|Box 2: The Financial Services Compensation Scheme
The Financial Services Compensation Scheme (FSCS) is the UK's statutory fund of last resort for customers of FSA-authorised financial services firms. It can pay compensation if a firm is unable, or likely to be unable, to pay claims against it. This will generally be because it has stopped trading and has insufficient assets to meet claims, or is in insolvency. This is described as being "in default".
The FSCS is an independent body and was created under the Financial Services and Markets Act 2000 (FSMA), replacing eight previous compensation arrangements (including the Building Societies Investor Protection Scheme, the Deposit Protection Board, the Friendly Societies Protection Scheme, the Investor Compensation Scheme, the Personal Investment Authority Indemnity Scheme, the Policyholders Protection Scheme, the Section 43 Scheme (which covered business with money-market institutions), and the arrangements between the Association of British Insurers and the Investor Compensation Scheme for paying compensation in relation to Pensions Review cases). The FSCS became operational on 1 December 2001 when FSMA came into force. The FSA is responsible for setting the rules within which the FSCS operates, including on eligibility of claims and compensation limits. The FSCS, as the management company that operates the Scheme, is required by FSMA to be operationally independent. It is not part of the FSA, but accountable to it (and, ultimately, to the Treasury).
The FSCS is free to consumers. It protects deposits, insurance policies, insurance broking, investment business, and mortgage advice and arranging. Since 2001 it has paid out £1.004 billion in compensation to consumers and declared 1800 firms in default, of which 29 were credit union failures. The total number of claims completed for investment and deposit-taking business is 87,000.