If it fails

A failure is a sequence, not an event. Your balance joins a queue at a specific rung, and where it joined decides almost everything about what comes back - and when.

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Direct answerWhen an operator fails, the account is frozen, an insolvency practitioner takes control, the customer balances are reconciled against the money actually held, and the claims are paid in a legal order. A protected balance is paid out of the separated pool early; an unprotected one is an ordinary claim paid from what remains. Payment can take months and is often partial.

The sequence, in eight steps

Deposits and withdrawals stop. Access is usually suspended before anything is announced, because the operator's payment processing stops first.
The licence is restricted or suspended. The regulator acts separately from the insolvency, and the licence is not the money: a licence suspension tells you nothing about whether the pool is full.
The insolvency practitioner takes control. Administration, liquidation or whatever the company's own jurisdiction calls it. The practitioner answers to the law and to the creditors, not to the customers.
The customer records are reconciled. Balances are matched against the money held. This is where the reconciliation that existed (or did not) in the good times decides the answer.
The shortfall, if any, becomes public. The gap between balances and money held is now a number, and it is usually the first honest statement anyone has made about the pool.
Claims are invited and ranked. Customers submit claims, the practitioner classifies them, and each claim is assigned a rung.
Payments are made in the legal order. A protected pool is distributed early; general claims wait for what is left, often after a long realisation of assets.
One or more dividends, over a period. Payments are typically instalments, and can be a fraction of the claim.

The rung your balance occupies

Insolvency law pays claims in an order, and customer balances do not automatically get their own rung. Where a funds-protection condition applies, that condition is usually expressed as a rung - a specific place in the order, ahead of the general claims. Where no condition applies, the balance takes the rung an ordinary debt takes.

What a failure does not do

It does not make the balance unpayable. A claim against a failed company is a real claim, and a full pool pays in full. The uncertainty is the pool, not the right.
It does not make the balance grow. A balance is not a secured loan. No interest is owed because payment was slow.
It does not make a licence into cover. Supervision and insurance are different mechanisms, run by different bodies, and a licence does not pay anybody.
It does not happen to a whole market at once. Failures are company failures; operators fail one at a time, which is why an individual operator's own terms matter more than any general impression of an industry.

balances owed: 4,000,000; a protected pool holding 3,600,000
costs of the insolvency: 500,000; other assets available: 300,000
protected claims are paid from the pool at 3,600,000 / 4,000,000 = 0.90
a 500 protected balance pays 450, before any general dividend
an unprotected 500 balance joins the general claims: what is left after the costs is 300,000
general claims total 4,000,000 + the operator's own 600,000 = 4,600,000
the general dividend on what remains: 0
the same 500, two rungs apart: 450 against 0

The illustrative numbers are round because the point is a rung, not a rate. Two identical balances held by the same failed operator can produce those two outcomes, and nothing about either customer's behaviour made the difference.

What a reader can do before any of this

Keep a current statement - a dated record of the balance, produced by the operator, before anything is wrong. In an insolvency it is the evidence of the claim.
Read the clause now, not later. The terms and the licence condition are both public while the operator is solvent and both become hard to find afterwards.
Do not treat a large balance as a deposit. A balance is a claim; the smaller it is, the less a shortfall costs.

This page is a disclosed sponsored link away from a partner operator. It makes no prediction about any operator's solvency, asserts nothing about any pool, and describes the mechanism in general terms only.

Open the partner account

Where to go next

Whose money it is - why the claim is a debt and not a thing.
What was in flight - the instruments that are not a balance at all.
The custody check - the five lookups, while everything still works.

The pool The general claim The rung, not the rate