Top 6 things people get wrong about FSCS
In this article we’re talking about the mistakes that people often make about FSCS. These are the topics we most often get questions about and they’re also things that have been misreported about us over the years.
- We’re run by the government or the financial regulators
People often don’t know how we link in with the regulators, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) so we’ll start here for a bit of context.
We work closely with the FCA and the PRA but we’re operationally independent of them. We were set up by parliament in 2001 under the Financial Services and Markets Act 2000, but we’re independent of government.
Another thing that causes confusion is the difference between us and the Financial Ombudsman Service. FSCS and the Ombudsman are both independent and free to use but the main difference is that the Ombudsman deals with complaints against firms that are still trading and we deal with claims against firms that have gone out of business.
While we help to put people back on track by paying compensation, the Ombudsman can ask firms to put things right in a variety of ways, not just by paying compensation. Learn more about the differences between FSCS and the Ombudsman.
- FSCS fails firms itself
We can step in and pay compensation when regulated financial firms fail – but a common misconception is that we fail the firms ourselves. It’s not always understood at what point we come into the process when a firm goes out of business, so let’s clear that up now.
To clarify, we don’t fail firms – we come into the process after the firm has gone out of business. Before we can pay compensation to customers of a failed authorised firm, we have to declare the firm ‘in default’. This term ‘in default’ is an FSCS-specific term, which is used to describe a firm which has essentially gone bust or become insolvent, which means it can’t pay claims made against it.
We try not to use the term ‘in default’ too often as we know most people won't know what it means, but sometimes we do need to use it as it describes a very specific state a firm can be in. The process we follow to declare a firm in default varies depending on the type of firm.
Listen to episode 12 of our podcast for more detail on the process of declaring a firm in default. If you’d like to know what happens behind the scenes before we declare a firm in default, tune into episode 27.
- We’re funded by taxpayers
A common mistake people make about us is that we’re funded by taxpayers – but we’re actually funded by the financial services industry. Firms that are authorised by the FCA and the PRA pay us an annual levy, which is like a tax. This funds the costs of paying compensation and running our service.
If you’d like to know more about the levy, how it funds the compensation we pay and how we aim to reduce it through our recoveries work, listen to episode 38 of our podcast.
- You have to pay to make a claim with us
It’s actually completely free to claim with us when you come direct. Our friendly customer support team is here to help if you’ve got any questions about your claim at any point in the process – you can get in touch with us here.
If you’d rather not make the claim yourself for any reason, using a representative like a claims management company or a solicitor is an alternative. These representatives do charge a fee though, so another option where you don’t have to pay is to nominate a trusted friend or relative to handle your claim for you. If you choose to do this, we will use your chosen person as the point of contact for everything to do with your claim, so it’s them we’d call or email with updates throughout the claims process.
We know that there are all sorts of reasons people might not feel able to go through the claims process themselves. It could be that they’re not confident using computers or dealing with admin and forms, or it might just be too stressful, depending on their situation. If you do want to get someone you trust to claim on your behalf, you wouldn’t then have to sacrifice any compensation you’re due to pay a representative’s fees.
- We only protect bank accounts
Our deposit protection is definitely what we’re best known for – that’s protection for the money in your bank, building society or credit union – but we protect lots of other financial products too: pensions, insurance policies, mortgages, investments, debt management plans, funeral plans and financial advice. Check out our what we cover page for the full list.
We don’t protect all financial products, so it’s definitely worth checking to see what is and isn’t covered. There are also eligibility criteria set by the FCA and PRA that anyone who claims with us has to meet for us to be able to pay compensation.
- What 'decisions made', 'claims paid' and 'customers helped' mean
This gets into the detail of some of the numbers we publish in our Annual Report and other publications to show how we’re delivering for our customers. We do try to keep it simple when reporting on these numbers, but it can still be confusing to understand what some of these terms mean – and you’d be forgiven for wondering if or how these numbers are different to each other. Here we explain each.
Decisions made
Once a claim is submitted to us, our expert claims handlers go through a rigorous assessment process to decide the outcome of every claim.
We’re not able to pay compensation for all the claims that come to us, as a claim must meet certain criteria that are set by the UK’s financial regulators, the FCA and the PRA, which we mentioned above.
When we ‘uphold’ a claim it means it was successful and we pay compensation to that person. If a claim hasn’t met the conditions for compensation it will receive a ‘rejected’ decision. When we talk about the number of decisions made, it includes both successful and unsuccessful claims.
Claims paid
This might sound like an obvious one but it’s worth clarifying to avoid any confusion. When we report the number of claims paid, we’re talking about the total number of successful claims that have been upheld and have received a compensation payment from us.
Customers helped
This is different again to ‘claims paid’ and ‘decisions made’. Paying someone compensation is one way we help our customers but when we report on how many customers we’ve helped, we take some other numbers into account too.
Some claims that come to FSCS may involve more than one customer, for example, if the financial product being claimed for is held in joint names. When we report the number of customers helped this will include all customers who have received compensation from us even if they only made one claim between them.
An example of another way we help customers is by enabling them to transfer to a new provider for their insurance policy, and these numbers are also included in our customers helped figures. For example, say you’ve got an insurance policy and your insurance provider goes out of business. The broker who sold you the policy, or the insolvency practitioner who has been appointed to deal with the insolvency, try to find another insurance company to provide you with a new insurance policy to cover you.
In this scenario, there’s no gap in your cover – it continues uninterrupted. If a new policy can be arranged, FSCS can help by paying compensation towards the cost of that policy. The compensation goes towards paying the premium of the replacement insurance policy. This is the payment a customer makes to an insurance company in exchange for their providing insurance cover to them or an insurance policy.
This is one example of something else that feeds into the number of customers we’ve helped. Find out more about our insurance protection.
That’s a wrap for the top 6 things people get wrong about FSCS. We hope you learned something new along the way. If you'd like to listen to our podcast episode on this, tune into #43: Top 6 things people get wrong about FSCS