Long term investing reassurance (hopefully)

Hi all

I hope this is not a daft question but has been on my mind. New to investing here. So what happens if trading 212 goes bankrupt? (To note I am impressed by what I have seen so far …but thinking of worst case scenario ). I know that FCA cover £85000. But for example over many years of compounding I have £500000 invested in etfs. What is the process if it goes bust then (or any other similar app /service) ??

Thanks

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Hi Bob, good question and an important question… just like they say to not put all your eggs in one basket, similarly you can keep your securities/shares in multiple brokerages.

For example most brokerages in the US cover up to .5 million in securities, half of which could be cash.

This is also what some institutional investors do.

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You can combine the information that you find on this post (btw I recommend the whole blog) with the one you can find here and you can get an idea of what can happen in the worst case scenario.

I hope it became a bit more clear, but of course there might be additional information that is not covered and maybe the Trading 212 team can help you.

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Thanks for replies

Having read through I think my concern was more with regard to security of equities. The document you attached states interactive brokers cover upto 30 mil. So I guess it pretty safe to be just working with trading 212 alone rather than multiple brokers.

Or is it still a better strategy to have several portfolios in multiple brokers?

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Bob,

Here’s a summary of things to consider regarding the protection of your funds:

How is Trading 212 regulated?

We are headquartered in the UK. All our clients are onboarded in our FCA-regulated entity. We don’t have any operational entities outside the UK and the EU. Balances of cash and equity, capital adequacy and transactions are reported to the regulator on a daily basis.

Are my funds protected?

Yes, up to £85,000 by the FSCS.

Where is my equity?

When you invest with Trading 212, your equity is held in custody at Interactive Brokers. They are the biggest broker in the world by the number of daily trades. They hold $160B in client assets.

Where is my cash?

Your money is held at Barclays Bank in a segregated account which means that we can’t touch it.

Does the company have solid financials?

  • Trading 212 has been profitable every single year since its founding 16 years ago.
  • We have no debt.
  • We have solid cash reserves
  • It’s very cost-effective for us to offer free share dealing because over the years we’ve already invested a lot in infrastructure and platform development for our CFD business.
  • Our existence does not depend on VC funding or crowdfunding.
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That has been the reassurance I was looking for. Thanks.

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The investing side of T212 is so good I personally feel it is worth paying for. I understand T212 is already profitable and I hope the Investing side can be profitable in its own right too.
It’s a great platform for investing and has exceeded my expectations from day 1.

@Rishi you have said that before and I’m sure I replied to that too.

its good that it is worth paying for, but T212’s approach and appeal to clients is that you don’t pay anything to use the service unlike their competitors. If you have to pay a fee just to invest, why not invest through your bank? or through a traditional broker? et cetera.

the current trend is for brokers to remove their fees to allow clients to earn more from their capital. going in reverse isn’t even an option if the broker wants to stay a viable contender in the market.

investment profitability needs to come in the form of optional services that aim to enhance your investment returns. for example, something similar to how The Motley Fool runs a “Share Adviser” service that has a track record return rate of 3x the market average. would be a viable paid service.

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@AlexK I wish we would have a higher limit for protected funds like they have in the US which is up to 250.000 $
as a long term investor I’m looking to have a bigger portfolio than just 90.000 € (85.000£).
Not sure I would be able to sleep at nights going over the limit though.

you will not see a larger protection by a regulator. investing large sums of money is perfectly safe.

the £85k is a worst case bottom value bailout in case everything goes wrong at once. you will never see this happening as you will find a much larger portion of your funds will be paid out in the case of failure

I mean, how can you say it’s safe if it’s protected just up to 85k £? Those are safe but if I’m willing to invest more I risk the rest if something was going to happen to t212 or the bank holding my assets/funds

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the fscs protected funds of £85k is an insurance payout on the grounds the bank holding the funds goes under and it cannot afford to pay you back what is stored with them. this won’t happen in reality as this assumes that the bank has to spend all of your money just to close down. all banks and institutions like T212 are required to hold a certain amount of funds for the express purpose of ensure a smooth closure occurs without client assets/funds being impacted.

