The FSCS provides some level of protection for consumer savings in the UK, but what is the full extent of the protection? And where does it offer no protection at all? Read our complete guide for expats.
The FSCS is an important trust badge in the UK financial industry. While many people are aware that the FSCS provides some level of protection for consumer savings, they may not realise the full extent of the protection and where it doesn’t offer any protection at all. If you’re a UK resident you may still be able to open a UK bank account and benefit from the FSCS protection.
In this guide for expats, you’ll find everything you need to know about the FSCS and banking licences, helping you to understand how your money can be better protected should your bank collapse.
The Financial Services Compensation Scheme was set up in 2001 under the Financial Services and Markets Act 2000 to protect consumers’ money. It guarantees compensation of up to £85,000 per depositor if a UK-authorised bank, building society or credit union institution collapses and cannot pay you your money back.
It is free to use and since 2001 has helped more than 4.5 million people and paid out more than £26 billion.
Mostly, yes, because it is illegal to operate a bank in the UK without proper authorisation by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). If a financial institution offers banking services without FCA or PRA authorisation it can face fines and penalties, have its operations stopped immediately and face legal action, including potential criminal prosecution.
The PRA is responsible for ensuring a bank is robust enough to operate in a stable way, ensuring it has enough capital, and solid risk management processes. Without PRA authorisation a bank cannot be granted a banking licence. The FCA focuses more on consumer protection, transparency and market integrity.
Fintech companies not offering savings accounts or lending may only be required to meet e-money regulations or payment services regulations, although this still requires them to be FCA-authorised for their payment services as a Payment Institution (PI). If they later accept deposits or offer lending services they are also required to be granted a banking licence.
You can use the FSCS bank and savings protection checker here to find out how much of your money is protected.
Financial institutions which operate as full-service banks (i.e. accept deposits and lend money) are required to have a banking licence (formally called a Deposit Taking Licence). A banking licence is granted by the FCA and PRA authorisation and allows an institution to provide banking services.
The protection afforded by the Financial Services Compensation Scheme is per banking licence, not per account or individual bank. Many people are not aware that in the UK there can be many large banking brands operating under the same one licence. This means, as an example, if you have £100,000 in savings across two different bank brands which share the same banking licence, the FSCS will only compensate you up to £85,000 should the bank fail, not the full amount.
Some UK banks which collapsed leading to compensation payouts from the FSCS:
It's important to check that any bank you have your money with is protected. London Capital & Finance was an investment firm offering unregulated products so was not able to protect deposits when it collapsed in 2019.
If you have more than £85,000 in savings deposited across two or more UK banks it is important to know if your banks share their licence because of the way the Financial Services Compensation Scheme works. If the banks share a licence, your protection is limited to £85,000 in total, not per bank.
Here are some ways you can check:
Moneyfacts Compare maintains a comprehensive A to Z list of which banks and savings account providers operate under the same licence called Who Owns Whom?
It may not be necessary to move all your money if you exceed the £85,000 protection of one banking licence but spreading your savings across different banks with different banking licences can be a safer way to protect your money.
If you have all your assets in one basket and are worried a bank is facing difficulty, how can you tell if it’s time to start moving your savings around?
Here are some signs that a bank might be struggling before it makes the headlines:
Yes, it only covers banks which are authorised and regulated in the UK. Since Brexit, all banks operating in the UK have to be authorised in the UK, with the exception of Gibraltar-based banks which have a special exemption.
This at-a-glance-guide was prepared by Caroline Revell at Moneyfacts Compare to help you to understand how your money can be better protected, should your bank collapse.
