Victims who lost money to failed financial firms exceeding the compensation limit of £85,000 were awarded £2m of additional redress in the year ending on March 31 from the Financial Services Compensation Scheme (FSCS).
The extra money was recovered from the now insolvent companies and returned to those customers who did not receive all their money back when the firms went bust.
More than £54m has been recovered by the FSCS from the estates of failed financial services providers over the same period.
The FSCS, which is free to consumers, is funded by the financial services industry and paid through a levy on authorised financial firms. It protects consumers’ savings and investments up to a limit of £85,000 when authorised financial services providers go out of business by paying eligible customers the compensation they are owed.
The recoveries help to reduce the cost of compensation to the financial services industry, with the majority of money offsetting the cost of the FSCS levy.
Research among UK adults has shown that awareness of the FSCS helps raise confidence in financial services, with close to nine in 10 people who are aware of the FSCS saying they feel more confident taking out a product covered by the scheme.
Additionally, knowledge that the industry is meeting the cost of compensation when providers fail is a key driver of trust for almost half of consumers.
The FSCS usually pursues funds from failed firms by making a claim in the firm’s insolvency. It can also pursue recoveries against any relevant third parties who may carry legal responsibility for customers’ losses; for example, professional indemnity insurers.
Gibraltar insurance firm Green Realisation 123 Ltd is one of the FSCS’ success stories. Formerly known as MCE Insurance Company Ltd, the specialist motorbike and car insurance firm was placed into administration in late 2021, resulting in the FSCS paying out approximately £90m in compensation to the firm’s customers.
Through the scheme’s recoveries process, it secured £23m from the firm’s estate and continues to work closely with the firm’s administrators to recover further funds.
James Darbyshire, chief counsel at the FSCS, said: “Ensuring a fair levy for the financial services industry, while maintaining a trusted and effective compensation service, is a priority for FSCS. The ongoing work undertaken to recover the costs of compensation, where reasonably possible and cost-effective, helps to reduce the levy and hold those responsible for causing financial harm to account.”
Last year, the FSCS maintained the total levy at £270m.
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