The UK Financial Services Compensation Scheme protects customers when authorised financial services firms fail. The Scheme protects banks and building societies, credit unions, debt management, endowments, home finance, insurance, investments, PPI and pensions – in certain circumstances and within certain limits.
If your bank or building society fails and are unable to pay back your money, the Financial Services Compensation Scheme can pay you compensation. However, your bank or building society must be authorised by the Prudential Regulation Authority. If you have money in multiple accounts with banks that are part of the same banking group with the same banking licence, the FSCS treats them as one bank and the consequence of this is that their compensation limit applies to the total amount that you hold across all these accounts, not to each account separately. For bank, building society and credit union failures after 1st January 2017, the FSCS will automatically compensate you up to £85,000 per eligible person, per bank, building society or credit union. This figure rises to £170,000 for joint accounts. There are special rules which allows the Scheme to also protect certain qualifying temporary high balances up to £1 million for up to six months from when the amount was first deposited. The Scheme’s website www.fscs.org.uk give further details on what the Scheme covers.
Often, Chancellor’s clients hold cash deposits within their Self-Invested Personal Pension (SIPP). How the cash is held matters – is it held within one bank or across a number of carefully selected banks (each of which may be separately covered under the FSCS). In the event of one or more of these banks failing, cash is held on behalf of a SIPP is protected up to £85,000 in relation to the balance held with each bank. If a SIPP holder also has personal deposits with the banking institution which is in default, these amounts are taken into account as part of the overall limit
In the unlikely event of a bank failing, it may be possible to receive additional funds through the liquidation process.