Financial Services Compensation Scheme (FSCS)

The FSCS is the UK’s compensation fund of last resort for customers of authorised financial services firms. This means that the FSCS can pay compensation to your clients if a financial services firm is unable, or likely to be unable, to pay claims against it. The FSCS is an independent body, set up under the Financial Services & Markets Act 2000. The FSCS does not charge your clients for using its service. For investment business, FSCS may pay compensation up to £50,000 per firm to an eligible claimant. For deposit funds, FSCS may pay compensation up to £85,000 per deposit taker to an eligible claimant.

The FSCS can pay compensation if a number of conditions, set out in FCA rules, are met. The FSCS considers each claim individually at the time a claim is made to decide whether the conditions are met. The main conditions are:

An authorised firm must be “in default” – i.e. it is unable or likely to be unable to pay claims against it;

The claim must relate to a regulated activity that is protected by the FSCS, such as protected investment business;

The firm must be legally responsible for the claimant’s loss; and

The claimant must be eligible.

The eligibility of claimants is determined on a case by case basis. Claimants are eligible to claim unless they are excluded by the rules set out in the FCA Handbook. Private individuals, small companies, beneficiaries of trusts and SIPP investors are generally eligible to claim compensation where they are not connected to the relevant FCA regulated firm. Large companies and overseas financial service firms are excluded. As well as being an eligible claimant, your client needs to have a valid claim within the rules of the FSCS.

If your client is eligible for FSCS protection, the FSCS may pay compensation on your clients investment, up to a maximum of £50,000 per person. If your client invests as a joint account and both individuals are eligible under the FSCS, your client can claim up to a maximum of £100,000. A higher limit of £85,000 per person applies in relation to firms offering deposits such as banks and building societies.  It is possible to spread your clients’ money out with a variety of deposit/investment fund providers in order to gain more FSCS protection.

The company will have an FCA reference number, your client can check this on the FCA register.

No, if your client is eligible for FSCS compensation, the FSCS can pay up to a maximum of £50,000 per individual in respect of claims against investment funds and £85,000 for deposit funds.

Your client will not have compensation paid out automatically. Your client will have to apply for compensation. Please go to the FSCS website for more details: www.fscs.org.uk.

This information is provided for informational purposes only and does not represent investment advice, endorsement or recommendation to invest in any financial product or security. Customers are advised to consult a financial adviser in the event of any doubt regarding the suitability of any financial product.