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Claiming compensation from the financial services compensation scheme

If you have been mis-sold a financial product then you could be due compensation by the financial services compensation scheme. This could be mortgage advice, investment advice or general financial advice such as tax planning, estate planning etc.

If the advisor or company who gave you the advice has gone out of business and you have lost money based on their behaviour then you might be able to claim money from the financial services compensation scheme.

In this brief guide we will go through what you can do if you have been mis-sold a mortgage, investment or insurance and how you can make a claim to get some if not all of your money back.

What is the financial services compensation scheme?

The financial services compensation scheme is a government fund set up by the UK government. It is seperate from a any financial firm in the UK and the UK government. They will pay compensation in a scenario an authorised financial services firm is unlikely to or unable to pay compensation due to consumers itself because it has defaulted and gone into administration or because it doesn't have any means to make a payment.

The financial services compensation scheme is governed under the financial services and markets act 2000.

**The service is free and covers most financial services products including;

What the financial services compensation scheme does not cover

The financial services compensation scheme does not cover you if:

  • Your investment just didn't perform well and this is not due to any bad advice or you being mis-sold the investment.

  • The financial services company involved is still in business. If this is the case you will have to complain to the company first and if the company doesn't come to a conclusion you can then take your case to the financial ombudsman if you are not satisfied. After all of this is done, if you are awarded a compensation and the company cannot pay then the financial services compensation scheme will step in to compensate you.

  • The company was not authorised by the Financial conduct authority (FCA). You can check if a company is authorised by the financial conduct authority on the financial conduct authorities register.

  • The company is based outside the UK. In some cases a company may be based outside the UK and still be covered by the financial services compensation scheme. You should check this and confirm if a firm is covered by the financial services compensation scheme by asking them and checking with the FSCS.

You may still be able to take your case the the financial ombudsman even if none of the above apply. You should contact the financial ombudsman and inquire further.

We will now discuss what can be done if you have been mis-sold a:

  • Mortgage
  • investment or
  • insurance product.

What to do if you have been mis-sold a mortgage?

You may have been mis sold a mortgage product:

  • If you weren't given mortgage advice although you didn't ask to be excluded from mortgage advice.

  • if it doesn't fit your needs

  • If you weren't taken through a financial fact find

  • If you weren't informed that the advisor was being compensated by the mortgage lender

  • You were sold a product you specifically asked not to be sold to you.

  • If you weren't told if the advisor worked for one mortgage lender or multiple and how far their reach was in regards to the amount of products they had access to.

  • If you will be paying for the product past your retirement and you weren't informed.

  • You were told to self certify your income and get a bigger mortgage than you could afford.

  • Nobody checked to see if you could afford your monthly mortgage repayments.

  • You were told to switch your mortgage to a different mortgage lender without explanation as to why you should do so and when you did so you discovered that your monthly mortgage repayments are higher and you are losing money.

If the firm which mis-sold you the mortgage has gone out of business then the financial service compensation can step in and might be able to compensate you for any loss you have suffered due to the conduct(this could be bad advice or simply negligence) of the financial company.

If the firm is still in business then report your case to the firm and if you are not happy with their decision on your complaint(which they have to give to you in 8 weeks) then you can take your case to the financial ombudsman.

The maximum mis-sold mortgage compensation from the FSCS

The Financial services compensation scheme can only pay out claims for losses you have incurred and nothing more. The maximum you can receive depends on when the financial company went out of business and was officially declared in default by the FSCS. You can search the FSCS register to see when this could have happened.

If the firm was declared in default on or after January 2010 then the FSCS can pay a maximum of £50,000 towards a mis-sold mortgage per firm.

If the firm was declared in default before January 1 2010 the the FSCS will pay the first £30,000 and 90% of the next £20,000 up to a maximum of £48,000 per firm.

So if you lost £100,000 then you will get the first £30,000 and then 90% of the next £20,000 which is £18,000. In this case you will get a total of £48,000 and miss out on £52,000.

If you lost £40,000 then you will get the first £30,000 and then 90% of the next £20,000 which is which is 90% £10,000= £9,000. In this case you will be paid £39,000.

What to do if you have received poor investment advice or management?

