I'm using Scalable Capital as my broker. Once I buy ETFs through them, if Scalable Capital (or the bank they are partnered with) goes into insolvency, is my investment safe? I'm wondering if I should be using different brokers to split my investments through (but invest in the same ETFs) or is it safe to use the same broker for ever-larger amounts?

  • @mhoran_psprep the answer to both is Germany.
    – MarkJeglic
    Commented Aug 31, 2021 at 10:11

5 Answers 5


I'm German, but not a lawyer, so I can't really make sense of the statute of the Entschädigungseinrichtung alluded to in another answer. But the reputed German finance/consumer magazine "Finanztest" explains that your securities are yours and remain yours, even if your broker goes bankrupt. In case of bankruptcy, your broker has to transfer your securities to another broker or bank. They can't hold on to them, as they don't own them but only "hold" (verwahren) them for you. The worst that can happen is that during this time you won't have access to your securities for longer than you wish. (Source)

The Entschädigungseinrichtung comes into play when your insolvent broker has also defrauded you, for example by illegally lending your securities to a third party or by using your money for something else than carrying out your orders. In these cases, your broker or bank never held any of your securities (or at least not the volume you thought you would own), so if they become insolvent, there is nothing to transfer to another broker. The Entschädigungseinrichtung has been established through legislation to reimburse 90% of your claims in this case, but only up to a maximum of 20,000 Euros. Individual institutions, such as Sparkassen and Genossenschaftsbanken may offer a higher compensation voluntarily. (Source)

Your broker seems to be based in Germany and offer portfolios administrated by German banks, so they indeed are covered by the Entschädigunsgeinrichtung, but I don't know if they offer an additional safety net.

  • Very useful, thank you!
    – MarkJeglic
    Commented Sep 1, 2021 at 12:31
  • @MarkJeglic you're welcome. I've added a few more details. Commented Sep 1, 2021 at 15:38
  • IANAL but I am pretty sure that the first recourse against a broker who has defrauded you would be going against him. In case of fraud he would not be protected by having setup a corporation, he would be personably liable and his assets could be seized to pay for what he owes to the OP (apart from prison/fines). Most likely the Entschädigungseinrichtung would come into play for the money that could not be recovered this way.
    – SJuan76
    Commented Sep 2, 2021 at 11:21
  • @Sjuan yes, suing the broker doesn't preclude you from tapping the Entschädigungseinrichtung. The idea behind the latter is to have some insurance in case your fraudulent broker goes broke. (Pun unintended.) A court might find the broker liable and award you a title, but if your broker can't pay, that's practically worthless. Commented Sep 2, 2021 at 11:32

A simple insolvency or bankruptcy of a broker shouldn't affect that status of ETFs and stocks you own, because they are not part of the assets of the broker. This is different from fractional-reserve banking where the funds you deposit are reinvested elsewhere.

However, there is always the risk that a broker is acting dishonestly, and that the stocks their website claims you bought never even existed. Or the records of ownership could be incorrect or lost during the aftermath. Legal reporting requirements and audits are supposed to prevent this.

  • Not every banking system has fractional reserve requirements. Your money is not "leant elsewhere", rather the bank creates money when it extends loans. In many cases, such as in the EU, there are schemes where your deposit is guaranteed to a certain amount. en.wikipedia.org/wiki/Reserve_requirement
    – Heuriskos
    Commented Sep 3, 2021 at 8:23

It looks like there is a German guarantee scheme for this, through the Entschädigungseinrichtung der Wertpapierhandelsunternehmen (summary in English, or auf Deutsch).

(I don't speak German but was able to trace this through Wikipedia, which mentions it as the relevant authority for brokerages. Banks are covered by a different scheme, but it seems to have similar coverage).

The cover is not complete, however:

The amount of compensation awarded to each investor under securities transactions is 90% of the claims against the securities trading company (not more than EUR 20,000). Compensation cannot be claimed unless the funds are denominated in a currency of a EU member state or in euros. Further exclusions are regulated in section 3 (2) of the AnlEntG.

So there is a hard cap at 20,000 euros compensation (compare to guarantees for bank savings accounts, which are often higher), and some types of investment may not be covered.

  • Thank you! I read something similar in the T&Cs of my broker but didn't quite believe it. So this means if I hypothetically have 100,000€ in ETFs and the broker/bank goes into bankruptcy, I could lose 80,000€? Bah.
    – MarkJeglic
    Commented Aug 31, 2021 at 12:24
  • 1
    @MarkJeglic as the other answer notes, there's a good chance that - if it was well-run - you would not lose anything, since your broker should have client assets kept well separate from their own funds. Commented Aug 31, 2021 at 18:26
  • 1
    The Entschädigungseinrichtung probably covers claims against the broker. Once you have bought ETF from the seller (issuer) via the broker and the transaction is concluded, you don't have any claims against the broker, so there is no Entschädigung (compensation) you could claim from the Einrichtung. However, most of the time this is not an issue, as the ETF are then yours. Commented Sep 1, 2021 at 7:28
  • @henning, the law ( gesetze-im-internet.de/eaeg/__1.html ) mentioned in this answer's linked article specifically includes this case Hierzu gehören auch Ansprüche von Anlegern auf Herausgabe von Instrumenten, deren Eigentümer diese sind und die für deren Rechnung im Zusammenhang mit Wertpapiergeschäften gehalten oder verwahrt werden. - i.e. the law covers the case where the company cannot return your "instruments" to you.
    – AnoE
    Commented Sep 1, 2021 at 8:25
  • @AnoE okay, I'm not a lawyer, but I'd be surprised if this claim (Anspruch) should be limited to 20,000 euros, especially since the same sentence says that the investor is the owner of these "instruments" and that the broker is merely "holding" (verwahren) them. Commented Sep 1, 2021 at 8:32

Brokerages can always fail.

MF Global was enormous and the CEO used clients funds — in segregated accounts to cover bad gambles (in Euro bonds default swaps I believe). USA investors had to wait for bankruptcy proceedings to complete — years to get their money and if there had turned out to not be enough funds they would have lost pro rata.

Many investors in small brokerages lose all their money when the brokerages go bankrupt.

In the fine print of your account agreement is their right to "re-hypothecate" funds — loan them out.

Split your funds among several brokers.

Keep an eye on their balance sheet.

Occasionally withdraw some money and see how smoothly it goes. Make sure you know the details of wiring out funds and have it ready.

Cross-contagion risk in the financial markets is now enormous.


ETFs are usually in a Luxembourg SICAV (shell company) which holds the shares bought by the ETF. As a holder of the ETF shares, you own part of that SICAV, and they are not on the balance sheet of the broker, while any cash you might have on the broker account is a debt of the broker to you.

However the broker holds all the shares of their customers in large portfolios at banks or central securities depositories and if the broker is bankrupt, it might take months or years to sort out who owns which parts of these portfolios.

In addition, you have to look at the composition of the ETFs. Normally, they hold stock or other securities outright, but they could also hold performance certificates issued by a third party, and such certificates are at risk if the issuer becomes insolvent.

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