What is the FSCS?

Created in 2001 as a result of the Financial Services and Markets Act 2000, the Financial Services Compensation Scheme (FSCS) is the UK’s deposit insurance and compensation scheme for customers of authorised financial service companies. If you’re wondering what all that means and why it’s important, here’s what you need to know.

What is the FSCS?

The FSCS is there to protect your money if the financial institution holding it goes bust. It applies to institutions such as banks, building societies and credit unions which have been authorised by the Prudential Regulation Authority.

What is an e-money institution?

Crucially, the FSCS does not apply to “e-money” institutions. There are e-money firms which offer, for example, pre-paid cards which you top up to use for transactions in the UK or abroad. Money you deposit in such accounts is not protected as it is when you deposit it in a licensed bank, so if an e-money firm went bust, you might not get back all your money.

How does the FSCS work?

If you hold a current or savings account with a bank that’s covered by the FSCS, and that bank gets into trouble and fails, the FSCS will ensure that you won’t lose eligible savings up to £85,000. That last part is important – any amount you hold over £85,000 in one institution is highly unlikely to be protected.

For joint accounts, each account holder can usually make a separate claim, so the limit would be £170,000.

It’s worth being aware that if you have more than £85,000 spread across multiple bank accounts, but your accounts are ultimately part of the same banking group that holds one licence for all the banks involved, you won’t get more than £85,000. You can search the FSCS register to find out the banks to which this applies.

Since 2011, the FSCS has provided over £60 million in compensation to claimants. It’s independent of the government and the financial services industry and is funded by levies paid by authorised financial services firms.

Am I eligible to claim compensation?

It’s also really important to understand the FSCS’s eligibility rules, as it’s these that will determine who receives protection and who doesn’t. Set by the UK’s financial service regulators, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), the following are the FSCS’s eligibility criteria:

• To claim compensation, the financial services firm that has your money must have failed and be unable to return it.
• The firm must have been authorised by the FCA or PRA at the time you deposited your money.
• The firm must have been negligent in relation to an activity covered by the FSCS.
• You must have suffered financial loss and be a private individual, although some businesses and charities are eligible, too. The FSCS has a dedicated section on how it treats business accounts.

How do I make a claim?

If you think you’re eligible for compensation, you can use the FSCS website to make a claim. It’ll take around 90 minutes to complete the online form, but you can save your progress and resume it another time if you’re busy.

Once you’ve completed your application, your claim will be investigated. During this time, the FSCS may contact you or a third party, such as a product provider. The duration of this process is determined by how quickly the FSCS receives responses to requests for information – complex claims can take up to six months to be investigated. You’ll be notified if you’re eligible for compensation at the end of the process. You can also challenge the outcome of the FSCS’s investigation if you’re unhappy with its decision.