Recoveries

FSCS's recoveries role: a summary

In addition to paying compensation to eligible customers, FSCS has a statutory duty to pursue recoveries that are “reasonably possible and cost effective” to pursue.

On the payment of compensation, customers’ legal rights are transferred to FSCS allowing us to try and recoup some or all of the costs of compensation for the benefit of both our levypayers and/or those customers who we have paid but still have uncompensated losses. We do not act for the benefit of other consumers or creditors.  

We can pursue recoveries against the firm in default (usually by making a claim in the firm’s insolvency), but also against any relevant third parties who may also carry legal responsibility for our customers’ losses. Such third parties include, for example, the Professional Indemnity Insurers of those firms in default.

For further details as to FSCS’s policy on recoveries, including the rules that govern how we operate, please see below.

COMP RULES

Under COMP 7.4.1R: "If the FSCS takes assignment of rights from the claimant... it must pursue all and only such recoveries as it considers are likely to be both reasonably possible and cost effective to pursue". Equivalent rules are set out in the PRA Handbook for recoveries in the context of deposits (Depositor Protection rules 28 and 29) and insurance (Policyholder Protection rule 14).

FSCS's Recoveries Policy

FSCS must examine the prospects for recovery following each default, applying the “reasonably possible and cost effective” test.

The approach to recoveries varies in practice between sub-schemes, and is determined in the light of recovery opportunities on a case-by-case basis. Following the assignment/transfer or rights, FSCS enjoys the same rights and status as the consumers whom it has compensated. 

In general, claims are always pursued with insolvency practitioners ("IPs") such as liquidators or administrators where there is a prospect of dividends to creditors.  Usually, that means that, in the context of proving in an insolvent estate, FSCS ranks as an unsecured, ordinary creditor, although there may be exceptions - in some investment firm failures, FSCS may be able to assert a trust claim, such as in respect of client money/assets; for deposits, FSCS’s claim has a super-preferred status; and for insurance, direct policyholders (including FSCS) have a priority status within the class of unsecured creditors.

The policy towards recoveries is described in more detail of the areas of deposits, insurance and designated investments. Please click on the relevant link below.

Although claims in the estates of failed companies are generally cost effective to pursue, FSCS applies a risk/reward analysis to recoveries, in particular third parties claims. This is kept under review for each claim.  Where appropriate, FSCS will compromise or abandon recovery claims if the likely costs are not justified by the merits of the claim and the potential recovery.

FSCS does not pursue recoveries as a deterrent to any market practice, or as quasi enforcement or punitive action - that is a function for the Regulators or other authorities. FSCS does not have any statutory role in enforcement action or market conduct. Rather, FSCS’s approach to recoveries is a commercial test.

Assignment of rights

The ability to make recoveries is dependent upon FSCS receiving by transfer, subrogation or assignment claimants’ rights against the firms in default and third parties. Rights are taken in nearly all cases.  FSCS does not have a better claim than the claimant. FSCS then "stands in the shoes" of the claimant. However, if FSCS decides not to pursue any recovery, at the claimant's request it reassigns the rights to the claimant.


About the FSCS

Click here to find out more about the FSCS, its role, its operations and its personnel.

The FCA

The Financial Conduct Authority website includes a searchable database of all firms authorised and regulated by the FCA and the Prudential Regulation Authority (PRA).

The FOS

The Financial Ombudsman Service is the official independent expert in settling complaints between consumers and financial businesses

Jargon Buster

  • Deposits

    money placed in a bank or similar institution to earn interest or for safe-keeping.
  • Eligible

    qualifying for compensation under Scheme rules.
  • In default

    A firm 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.
  • Insolvency

    having insufficient assets to meet due debts or liabilities.
  • Investment

    a financial product in which money can be invested to earn interest or profit (although the value of investments can go down as well as up).