Financial claims in the UK are protected by a range of distinct organisations, including the Financial Conduct Authority (FCA), the Financial Ombudsman Service (FOS), and the Financial Services Compensation Scheme (FSCS). When a retail investor has lost money from a mis-sold investment or financial product, they can typically rely on one of the aforementioned bodies to either manage their financial claim or provide a statutory compensation sum when a financial firm has gone into default.
Going into default, or liquidation, typically means that a business can no longer afford to pay its creditors. Where this comes because of mounting financial claims or malpractice, the FSCS may award a statutory compensation sum of up to £50,000 to claimants. This acts as a monetary lifeboat, providing some level of protection and loss-prevention for investors and pension holders. Since 2001, when the FSCS was first established, the fund has supported millions of UK investors and provided over £26 billion in compensation for financial claims. However, the compensation limit of £50,000 is occasionally below an investment value. In select cases, it might also have been less than the potential compensation against a firm that was continuing to trade financial services and products.
The FCA has now called into question whether this compensation cap is a reasonable value to provide necessary consumer protections. It has suggested raising the financial claims compensation limit from £50,000 up to a “reasonable” limit of £85,000. This forecast comes as a result of FCA data that showed as many as 4,483 investment and pension claimants in a four-year period lost out as a result of claims that exceeded the current cap. The organization stated:
“For an increase in the limits from £50,000 to £85,000, for all relevant claims dealt with by the FSCS in the period 2010 to 2014, total compensation paid would have increased by around £99.64 million, or approximately £24.91 million per annum. This gross increase of £99.64 million is around 10% of the total compensation paid in the period.”
Despite this staggering sum, the FCA has stated that the cap would not be retrospectively considered. This new limit would affect individuals making financial claims against mis-sold investment or pensions advice against a single firm.
This highlights the disparity between investment protections and pension protections. Retail investors that have invested sums in diversified portfolios are afforded additional support, as there is a decreased risk of total investment collapse and multiple chances to recoup losses through financial claims. Pension investments however are routinely handled by financial firms that manage the entire savings value. Where a pension provider goes into default, the client risks significant losses, with just one opportunity to seek financial restitution.
The same report that recommended the financial claims compensation increase also suggested new measures to ensure independent financial advisers (IFAs) are saving for the risk of default.
Financial Claims with Money and Me Claims
Money and Me Claims is an independent financial claims management company with proven expertise in the field of pensions compensation management. We have already provided support for hundreds of clients across the UK, helping to acquire substantial compensation sums up to the maximum FSCS value of £50,000. We will be closely monitoring the legislation relating to a proposed cap increase, and hope to help reward clients with larger FSCS compensation values than ever before.