THE EDUCATION SECTION Every month we look at a particular financial topic in a little more detail. This month it is the FSCS (updated February 2017) ____________________________ What is it? • The Financial Services Compensation Scheme (FSCS) is the official body that can pay you compensation if your financial services provider fails - known as being 'in default'. Key points • Limits apply to how much compensation the FSCS may be able to pay, and those limits vary between different types of financial products. • For the FSCS to pay you compensation, the provider must be authorised by the Financial Conduct Authority (FCA). • The FSCS is an independent body set up by government under the Financial Services and Markets Act 2000. How is it funded? • Financial services providers fund the FSCS and the compensation paid. What is the compensation limit? • Deposits Compensation limits apply to individuals not accounts. This means that for joint accounts the limit applies to each named account-holder. So for example, if you have a joint account with your spouse or partner, you could each make a claim of up to £85,000 under the deposit limits. • Investment business £50,000 per person per firm for claims against firms declared in default from 1 January 2010. For firms declared in default before that date the maximum level of compensation for claims is 100% of the first £30,000 and 90% of the next £20,000, up to £48,000 per person per firm. • Home finance (mortgages) £50,000 per person per firm for claims against firms declared in default from 1 January 2010. For firms declared in default before that date the maximum level of compensation for claims is 100% of the first £30,000 and 90% of the next £20,000, up to £48,000 per person per firm. • Insurance policies The FSCS's main aim is to secure continuity of cover for policyholders - that means, for example, ‘we will try to transfer your insurance policy to a new insurance provider. If that is not possible we can pay compensation at the level of 90% of the value of your claim with no upper limit. Some compulsory insurance, like third-party motor insurance, is protected in full.’ • Insurance broking The FSCS can pay compensation at the level of 90% with no upper limit. Compulsory insurance, like third-party motor insurance, is protected in full. What is covered? • Deposits This covers money in current accounts, savings accounts, etc. If your bank, building society or credit union is unable to return the money in your account to you because it’s in default, the FSCS may be able to pay compensation. • Investment business The FSCS can pay compensation to consumers who lose money because of bad or misleading advice, negligent management of investments, misrepresentation or fraud, and the firm concerned has gone out of business and can’t return your investments or money owed. The FSCS do not pay compensation for losses arising solely from investment performance. • Home finance (mortgages) The FSCS can pay compensation if a firm advised you to enter into a mortgage agreement that wasn’t suitable for you, and you lost money as a result, and the firm concerned goes out of business and can’t return money owed to you. • Insurance policies The FSCS can pay compensation if an insurance firm becomes insolvent and can’t pay valid claims under the policy or return your premiums. The cover does not apply to policies on marine, aviation, transport business, credit insurance or reinsurance. • Insurance broking The FSCS can pay compensation if you were mis-sold an insurance policy and lost money, or if you were a victim of fraud. The cover does not apply to policies on marine, aviation, transport business, credit insurance or reinsurance. What is ‘overlap’? • With reference to deposits, some banks, building societies or credit unions share FSA authorisation. This is known as ‘overlap’, and is important to know because the FSCS compensation limit for deposits applies per authorised firm - not by brand. • Some banking brands are actually part of a single authorised firm - A good example is Bank of Scotland and Halifax. If you have a current account with Bank of Scotland and savings with Halifax, as they share the same FCA authorisation they are classed as a single firm. That means your total limit for compensation is £85,000 in total, shared across both Bank of Scotland and Halifax. Click here to go to the FCA search page for more help. Click here to go to the FSCS Compensation limits page. Finally, as always, do not hesitate to contact us if you would like further details or information.