

#158760

Postby ursaminortaur » August 11th, 2018, 2:37 pm

mc2fool wrote:
ursaminortaur wrote:As I understand it there are two situations in which FSCS compensation might be paid out for cash with a broker.

Firstly if the broker was holding the cash temporarily itself without having paid it into a bank when it went bust or alternatively fraud or negligent behaviour had occurred. In those circumstances I believe that only the £50K investment compensation would be paid.

Ok, and possibly that may be what IWeb is referring to in the last sentence of:

"HSDL, along with most other investment firms, pass customer’s cash out to other banks to hold as retail cash deposits, as firms like HSDL are generally only allowed to hold a maximum of 20% of client money with any one bank. The money held by these external banks is held in ‘Trust’ for HSDL clients and is ring-fenced from other banking money.

Therefore in a situation where, for example, a stockbroker were to go bust but has been adhering to CASS rules a customer would ordinarily expect to get 100% of their assets back. It would only be where they haven’t been adhering to CASS rules where a customer might have to call upon FSCS and get back up to £50k.
"

If on the otherhand the broker had paid the money into one or more banks then the only circumstances where FSCS compensation would be paid would be if one (or more) of those banks had gone bust. In that case the broker would probably be OK and the FSCS limit would be the £85K deposit limit. The broker should hopefully be able to tell you which banks it uses to deposit client money. My understanding is that the FSCS would obtain a list of clients from the broker and treat them as if they were individual clients of the bank as far as the FSCS compensation was concerned and hence the amount of compensation you would be eligible to receive would depend upon what other deposits you had with that bank (or other banks covered by that institution's banking license).

Yes, and I've had a further exchange with IWeb on exactly that:

>>>>> Me to IWeb

Firstly, you seem to have conflated the £50K FSCS cover for investments with the £85K cover for deposits. I am concerned and asking only about the latter.

Also you say "All brands within Lloyds Banking Group are covered under one license and would therefore have a cash deposit cover of £85,000 across all brands", which I don't believe is true. The FSCS website says that Lloyds Bank and Bank of Scotland have separate licenses (with Halifax and some others only under BoS and not under LB) and so one could have £85K in (brands of) both and still be fully FSCS covered.

https://www.fscs.org.uk/what-we-cover/p ... societies/ (click on Bank of Scotland and Lloyds at the left)

That aside, so to be clear, you are saying that:

a) any cash in my IWeb SIPP (or ISA or dealing a/c) will be passed out to at least 5 external banks to hold as retail cash deposits, and,

b) my portion of those retail cash deposits in each of those banks will be pooled for FSCS protection purposes with any other deposits I may, totally separately to IWeb, also have in those banks.

So, if I had, say, £75K cash in my SIPP and IWeb passed £15K (20%) of that out to, say, the XYZ Bank to hold, and I also had £80K in a savings account with XYZ then the FSCS would pool those and say that I had £15K+£80K = £95K in XYZ, of which only £85K would be covered if XYZ went belly up.

So, I ask again: can you please tell me in which banks IWeb holds client money, as it is impossible for your clients to ensure that their exposure to any bank is under the FSCS compensation limit without knowing where IWeb will be putting their cash deposits in IWeb SIPPs, ISA & dealing accounts.

<<<<< IWeb to me

I feel I should clarify that HSDL, as the stockbroking arm of Lloyds Banking Group, have their own separate FSCS membership, we would not be able to comment on the FSCS status of any other area of the group.

a) Any cash in my IWeb SIPP (or ISA or dealing a/c) will be passed out to at least 5 external banks to hold as retail cash deposits, - This is correct

b) My portion of those retail cash deposits in each of those banks will be pooled for FSCS protection purposes with any other deposits I may, totally separately to IWeb, also have in those banks. –This is also correct

So, I ask again: can you please tell me in which banks IWeb holds client money. -We are unable to disclose the names of the banks we may use to hold client money, however I would like to reassure you that the banks we use are under constant review, to ensure the safety and minimise risk to customers and the business.

------- End of exchange --------

So, they've confirmed what you and I understand but refused to tell me with which banks any cash in IWeb/HSDL accounts is held. If I can get the motivation up I suppose I should also ask the other brokers I use (ATS & II) which banks they put client money into, although I have a suspicion I'll get the same answer....

I was wondering if the lack of responses to my OP (thanks for yours ;)) was 'cos people were thinking they were unlikely to keep more than £85K (or even £50K) in a broker account, but the issue isn't as simple as that.

If you have savings, just normal savings, in various banks and have been careful to cap your exposure to any one to £85K you may find that any amount of cash you have in a broker may take you over the £85K FSCS limit for a bank if the broker has, unknowing to you, parked some of it in that bank.


True but generally most people won't have much cash in their broker account most of the time. Thinking about it, even if the broker had an uptodate list of banks they used posted on their website they might well be changing it fairly regularly since most brokers make money out of the interest on those deposits and would presumably switch the accounts and banks to get better rates. Hence would it really be worth your time switching your investments around everytime they changed the list of banks they used just to be sure that you wouldn't lose a small amount of money (at most a fifth of what you had in cash) if one of those banks were to fail ?
Of course there are times when you could have a large amount of cash with the broker eg when about to take the 25% tax free lump sum from a SIPP but you would have to be awfully unlucky for the bank to fail at precisely that time.

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Re: FSCS protection for Cash in Brokers

#158766

Postby mc2fool » August 11th, 2018, 3:03 pm

ursaminortaur wrote:Thinking about it, even if the broker had an uptodate list of banks they used posted on their website they might well be changing it fairly regularly since most brokers make money out of the interest on those deposits and would presumably switch the accounts and banks to get better rates.

Yeah, I'd figured the same, and that's probably why they won't say which banks they're using, 'cos it's likely to change on a regular basis.

ursaminortaur wrote:Of course there are times when you could have a large amount of cash with the broker eg when about to take the 25% tax free lump sum from a SIPP but you would have to be awfully unlucky for the bank to fail at precisely that time.

Another situation is when one is about to transfer the CETV of a big (relative to FSCS limits) DB pension into a SIPP, and wants to invest it over a period of time (like a couple of years), rather than in one go.

Of course, one could put it into "safe" assets, instead of keeping it in cash, but as I said in my OP, I wanted to avoid sidelining into that here and just focus on the brokers' FSCS coverage in this thread. Maybe I'll start another on cash-like assets -- in a more appropriate board. ;)

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Re: FSCS protection for Cash in Brokers

#161263

Postby GrahamPlatt » August 22nd, 2018, 5:15 pm



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