The Financial Services Compensation Scheme (FSCS) is an organization in the United Kingdom established to protect customers of financial services firms that have gone out of business. Here is detailed information about the FSCS:
History and Context
- The FSCS was established under the Financial Services and Markets Act 2000, coming into existence on December 1, 2001.
- It replaced several previous schemes that provided compensation for losses in banking, insurance, and investment sectors.
- The scheme was designed to increase consumer confidence in the UK financial system by ensuring compensation in case of firm failure.
Scope of Protection
- Deposits: The FSCS protects deposits up to £85,000 per person, per financial institution. This limit was increased from £50,000 in January 2011 to align with EU regulations.
- Investments: Compensation is available for investments up to £50,000 per person if the investment firm goes out of business.
- Insurance: Policies are covered up to 90% of the claim without any upper limit for compulsory insurance and up to £2,000 for non-compulsory insurance.
- Home Finance: Including mortgages, home reversion plans, and equity release products, with compensation up to £50,000 per person.
- General Insurance: If an insurance company goes out of business, policyholders can claim for the cost of settling outstanding claims.
Funding
The FSCS is funded by a levy on the financial services industry. Firms authorized by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA) contribute to the funding. The amount each firm pays is based on their share of the market and the risk they pose to consumers.
Claims and Compensation Process
- When a financial services firm fails, the FSCS steps in to handle claims from affected customers.
- Customers can make claims through an online portal, by phone, or by post.
- The FSCS aims to pay out compensation within 7 days for deposit claims and within 6 months for other claims, though this can vary.
Limitations
- The scheme does not cover all types of financial losses. For instance, losses due to market fluctuations or poor investment decisions are not compensated.
- Compensation levels are subject to change, and not all financial institutions are covered (e.g., some credit unions).
Recent Developments
- The FSCS has been expanding its scope, covering new areas like claims management companies since 2019.
- There have been discussions about potential reforms to enhance the speed and efficiency of payouts.
For more detailed information, you can visit the official FSCS website at FSCS or refer to documents from Bank of England - Prudential Regulation Authority.