If you have received poor investment advice that has led you to lose some or all of your money then you may be due compensation. If the firm is still in business then report your case to the firm and if you are not happy with their decision on your complaint(which they have to give to you in 8 weeks) then you can take your case to the financial ombudsman. If the firm has gone out of business or has been declared in default or gone into administration then you can approach the Financial services compensation scheme to seek compensation.

You might have lost money with:

  • Managed funds
  • Your personal pension
  • Your stocks and shares
  • Longer term investments such as endowments.

Investments can lose money over the course of their lifetime. If your investments have lost value over their lifetime and this was not a result of negligence of bad advice from you investment manager or company then you might not have a valid claim for any loss in your investments value.

Your investment loss will need to generally be along one of the following lines:

  • Negligence from your investment advisor or company

  • Investment loss due to bad advice- this is only the case where you take advice. If you refuse investment advice and make your own decisions then you will be liable for any loss you incur.

  • Investment loss due to fraud

  • Investment loss due to misrepresentation by the investment advisor or company. Misrepresentation can be described as when someone distorts the facts in order to achieve a particular goal. In your case, you could be told an investment has certain features in order for the investment manager to make a sale and you may then realise it doesn't have these features.

The maximum mis- sold investment or poor investment management compensation from the FSCS

A firm will need to be declared in default by the FSCS before you will be able to claim compensation from the FSCS. The maximum you can get from the financial services compensation scheme will depend on a few factors but most especially it will depend on when the company was declared in default.

If the company was declared in default on or after the 1st of January 20120 then the FSCS can pay a maximum of £50,000 per firm.
If the company was declared in default before the 1st of January the FSCS can pay the first £30,000 and then 90% of the next £20,000 up to a maximum of £48,000.

So if you lost £100,000 then you will get the first £30,000 and then 90% of the next £20,000 which is £18,000. In this case you will get a total of £48,000 and miss out on £52,000.

If you lost £40,000 then you will get the first £30,000 and then 90% of the next £20,000 which is which is 90% £10,000= £9,000. In this case you will be paid £39,000.

What to do if you have been mis-sold insurance?

You will be able to claim compensation from the financial services compensation scheme on insurance which was mis-sold to you if the insurance is not part of an investment insurance policy. It will need to be general insurance and the company that sold it to you will need to be out of business or in administration.

You can claim for a mis-sold insurance if the insurance product you were sold ws generally unsuitable for you.

Not all insurance is covered.

**The below is not covered by compensation from the FSCS:

  • Aviation insurance
  • Marine insurance
  • Credit insurance
  • Reinsurance
  • Transport business insurance
  • Any general insurance arranged before 14th January 2005.

The FSCS also does not cover any insurance sold by advisors or brokers in the channel islands or isle of man.

You will have been mis-sold insurance if any of the below apply to you:

  • The advisor overcharged you on the premium and kept the difference

  • You paid your advisor for the insurance but they went out of business before getting you insured and you never received a refund.

  • If you were sold payment protection insurance (which covers you if you become redundant) when you were already out of work, retired or you informed them you were self employed. This is because your insurance would be invalid when you try to make a claim.

  • Sell you payment protection insurance without your knowledge.

  • Insist and make you buy their payment protection insurance before they offer you credit(loans, mortgages). Lenders can insist you have this insurance but cannot specify where you buy it from or insist you buy it from them.

  • You received a payout from an insurance claim which was sent to your advisor but you never received this insurance payout and your advisor has now gone out of business.

The maximum mis-sold insurance compensation from the FSCS

The amount you can claim on a mis-sold insurance product depends significantly on the type of insurance product you have.

For compulsory insurance products you will get 100% of your claim while other insurance products will give allow you to claim 90% from the financial services compensation scheme.

So in this case if you had a claim worth £1’000 then you will only get £900.

There is no maximum limit to what can be paid out but the claim thresholds still apply.

How to make a claim with the financial services compensation scheme

To make a claim you should first check to see if the company was authorised b the FCA. After which you can then check to see if you will be able to claim the money you are owed from the company through its liquidators. If that doesn't work then you could bring your case to the FSCS. You can submit a claim online or via the post and they will get back to you to discuss your situation if there is need to.

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Claiming compensation from the financial services compensation scheme
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