Super Service for Cash Crunched Savers (Financial Services Compensation Scheme)

Member Name: collingwood21

Product:	Financial Services Compensation Scheme
Date:	16/01/09 (297 review reads)
Rating:

Advantages: Process handled quickly and easily, Clear information provided on website

Disadvantages: Delay in sending out ISA certificates

The Financial Services Compensation Scheme (FSCS) may seem like an odd choice of services to review, given that it is hardly something the consumer has any real choice over using if they are unfortunate enough to want to reclaim funds from a collapsed bank. The FSCS, for those unfamiliar with it, is the UK's statutory fund of last resort for customers of authorised financial services schemes - this means it can pay compensation if the company is unable (or is likely to be unable) to pay out on claims made against it and no one else is able to do so either. Given the fears of the current economic climate, then I thought it would be worthwhile to share my experiences of using this scheme, principally as a means of reassuring anyone else who ever finds themselves needing to use this service. As, although we are all fond of complaining how bad services are in this country, the FSCS worked surprisingly well for me when I used it recently.


*What is the Financial Services Compensation Scheme?**
This seems an appropriate point to explain a bit more about what the FSCS actually covers. The FSCS came into being on December 1st 2001, replacing eight previous smaller-scale compensation schemes (such as the Policyholders' Protection Scheme), and is a free, non-profit making, service to consumers. The scheme extends to those firms that are regulated by the Financial Services Authority (FSA), the independent watchdog set up to monitor financial services in the UK and protect consumers. It therefore incorporates deposit accounts, insurance policies, insurance broking, investment business, and mortgage arranging. The amount protected by the scheme is limited to £50,000 in deposit accounts (per person, per FSA banking license - more information about the licenses can be accessed at: http://www.moneyfacts.co.uk/article/who-owns-whom- listings.aspx); £48,000 for investment schemes and mortgage arranging (100% of the first £30,000 invested then 90% of the next £20,000); 100% of the first £2,000 and 90% of anything above that for long-term insurance such as pensions, and is unlimited for general insurance. To be eligible for compensation, you must have lost money through dealings with a firm regulated by the FSA, and you can only be paid compensation for money you have lost through the company, not for any consequent effects you might have experienced (such as fines for not being able to pay a contract because you had lost access to your savings in a collapsed bank, for instance).


**My Experience of Using the Financial Services Compensation Scheme**
The reason I needed the FSCS was because of the now infamous collapse of internet bank Icesave after parent bank Landsbanki defaulted on October 7th 2008. Before this point, I suspect a lot of us hadn't even heard of the FSCS, but they were thrust into the spotlight in what was to become their most high-profile (and I believe their largest) claims process. While I intend to use this review to discuss my personal experience of the situation where relevant to the FSCS, I won't be going into my decisions for having an Icesave account (which I have discussed elsewhere) or the decision to compensate savers for 100% of their losses (as this is better suited to a "speaker's corner" piece).

To begin at the beginning, we are going back to October 7th, and I want you to imagine that the majority of your life savings are held in a bank that collapses, and just try to imagine what it feels like. Then add to that feeling the breaking news that the provider of the first £16,000* or so of your compensation is seemingly refusing to pay anything - leaving you with losses up to that limit. It is pretty awful, isn't it? A mixture of fear, dread, panic and worry that makes it hard to concentrate on anything else - I was so desperate for information I ended up scouring news websites and internet forums on an hourly basis, looking for updates. I felt a lot more hopeful when I heard that the FSCS was stepping in to help Icesave customers**, although I anticipated a long process ahead of me. At this time, the FSCS stated that they would try and process all compensation claims within 6 months, while various EU rulings were trying to get relevant authorities to keep to a 3 month deadline. That is a long time to wait if need your money for anything; while I fortunately had no immediate commitments for it, there were plenty of stories around of people forced to default on purchasing contracts because they suddenly lost access to the cash they were going to use.

Things went a bit quiet for a while after that announcement, but then the FSCS released a statement on October 24th saying that a new accelerated compensation process that was designed to meet the very high number of claims anticipated (an estimated 300,000 people had accounts with Icesave at the time of the collapse) in a short period of time was being established. It would, in the words of the famous saying "all be over by Christmas" (for a lot of people at least). This was the first time such a scheme had been run, and when you consider the speed in which it was set up and activated I think we were treated very well indeed - although inevitably there were people online calling for more regular information to be posted on the FSCS website (www.fscs.org.uk). I agree that at the time the lack of information was troubling, but if there was no new information to post, I think it would have been rather a waste of time for them to add a daily "we have no more updates" message to their website. When information was added, however, I found it to be clear and accessible.

I hope they manage to keep this accelerated process for other claims, because I found it worked very well indeed. The FSCS gathered the names and contact details of all customers form Icesave, and then sent out an initial email in the first week of November to check it had contact with all customers. A notification process was established to allow customers to report that they hadn't received the first email, while the majority who did receive it went smoothly on to receive a second email that invited them to log on and begin their compensation process online. The second emails were sent out in staggered groups over November to prevent the website crashing - which I probably would have done if everyone tried to do it at once! I received mine on November 11th, and logged onto the Icesave website the following day to start the ball rolling; using the already established banking website made the whole process very simple and took only a few minutes. Having received my invitation, I logged on to my account as usual (pausing to note that I had been paid interest up to the date of the collapse of the bank - a very nice bonus under the circumstances) and clicked the new "compensation" link that had appeared. I spent a few minutes confirming details, and then clicked "submit" and it was all done. My money was back in my current account on November 17th, just six weeks after Landsbanki defaulted. I felt very relieved.

What let the whole process down a bit was what happened next. Although the FSCS had managed the tricky bit quickly and efficiently, the relatively easier task of sending out ISA certificates went a bit pear-shaped. For those of us with ISAs invested in Icesave, paperwork from the FSCS was needed to allow us to reinvest our money in a new ISA - without this paperwork we would only be able to invest up to the unused limit of our annual ISA allowance. For example, I had about £1500 of my annual ISA allowance left at this point; without the certificate I could therefore only invest £1500 of my compensation into a new ISA, thus losing the tax free "wrapper" on the rest of my money. The certificates were supposed to arrive within 2 weeks of the compensation on an ISA account being claimed, but mine took twice that. A minor niggle I know, but it took the edge of what was otherwise an excellent service from beginning to end for me. I did phone the FSCS scheme about it after the two week deadline; considering how busy there were my call was answering quickly, but the guy I spoke to sounded bored of telling people there was a delay in sending out certificates. Why not update the website then? I did check it before I called and it still stated two weeks.


**Final Thoughts**
My experience with the FSCS was far better than I had anticipated it being when I first learned that I would be needing it. I know it wasn't perfect - the delay on sending out ISA certificates was a bit annoying, and I have heard some people sounding off about not receiving the first email - but when you think of how poorly run and inefficient a lot of the services are that we deal with on a daily basis, then I hope you will agree that what we get here really is very good. Especially as it is completely free to consumers. They are not a service I can recommend - there is no alternative after all! - but I hope that savers out there will feel that they have less to worry about should they ever need to deal with them.



* When Icesave was trading, it wasn't 100% protected by the FSCS, but instead had opted for "passport exemption". This meant that if it went bust the first E20,000 (about £16,000 last October) would come from the Icelandic compensation scheme, with the rest of the liability being covered by the FSCS.

** On October 8th, Alistair Darling announced that the UK government would guarantee all UK depositors up the compensation limit.

Summary: An excellent service considering it is free!