UK Investment Protection Boost as Customers of Failed Firms See Compensation Raised

British investors will have the ceiling on the compensation they receive if they hold investments with a company that goes under raised by up to £35,000 under new FCA rules. At present, any UK investment made through an FCA-regulated investment company or vehicle is protected up to a value of £50,000. The new rules, which are planned to come into force next year, will raise that ceiling to £85,000.

As well as covering FCA-regulated investment vehicles and the companies who provide them, the customer protection will also extend to FCA-regulated advisory services, mortgage brokers and debt management companies. The FCA’s move is designed to bring the level of protection afforded to clients into line with that covering bank deposits, which was also raised to £85,000 from the beginning of this year to reflect the fall in the pound’s value since Brexit.

Another strong argument for raising the present ceiling of the value of capital protected by the FCA’s protection scheme is that many individuals have all or a large part of their investments with one provider. Compensation claims are based on the company and claim type. This means that if one individual has £50,000 in a SIPP provided by one company and £50,000 in an ISA provided by another, the full £100,000 would be protected. However, another individual with £100,000 in a SIPP provided by one company would only currently be able to claim £50,000 of that back if their provider went under. Raising the ceiling to £85,000 goes some way to mitigating the fact that many individuals would be disproportionately affected if a firm they hold investments with were to fail.

However, the same paper that announced these impending changes to consumer protection levels also confirmed that the newly popular investment vehicle of peer-to-peer lending will not, at least for the time being, be brought under FCA regulation. This means that investments made through P2P lending platforms do not fall under the protection scheme and clients would stand to lose the entirety of their funds if the company behind it were to collapse.

Customers who wish to make claims for losses on investments made through FCA-regulated UK investment companies that have not failed, but feel misled them or the investments have failed as a direct result of the company’s conduct should refer to the Financial Ombudsman Service rather than the FCA. Successful claims can see customers compensated by up to £150,000.