The Financial Services Compensation Scheme

Introduction

All UK building societies are participants in the Financial Services Compensation Scheme established under Part XV of the Financial Services and Markets Act 2000. The Scheme is administered by the Financial Services Compensation Scheme Limited (FSCS), a body established by the Financial Services Authority (FSA). The Scheme is governed by FSA Rules.

Activation of the Scheme

Before the Scheme can be activated, the FSA or a court must make a determination about a building society participant in the Scheme. This would usually happen if it was determined that a participant was unable to repay investments which were due and payable. An example of where this might happen is if there had been a winding-up order in insolvency proceedings.

Amount of Protection

We are covered by the Financial Services Compensation Scheme. You may be entitled to compensation from the scheme if we cannot meet our obligations.

This depends on the type of business and the circumstances of the claim.

Insurance - Insurance advising and arranging is covered for 100% of the first £2,000 and 90% of the remainder of the claim, without any upper limit.

Mortgage - Mortgage advising and arranging is covered for 100% of the first £30,000 and 90% of the next £20,000 so the maximum compensation is £48,000.

Deposit/Savings Accounts - Payments under the Scheme are limited to a maximum payment of £35,000, that is 100% of the first £35,000 of a savers total savings. Most investors are covered, including individuals and small firms. A small number of categories of shares and deposits are not covered (for example deferred shares - permanent interest bearing shares). Although most shares and deposits are denominated in sterling, all other currencies are covered. View Further details.

Protected Currencies

Most shares or deposits with a building society are held in pounds sterling, but all other currencies are also covered.

Interest on an Account

Interest earned on accounts at the time the shares or deposits become due and payable is covered by the Scheme (within the limit of the maximum payment). If a winding-up order against a society has been made by the Court, interest will immediately stop being paid on the society's accounts.

Shares and Deposits which are Protected

All building society shares and deposits are protected by the Scheme except -
(i) a bond issued by a building society which is part of its capital (for example subordinated debt);
(ii) a secured deposit;
(iii) a deferred share issued by a building society (usually permanent interest bearing shares);
(iv) a non-nominative deposit (that is, a deposit made without disclosing the depositor's identity).

Investors who are Protected

Most investors are protected including individuals and small firms, but there are some exceptions, such as larger companies and government bodies.

Joint Accounts

In the case of a joint account each joint owner is treated as having a claim for his or her share, and unless there is evidence about their respective shares, they will each be regarded as entitled to an equal share. For example, if two people have a protected investment of £70,000 the maximum compensation to each would be £35,000, which would usually mean a maximum total payment of £70,000.

Partnerships

If two or more persons have a joint beneficial claim, the claim is to be treated as the claim of the partnership if they are carrying on business together in partnership. Otherwise the joint account rules (above) apply.

Trustees

If a claimant's claim also includes a claim as a trustee, his or her claim as trustee will be treated as being separate from the claim in his or her own right. If the same person claims as trustee for different trusts, these will be treated as claims of different claimants. If a group of people claim as trustees their claim will be treated as that of a single person. If the claimant has a claim as a bare trustee for one or more beneficiaries, the beneficiary or beneficiaries will be treated as having the claim. There are further rules relating to trustees.

Personal Representatives

Where a person numbers among his or her claims a claim as a personal representative of someone who has died, the claimant will be treated in respect of that claim as if he or her were standing in the shoes of that other person.

Agents

If a claimant has a claim as agent for one or more principals, the principal or principals will be treated as having the claim.

Funding the Scheme

The cost of the FSCS in respect of savings and deposits in building societies, banks and others, and the cost of compensation payments under the Scheme, is funded by contributions from the businesses, that are covered by the Scheme (including building societies, banks and others).

Making a claim under the scheme

The Rules of the Scheme require a claim to be brought to the FSCS within a set time (normally within six years of the date on which the claim occurred). In practice, a building society would give to the FSCS a list of the names and addresses of the investors who may be able to claim under the Scheme. The FSCS would then send a claim form to each investor for completion. Full details of how to complete the form would be provided at the time.

Each claim would need to be verified before payment could be made. This could involve further questions being asked of those who have claimed and the FSCS asking the liquidator or administrator to confirm the amount of the investment on which the claim is based and to confirm that the claim does not relate to shares or deposits of a type that are not covered by the Scheme. Again, detailed procedures would normally be notified at the time.

Claims would be paid as soon as practicable (subject to the checking procedure) once the share or deposit became due and payable. In liquidation, that share or deposit would become due and payable on the date that the final winding-up order is made - in all other cases it would continue to its original maturity date. Payments would be made, normally by cheque in the currency of the account in which the share or deposit was held.

Further Information

The Rules covering the Scheme are very detailed and this leaflet does not deal with every aspect of the Scheme's operation. Information about the operation of the Scheme is available on the FSCS website at www.fscs.org.uk If you have any queries about the Scheme they may be addressed to -

Financial Services Compensation Scheme
7th Floor, Lloyds Chambers
1 Portsoken Street
London
E1 8BN
Tel: 0207 892 7300
Fax: 0207 892 7301/7337
E-mail: enquiries@fscs.org.uk