If you are owed money by a financial firm that fails, you may be entitled to compensation. Find out what steps you should take to see whether you can make a claim.
Every year we see financial services firms fail, including those we regulate.
In some cases, this will cause disruption, which could affect you in a number of ways, including:
- financial loss
- the loss of a service or advice provider
- temporary loss of access to your money
If you're a customer of a firm, find out what your next steps should be if that firm fails.
Firm failures are a normal part of business. Our role is not to stop firms failing, but we do aim for the failure to cause as little disruption as possible. We do this by making sure that firms have proper measures in place to keep your money safe.
If a firm fails and is unable to pay you the money it owes you, you may be able to make a claim to the Financial Services Compensation Scheme (FSCS).
The FSCS is the UK's financial compensation scheme. It protects customers of authorised financial services firms if they fail and can't pay claims made against them. It’s completely free to use and is funded by the financial services industry.
What to do if a firm fails
If a firm you're a customer of fails and owes you money, follow these 3 steps to make a claim.
Step 1: Contact the firm directly
Try to contact the firm or the insolvency practitioner to see if it can pay the money it owes you. An insolvency practitioner is someone who is licensed and has been appointed to act for an insolvent firm.
You may be able to find out if a firm is still trading by:
- calling or writing to the firm
- visiting the firm's website
- checking Companies House
If a firm has stopped trading, you should still try to contact it as soon as possible to make a claim. The FSCS won't pay compensation if a firm is able to pay any claims made against it.
Step 2: Contact the FSCS
If a firm fails and owes you money, you may be able to claim compensation from the FSCS, depending on the firm and type of activity it does. It's a simple process, is free to use, and you can get help if you need it.
Remember, some firms and financial activities aren't covered (for example, high-cost short-term credit, money held with electronic money institutions, authorised payment institutions and small payment institutions).
You can check if you're eligible to make a claim by visiting the FSCS website.
You could choose to use a claims management company (CMC), but you'll be charged for this service.
The FSCS covers eligible customers (including individuals, micro-enterprises, charities and small businesses) that are, or were, customers of certain authorised financial services firms that have been declared 'in default'. ‘In default’ means that a firm has failed and is unable to pay any claims made against it.
If a firm is not in default, but you believe that it should be, contact the FSCS to find out whether it's investigating the firm.
Step 3: Know your compensation limits
There are limits to the amount of compensation the FSCS can pay, depending on the type of activity you're claiming in relation to. These limits apply to each person, per firm.
Compensation is only paid to cover financial loss. For investment claims, the compensation paid will try to return you to the financial position you would have been in had you not invested. The FSCS won't pay compensation for poor investment performance.
For full details, find out more about FSCS compensation limits.
If you've lost more money than the FSCS limit covers, you may receive extra payments from any money the firm has left. However, this may not cover all your loss. It will depend on how much money the firm had left when it failed and how that money is allocated
If you owe money to a failed firm
The FSCS will pay compensation even if you owe money to a failed firm.
An exception to this is if your savings or current account is combined with your mortgage account and operates as a single overdraft. You will, however, still be responsible for the debt, whether that's a loan, mortgage or credit card debt.
There are many companies that can help you claim compensation from the FSCS or make a complaint. These are usually known as claims management companies (CMCs).
You don't have to use a CMC to claim compensation from the FSCS. It's free to make a claim yourself. If you use a CMC, you will normally have to pay a fee.
If you're using, or thinking about using a CMC, find out what to expect.
Remember, if you do make a claim through a CMC, you don't need to make the same claim separately to the FSCS.