Financial Services Compensation Scheme: Answers to Your FAQs

The Financial Services Compensation Scheme (FSCS) is a UK government-backed scheme that protects the customers of financial services firms. It was introduced under the Financial Services and Markets Act 2000 to protect customers in the event of their bank, building society, or credit union going out of business. The FSCS provides automatic protection up to £85,000 per person, per firm, and covers savings, mortgages, investments, and insurance products.

A survey of 2,000 people conducted by the FSCS in May 2023 revealed that many people are unaware of the scheme and the protection it provides. This lack of awareness can leave people vulnerable to financial losses if their financial services firm goes bust. Therefore, it is important for consumers to understand the FSCS and how it works to protect their money.

In this article, we will answer some of the most frequently asked questions about the FSCS and provide an overview of how it works. We will also discuss who is covered by the scheme, how to claim compensation, and how the FSCS applies in the context of Brexit.

Key Takeaways

• The Financial Services Compensation Scheme (FSCS) is a UK government-backed scheme that protects customers of financial services firms.
• The FSCS provides automatic protection up to £85,000 per person, per firm, and covers savings, mortgages, investments, and insurance products.
• Consumers should be aware of the FSCS and how it works to protect their money in the event of their financial services firm going out of business.

Understanding the FSCS

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The Financial Services Compensation Scheme (FSCS) is an independent statutory body that provides protection to consumers in the financial services industry. The scheme was established in 2001 and is funded by the financial services industry.

The FSCS provides protection to consumers in the event that a financial services firm fails. It covers a wide range of financial products and services, including savings, investments, pensions, insurance broking, and financial advice. The scheme provides protection up to a limit of £85,000 per person, per firm.

It is important to note that not all financial services firms are regulated by the Financial Conduct Authority (FCA) and therefore not all firms are covered by the FSCS. Consumers should always check whether a financial services firm is regulated by the FCA before investing any money.

The FSCS provides protection to consumers in the event that a financial services firm fails. It covers a wide range of financial products and services, including savings, investments, pensions, insurance broking, and financial advice. The scheme provides protection up to a limit of £85,000 per person, per firm.

Consumers should also be aware that the FSCS is not a compensation scheme for poor investment performance. The scheme only provides protection in the event that a financial services firm fails.

In summary, the FSCS is an important safety net for consumers in the financial services industry. It provides protection up to a limit of £85,000 per person, per firm, and covers a wide range of financial products and services. Consumers should always check whether a financial services firm is regulated by the FCA before investing any money.

Who is Covered by the FSCS

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The Financial Services Compensation Scheme (FSCS) is a UK government-backed compensation fund that provides protection to customers of financial services firms that go out of business. The FSCS was introduced under the Financial Services and Markets Act 2000 to protect consumers’ savings in the event their bank or building society went bust.

The FSCS covers a range of financial products, including bank and building society savings accounts, credit union savings, ISAs, and investments. The FSCS also covers insurance policies such as home insurance, car insurance, and life insurance. The FSCS compensation limits and compensation rules are set by the UK regulators, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

The FSCS provides compensation to eligible customers of failed financial institutions up to a certain limit. The compensation limit for deposits is currently £85,000 per person, per financial institution. This means that if a customer has a joint account, the compensation limit would be £170,000. The compensation limit for investments is currently £85,000 per person, per firm.

It is important to note that not all financial institutions are covered by the FSCS. For example, the FSCS does not cover investments in unregulated schemes, such as certain types of property investments or unregulated collective investment schemes. Additionally, the FSCS does not cover losses incurred due to poor investment performance or fraud.

In summary, the FSCS provides protection to customers of financial institutions in the UK. The FSCS covers a range of financial products, including bank and building society savings accounts, credit union savings, ISAs, and investments. The compensation limit for deposits is £85,000 per person, per financial institution, and the compensation limit for investments is £85,000 per person, per firm.

Claiming Compensation

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If a financial services firm fails and you are eligible for compensation, you can make a claim to the Financial Services Compensation Scheme (FSCS). To make a claim, you need to identify the firm that has failed and provide evidence to support your claim.

The FSCS can pay compensation up to the limit of £85,000 per person, per firm. If you have a joint account, this limit applies to each account holder. If your claim is successful, you will normally receive your compensation within seven days.

It is important to note that not all financial products are covered by the FSCS. The compensation limit and eligibility criteria vary depending on the type of product and the circumstances of the claim.

To make a claim, you will need to provide identification and other information to verify your identity. The FSCS will also assess the risks associated with your claim and may require additional information or evidence to support your claim.

Making a claim to the FSCS is free and you do not need to use a claims management company. The FSCS is funded by the financial services industry and is independent of the government.

Overall, the FSCS provides a valuable safety net for consumers of financial services. If you have any questions about making a claim or the compensation limit, you can contact the FSCS directly for assistance.

FSCS and Your Investments

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The Financial Services Compensation Scheme (FSCS) provides protection for investments up to £50,000 in the event that a firm goes bust. This includes both traditional and alternative investments, such as stocks, shares, and bonds.

It is important to note that the FSCS only covers investments made through regulated investment providers. If an individual invests directly with a company, the FSCS may not provide protection.

When it comes to pensions, the FSCS provides protection for both defined benefit and defined contribution schemes. However, the level of protection may vary depending on the pension provider and the specific circumstances.

Investors should always check that their investment provider is authorized by the Financial Conduct Authority (FCA) and covered by the FSCS. The FCA maintains a register of authorized firms, which can be accessed online.

In summary, the FSCS provides valuable protection for investors in the event of a firm’s insolvency. However, it is important to do your due diligence and ensure that your investment provider is authorized and covered by the scheme.

FSCS in the Context of Brexit

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The Financial Services Compensation Scheme (FSCS) provides compensation and protection to customers of authorized financial services firms that have failed. The FSCS is an independent body set up by the UK government and regulated by the Financial Conduct Authority (FCA). It is designed to protect consumers when financial institutions fail, and the scheme covers a wide range of financial products and services.

In the context of Brexit, UK-based customers of UK authorized firms will continue to receive FSCS protection. The FSCS protection for eligible deposits held by UK authorized banks, building societies, and credit unions in the UK will be protected after 31 December 2020, assuming the firm continues to be UK authorized. FSCS protection is not dependent upon the depositor’s place of residence, but where the bank, building society or credit union holds the deposit.

The FSCS protection for UK-based customers of UK authorized firms will not change as a result of the UK leaving the European Union (EU). The FSCS will continue to protect eligible deposits held by UK authorized banks, building societies, and credit unions in the UK. However, the FSCS protection for UK customers of EU authorized firms may change after Brexit.

It is important to note that the FSCS protection is not a substitute for taking appropriate financial advice. The FSCS does not protect against the performance of financial products or services, nor does it protect against market fluctuations or changes in exchange rates. Customers should always seek professional advice before investing their money.

In summary, the FSCS is an important protection scheme for consumers of financial products and services in the UK. The scheme will continue to provide protection to UK-based customers of UK authorized firms after Brexit. However, the protection for UK customers of EU authorized firms may change after Brexit. Customers should always seek professional advice before investing their money.