Financial Services Compensation Scheme (FSCS)

The Financial Services Compensation Scheme ( FSCS )is a 'one-stop compensation shop' created under the Financial Services and Markets Act 2000.

The scheme has the power to compensate consumers in the event of the failure of any authorised firm under the Financial Services and Markets Act, and covers mortgage brokers, mortgage lenders, insurance companies, deposit-takers and investment firms. The FSCS replaced the following compensation schemes:

  • Building Societies' Investor Protection Scheme
  • Deposit Protection Scheme
  • Friendly Societies' Protection Scheme

The FSCS was set up mainly to assist private individuals, although small businesses are also covered. Larger businesses are generally excluded,although there are some exceptions to this for deposit and insurance claims.

Deposits

FSCS provides protection for consumers of deposit-taking companies (for example banks and building societies). The maximum level of compensation you can receive from the scheme for a deposit claim is £31,700 (100% of £2,000 and 90% of the next £33,000).

The compensation limit applies to each depositor and covers the total of all their deposits held with that firm.In the case of joint accounts each individual is eligible to receive compensation up to the maximum limit in respect of their share of the deposits (FSCS will assume the split is 50/50 unless evidence shows otherwise).

Investments

The scheme covers two kinds of investment loss:

  • When an authorised investment company goes out of business and cannot return your investments or money.
  • Loss arising from bad investment advice or poor investment management

The maximum level of compensation you may receive from the scheme for a claim against an investment firm is £48,000 (100% of the first £30,000 and 90% of the next £20,000).

Insurance

Insurance policy holders are protected if they are insured by authorised insurance companies under contracts of insurance issued in the UK, or in some cases in the EEA, Channel Islands or Isle of Man. The scheme covers compulsory, general and life insurance and is triggered if an insurance company goes out of business or into liquidation. With effect from 14 January 2005, the scheme also covers insurance broking.

The maximum level of compensation you can receive from the scheme for a claim against an insurance company depends on the type of insurance policy although the FSCS may arrange to transfer your policy to another insurer, provide a new policy or, if this has not been possible, provide compensation.

  • Compulsory insurance, such as third party motor insurance, is covered in full.
  • Non-compulsory insurance (such as home insurance): the first £2,000 of a claim or policy is protected in full. For amounts above this threshold, 90% of the remainder of the claim or value of unused premiums will be met.
  • Long-term insurance (such as pensions plans and life assurance): the first £2,000 of a claim or policy is protected in full. For amounts above this threshold, the scheme covers payment to 90% of the value of a policy in liquidation.

Mortgages

Mortgage advice and arranging undertaken on or after 31 October 2004 is covered up to a maximum of £48,000 per person. The FSCS will pay out 100% of the first £30,000 and 90% of the next £20,000 for claims against authorised mortgage firms that are unable to pay claims against them.