Limits of the FSCS
The Financial Services Compensation Scheme (FSCS) is an independent organisation which has the responsibility for funding compensation payments to consumers and small businesses which have lost money when a financial service provider has become insolvent. The FSCS was established under the auspices of the Financial Services and Markets Act, and therefore has statutory powers. While this makes its decisions binding, it also means that there are certain legal limits to the type of claim that the organisation can take on, and the amount of compensation that it can pay.
Authorised FirmsIn the first instance, it is important to remember that the Scheme can only pay compensation to those who have a complaint against a firm that is authorised by the Financial Services Authority (FSA). As a result, your first step when considering whether or not to make a claim should always be to check the FSA's register of authorised companies. Similarly, the firm against which the complaint is being make must be judged to be 'in default'; that is, it must be deemed by the FSCS to be unable to meet the cost of the compensation itself. In order to ascertain whether or not this is the case, the Scheme will investigate the current financial situation of the firm. If it is judged that the firm is capable of paying the compensation itself, your claim will fail and you should complain directly to the organisation in question.
In general, the Scheme is designed with the specific intention of taking on the claims of individual consumers; it was not conceived as a regulator or arbitrator of inter-organisational disputes. However, some small businesses may qualify for help from the FSCS. Larger businesses will not be able to benefit from the Scheme, unless they are making a claim against an organisation from whom they had bought a compulsory insurance policy.
Financial LimitsAny compensation paid by the FSCS will be granted only as recompense for a financial loss incurred. Furthermore, the ability of the Scheme to meet large compensation claims is limited as a result of simple financial constraints. The Scheme is funded by levies on authorised financial organisations, and therefore has a finite amount of money to disburse. As a result, statutory limits have been placed on the amount that the Scheme can pay out for each claim. The amount that the Scheme is authorised to pay will depend on the nature of the claim.
Compensation awards for claims regarding deposits (this includes bank accounts), for example, will amount to 100% of the money lost, up to a total of £35,000. If, on the other hand, your claim concerns a personal investment, then the Scheme can make a payment totalling a maximum £48,000, made up of 100% of the first £30,000 and 90% of a further £20,000. Only claims concerning certain types of insurance, or advice or arrangement of insurance, can be met with unlimited compensation payments. A claim regarding a compulsory insurance policy will be met in full; this includes claims regarding the arrangement of such a policy. Information regarding the financial limits of other types of claim is available on the FSCS website.