🔔 Investor compensation limits to increase

The Financial Services Compensation Scheme (FSCS) provides important protection to consumers, paying compensation when regulated providers of financial services products have gone out of business and consumers have suffered financial harm.

The amount of compensation currently available to a consumer who has a claim varies and different limits apply to different types of claim.

Compensation limits are set per individual, per firm and per claim type. So, £100,000 spread equally across two investment firms is completely protected under current rules. But £100,000 held with one firm is only covered up to £50,000.

In the same way £170,000 split between two banks or building societies would also be fully covered, while if it was with one provider, it would only all be covered if the account was in joint names.

The Financial Conduct Authority (FCA) has confirmed that the disparity between the protection offered to cash investors and consumers investing in regulated investment funds will end on 1 April 2019, as the level of protection will be increased to £85,000 per eligible claim.

Of course, remember that the FSCS coverage on investment business does not apply if you were to lose money due to stock market volatility – it’s only if you have suffered financial loss as a result of unsuitable investment advice, poor investment management or misrepresentation and the regulated firm is unable, or likely to be unable, to pay claims made against it due to insolvency.

This increase is great news, but you should be aware that not all investments are covered by the FSCS. Investments which are regulated outside of the UK, such as Offshore Investment Bonds, are not protected by the FSCS - although there may be comparable investor protections in the overseas jurisdiction where the plan is regulated, such as the Isle of Man or Dublin. Other types of investment may not be covered at all, such as Unregulated Collective Investment Schemes, which are generally higher risk financial products and are not suitable for most retail investors.     

So, it’s important not only to understand whether the investment you are considering is covered but even if it is, under what circumstances will you be able to claim.

Whilst we at Savings Champion do not offer investment advice, we can help to point you in the right direction.

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