Financial Services Compensation Scheme:
Financial Services Compensation Scheme (FSCS): Comprehensive Client Guide
Introduction
The Financial Services Compensation Scheme (FSCS) serves as the United Kingdom’s statutory compensation fund of last resort for customers of authorised financial services firms. Established under the Financial Services and Markets Act 2000, the FSCS provides protection to consumers when financial institutions fail and are unable to meet claims against them. The scheme enhances public confidence in the financial system by ensuring that individuals and small businesses are safeguarded against financial loss in such circumstances.
Scope of Protection
The FSCS covers a range of financial products and services, including:
- Deposits: Protection for savings held with banks, building societies, and credit unions.
- Investments: Compensation for losses arising from poor investment advice or mismanagement.
- Insurance: Coverage for certain types of insurance policies.
- Mortgage Advice and Arranging: Protection for unsuitable mortgage advice leading to financial loss.
- Funeral Plans: Compensation for failed funeral plan providers.
Compensation Limits
The FSCS provides compensation up to specified limits, which vary depending on the type of financial product:
- Deposits: Up to £85,000 per eligible person, per authorised firm. For joint accounts, the limit is £170,000. Certain temporary high balances up to £1 million are protected for six months from the date of deposit.
- Investments: Up to £85,000 per person, per firm, for claims against firms declared in default on or after 1 April 2019.
- Mortgage Advice and Arranging: Up to £85,000 per person, per firm, for claims against firms declared in default on or after 1 April 2019.
- Insurance:
- Compulsory Insurance: 100% of the claim with no upper limit.
- Non-Compulsory Insurance: 90% of the claim with no upper limit.
- Funeral Plans: Up to £85,000 per person, per authorised firm, for claims against firms declared in default on or after 29 July 2022.
Claims Process
The FSCS aims to process claims efficiently and transparently:
- Eligibility Check: Determine if the claim falls within the FSCS’s remit.
- Application Submission: Claims can be submitted online through the FSCS website.
- Assessment: The FSCS assesses the claim based on the information provided.
- Decision and Compensation: If eligible, compensation is paid directly to the claimant.
Timeframes for processing claims vary:
- Deposits: Typically within seven days of the firm’s failure.
- Investments: Approximately 10 months.
- Pensions: Approximately 12 months.
- Mortgage Advice: Approximately 5 months.
Recent Developments
In March 2025, the Prudential Regulation Authority (PRA) proposed increasing the deposit protection limit from £85,000 to £110,000 to account for inflation and enhance consumer protection. The proposal is under consultation, with a decision expected by November 2025. If approved, the new limit would take effect from 1 December 2025.
Conclusion
The FSCS plays a crucial role in maintaining trust in the UK’s financial system by providing a safety net for consumers. Understanding the scope and limits of FSCS protection is essential for individuals and businesses to make informed financial decisions. For more information or to make a claim, visit the FSCS website at www.fscs.org.uk.
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