the fscs protection is like life insurance for the bank. its basically just saying “dont worry if I die while holding your money. I am insured so you will definitely receive so much back in the worst case scenario” and these worst case scenarios just don’t come to pass, they are for reassuring customers and clients. instead of focusing on this bottom bracket payout, realise that the payout for almost all people in almost every situation will be much closer to the full balance of your account that is in excess of this minimum payment.

to make another comparison, walking is a safe activity, the bank holding your funds is like you walking. there is a risk you will trip so they tell you there is a railing for you can grab onto, this doesn’t mean that you need the railing to keep upright if you trip. its just there as potential support for if you are unable to keep yourself from falling over and you aren’t guaranteed to trip in the first place, its just a possibility that comes with walking.

the only people who worry about the £85k protection are fatalists who confuse a minimum protected balance with the actual payment you will receive. having a protection of £85k DOES NOT mean you will only receive £85k payment in case of collapse.

this is the stock market, your capital is at risk just by being in the market. you are more likely to lose your own money than T212 or your bank is for holding your funds during a collapse. clearly I need to make a proper thread on this topic because people are taking the fscs protection at face value without trying to understand what it really entails.

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Yeah I totally understand your point and agree with it. I’m just trying to figure out what happens in every possible situation. The other day I was reading about a broker that went bankrupt few years ago, I’m not saying it’s gonna happen to T212 but anything is really possible and in that case if i had 200k in T212 will the bank step forward with my assets or the fscs? That’s also what I’m not sure yet. But yeah if you ever make a proper thread about it as you seem to understand this very well it’d be very appreciated !:smiley:

Hey Dao

  1. So I am from Switzerland and my account is also safe up to 100 000 Euro?

  2. This 100 000 Euro is just the cash on my portfolio or the stocks I have?

For example I have 200 000 Euro Cash on my Account and Stocks worth 120 000 Euro - > so everything is safe or just the cash for 100 000 cash? (-220 000 euro)

Or are the 120 000 Euro in stocks safe till 100 000Euro? (also - 220 000 euro)

Or is both together so 320 000 Euro safe up to 100 000 Euro? (also - 220 000 euro)

Hope you understand me :wink:

@reLapse

My current understanding is that as funds (cash) are stored with a 3rd party which is registered with the FSCS, the cash balance of your account should be protected up to £85k (thus whatever this equates to in Euro’s at the time of collapse/claim, though not sure which) and there is no explicit statement that requires you to be a UK citizen to receive this protection as it is set up in line with the EU’s requirements for member states to run such protection schemes.

As T212 holds your shares, I think these are treated separately and T212 would go through the work of sorting out who owns what and making preparations for transfer these shares to a broker of your designation.

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1) your Investments may not be segregated and separately identifiable from the Investments of the firm or custodian in whose name your investments are registered;

2)as a consequence, in the event of a failure, your Investments may not be as well protected from claims made on behalf of our general creditors. You should note that when we arrange for a third-party to hold your Investments overseas there may be different settlement, legal and regulatory requirements than those applied in the UK.

  1. Where can I find information about custodian account in whose name my investments are going to be registered? Can’t find any. I want to know who can I contact in case T212 goes down.

  2. So basically you are saying that in the event of the failure your are going to prioritize other creditors and not us I don’t feel that safe knowing this…

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Correct me if I am wrong here.

I understood that cash / free funds are kept with Barclays in a segregated account

There equity (which I understand is the money you have invested in stocks / shares / funds) is in the custody of interactive brokers …who are absolutely massive. Look it up on Google. Seems likely that most of these apps use interactive brokers. So if folk are thinking of looking elsewhere would likely think you’d be in a similar situation with any broker/ app

I may be completely misunderstanding

Bob

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@Kraske its not T212 that is doing the prioritising. that would be those on the other end looking to collect from T212 what they believe is theirs.

there is an order when it comes to settling accounts and at the top of the list are the powerful entities in direct contract with the company, as signed and agreed in legally binding paperwork.

just look at what happened when Thomas cook collapsed, the first to claim their dues were those owed money by TC according to contractual obligations, shareholders had to wait for whatever was left before receiving their cut.

  1. this just tells you that T212 holds a large pot that contains all the shares which are entrusted to them on our behalf. when we purchase a share, T212 does so for us and holds onto it, then essentially logging in a separate ledger that we are the owners of x.x numbers of shares in that company/ETF/Bond. we don’t have our personal names on any of the shares (like if we were to purchase direct from the company or hold physical certificates) which is why it mentions they cannot be distinguished, but you would receive your portion once they are able to check the ledger against your name, as recorded in your account. T212 going down wouldn’t simply be an overnight thing and so you can expect them to go through the process of sorting through ownership until everything has been settled.

