Guide to financial protection in the UK
8th September 2017
There are several official institutions who are there to help look after our money. A lot of them might begin with ‘F’, but there are crucial differences between them.
The world of financial services can be a bit of a minefield for those who don’t know their way around it – and even for those that do in some cases. Here are several official institutions who are there to help look after our money.
Here’s what you need to know about those looking out for your best interests:
The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) are the overall regulators - sometimes described as the financial watchdogs.
They set guidelines for companies so consumers are treated fairly by securing a degree of protection and promoting competition in the interests of consumers. They also strive to simplify things by encouraging transparency - in other words, presenting products and services in plain English so everyone can understand what they’re buying. It also means they can compare products more easily.
The FCA and the PRA’s rules only apply to regulated companies. They set strict rules and guidelines but cannot intervene, if say, an individual was treated unfairly by their bank.
That’s where the Financial Ombudsman Service can help…
The Financial Ombudsman Service is an independent adjudicator and an important point of contact should you have an issue with a financial institution.
Before it can assess your case and judge if compensation should be awarded, you need to put your complaint in writing to the firm in question.
Where a complaint cannot be resolved between you and the firm you’re complaining about, and eight weeks has passed, the Ombudsman can take over.
Last year, more than 1.6m people contacted the Ombudsman about problems with: bank accounts, credit, debit and store cards, payment protection insurance (PPI), other insurance, investments and pensions to name a few.
The Ombudsman is very flexible and will even help if you simply want guidance on dealing with your complaint when you initially contact the offending company.
There are rules, however, on how it will help. You cannot, for example, make a complaint if an investment doesn’t produce the returns you were hoping for. You can, though, use this service if you were mis-sold an investment or recommended something unsuitable for your circumstances. A common complaint is where people are not made fully aware of the risks, and end up losing money.
The Ombudsman is completely free to use. But you must get in touch within six months of the date of the business’s response to your complaint to be eligible for help. It can award a maximum of £150,000 in redress.
The Financial Services Compensation Scheme (FSCS) is there when an authorised financial services firm stops trading, otherwise known as “in default”.
This means FSCS can pay compensation to consumers if a financial services firm is unable to pay claims against it. FSCS offers a valuable safety net for consumers to give peace of mind.
Here is a breakdown of exactly what FSCS protects once a firm is declared in default:
Individuals are covered for £85,000 or £170,000 for a joint account if anything happens to your bank, building society or credit union.
Bear in mind, £85,000 is the maximum protection for each separately licensed bank, and some banks have several brands. For example, if an individual split savings of £170,000 evenly between Bank of Scotland and Halifax, only £85,000 would be protected because both operate under the HBOS licence.
Special arrangements have been made for those who find themselves with large amounts of money held in cash temporarily. If you are keeping cash in your account for up to six months, perhaps after a house sale, FSCS may cover up to £1m.
Where an investment firm goes bust, up to £85,000 per person may be paid.
Claims relating to bad investment advice, poor investment management or misrepresentation are also covered to the same limit.
Protection for pensions will give peace of mind to savers investing for the long term.
The compensation limits differ, depending how your pension has been invested. If you are still building up your pension pot, 100% of your pot will be protected if it’s held by a life insurance policy.
If you are already drawing an income from your pension pot from a life insurance contract, such as an annuity, FSCS protects 100% of your money if anything happens to your provider.
If the claim involves mis-selling of long term insurance then FSCS deals with it as investment advice. For example, if someone receives bad advice to transfer their protected personal pension, then FSCS protects the claim up to £85,000.
For those saving in a self-invested personal pension (SIPP), FSCS’s compensation limit depends on the type of product held within the SIPP.
Life insurance, certain compulsory insurance, professional insurance and certain claims for injury or sickness are protected to 100% if your insurer stops trading.
Protection is 90% for other types of insurance.
No protection is available for Goods in Transit, Marine, Aviation and Credit Insurance or reinsurance.