FSCS stands for ‘Financial Services Compensation Scheme’. It is the UK’s scheme for offering compensation in the event that your financial service provider goes bust and you’ve lost money. It typically covers bank and building society deposits, pension schemes, insurance, funeral plans, credit unions and some other investments. If you have been mis-sold something and are due compensation, but the provider has gone bust you will usually be covered. The scheme exists to provide protection to consumers and to help prevent bank runs by giving investors assurance that funds are protected.
Whilst essentially a government organisation the FSCS is independent and not funded by general taxation. It is not the same as the FCA (Financial Conduct Authority) or the PRA (Prudential Regulation Authority) although it is ultimately accountable to these bodies alongside HM Treasury. In its current form it was created under the Financial Services & Markets Act 2000, although similar functions existed previously. In the FSCS’s latest financial year (ended 31st March 2024) the FCA paid out £423m in compensation to 19,008 customers who had experienced losses from 447 different firms.
The FSCS will cover you as an individual for amounts up to £85,000 per institution invested in. This is doubled for a joint account held in two people’s names. Temporarily deposited amounts (for example from a house sale) of up to £1m are covered for up to 6 months. Pensions with pension providers are protected with no upper limit. 90% - 100% of an insurance claim will be protected. More information, as well as some snazzy videos, is available on the FSCS's website. The FSCS is funded by a levy on financial services firms (much like the FCA), making a claim under the FSCS is free* and the money will usually be refunded within 7 days.
Whilst the FSCS is great news for us as individuals (or for small businesses or charities) in most cases larger local authorities are public authorities and so are not eligible to make a claim. This means that unfortunately the FSCS cannot be relied upon as an easy ‘get out of jail free card’ for treasury managers within these organisations: for whom at any rate £85,000 is likely to be a rather negligible amount. However, thanks in part to lobbying from Arlingclose small local authority deposits are covered. ‘Small local authorities’ are defined as authorities with an annual budget of up to €500,000 (the regulation regarding this is pre-Brexit and thus references Euros rather than Pounds) which will include smaller parish and town councils. If this applies to your organisation then full advantage of FSCS can be taken. This can be done by ensuring that deposits are with organisations and products fully covered by the FSCS and that investments are diversified to remain under the limit.
For further advice whether you are a large or small local authority please contact the Arlingclose team at info@arlingclose.com or on 08448 808 200.
* Although perhaps contrary to the FSCS website this does not make it entirely ‘free’ as it will be indirectly paid for by anyone who used financial services which is basically everybody.
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