  2. debts are always repaid before wealth is distributed. no matter what, this happens first and the same occurs when people pass on their wealth via a will, debts are calculated and subtracted from the total sum before the remaining wealth is distributed as stipulated. In this case, T212 holds onto their own funds which will be weighed against any contractual obligations including debts, these will be attended to first and foremost to settle accounts. this will happen with any platform/broker you invest with not just T212. Any impact to investments would end up shared across all accounts and not covered by any specific individual should this occur and the effect would be marginal. It’s not a credible worry to have compared to the risks of you losing your money from making poor trading/investing choices.

As long as T212 remains well covered and debts are managed, I am not worried about my investments being with T212.

@Bob Indeed. Shares are in a pooled account with Interactive Brokers while funds are protected in segregated Barclays accounts that T212 cannot access to prevent fraud concerns.

what I don’t understand is why there are so many people lately trying to look into the wording of the terms, concerned that T212 is going to suddenly fail. I know that the stock market seeing such massive devaluation has people spooked but still…

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Hi Kraske,

We understand your concern, but in practice, this provision is not applicable with respect to your investments, please find out why:

The said provisions are intended to predict a hypothetical case where, in consideration of your best interests, your assets may be temporarily commingled with some of our own assets. Something we do not and do not intend to do. This is allowable for professional clients, not for retail - but we currently segregate all assets irrespective of classification.

Furthermore, if this hypothetical case occurs, then another hypothetical event would have to occur - either us or the custodian become insolvent. The reason for the provisions to exist in our agreement is that when drafting we tried to foresee all services that we may provide to our clients. However as stated above, due to the uncertainties in such scenarios, we are not commingling client assets with proprietary assets in any way. If you are a retail client, this would not be allowed, and our compliance with this restriction confirmed by our auditors.

In reply to your questions, please be informed that:

  1. The custodian we have been using for some years now is Interactive Brokers LLC (a member NYSE - FINRA - SIPC and regulated by the US Securities and Exchange Commission and the Commodity Futures Trading Commission). We hold an agreement with Interactive Brokers, that affirms the separation and segregation of clients’ (your) assets. The said agreement, its terms and the whole custodian relationship process is audited yearly by our client assets auditors as part of the regulatory confirmation required by FCA.

You can double-check the custodian, by reviewing the Best Execution reports, uploaded on our website (Client reports EQ) where you will see that the custodian and execution venue is Interactive Brokers LLC.

Furthermore, please be advised that Interactive Brokers also has equivalent client asset protection regulations similar to the UK. For the avoidance of doubt In the event of T212 UK / Interactive Brokers failure (for example due to insolvency), any assets held in a client assets account by third parties will be segregated from our / IB’s other assets and will not be available to our / IB’s creditors.

  1. As explained above your assets are segregated from our / IB’s assets at all times, so your assets and your claims will never compete against our creditors’ claims.

Particularly, please note that all investments (money or shares) are held on your behalf in accordance with the FCA’s Client Assets Rules. Ultimately, all of our clients’ money and assets are held and safeguarded in segregated accounts alongside the property of our other clients, hence segregated from all our obligations towards third parties.

Finally, to address any concerns, please note that as a firm regulated by FCA we are also subject to the requirements of the capital and liquidity rules of the FCA which requires T212 UK to ensure that it has sufficient financial resources to meet its liabilities as they fall due. T212 UK monitors its financial resources on an ongoing basis and reports the results to its Board and to the FCA. We are subject to yearly External Audit by a reputable audit firm of accountants who come to verify and confirm our compliance with the FCA rules to safeguard clients assets and to assess the basis of our financial resources.

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@Dao yeah I think a lot of folk are probably new to investing (a lot of new accounts on trading 212) and are worrying about the worst case scenario. I am pretty new to it. However from the responses here and a few other posts I am not worried anymore . On a side note a few have suggested investing in many different platforms… I am not seeing any point in doing that especially given the complications with regard to how many ISA accounts you would need to set it up.

@AlexK you and your team doing a great job both with the app and also answering these questions.

Bob

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