Financial Services Compensation Scheme

We know that sometimes we're told that something isn't regulated, so therefore not our concern, but actually somehow it kind of creeps in And gets us.

And before you know it, the FSCS bill has doubled because, you know, there's been a huge number of claims or whatever, or the FOSS bill has doubled.

So I feel like we are a little bit concerned about that regulatory boundary changing and somehow being caught up in it.

And so just I'd make a slight point, which is a cultural one.

Everyone is covered.

If you have a UK bank account, you have protection under the financial services compensation scheme.

Now, you've heard about this before, but the best way to think about it is to think of it as an insurance policy that you haven't had to pay for.

it's effectively paid for by the financial industry itself.

So all of the key players, the banks, the insurers, they will put money into a pot in aid of making sure that this protection is available to their clients.

Now, if it just so happens that a really big bank fails and there isn't enough money in this pot to be able to cover all of the deposits or savings accounts, then the financial services compensation scheme can boil from the government like it did back in 2008.

But I do think it's worthwhile pointing out that there is one thing that the financial services compensation scheme does not cover you for, and that is protection against investment volatility or losses that are incurred as a byproduct of investment activity.

It only steps in and applies when the company itself that you're using fails.

Well, there is

no risk at all in a savings account up to 120K because a savings account is backed by the Financial Services Compensation Scheme, which is backed by the UK government.

Over 120K, there's no protection, whereas in gilts, all of it is backed by the UK government.

This is the key, Hilary.

We'll talk about that a little bit later on.

in the video so what does it mean in terms of the day-to-day for your money because when you look at your savings you're it's still going to be protected and it's only going to be protected because of the financial services compensation scheme which is 120 000 pounds per person per bank license and the bank license is the big differentiator here I'll come back to that point a little bit later on but what I think will also happen at that point is inflation as that grows and as that increases is going to eat away at the value of whatever it is that you have in savings accounts in any institution and I would hazard a guess at this point people will be a little bit touchy and probably wanting wanting their cash out of their savings account, regardless of that protection from the financial service compensation scheme.

When it comes to your pensions and your investments, well, this is where you're going to feel it most because values will drop sharply.

Now, we know that markets have recovered afterwards, but the truth is we don't have any modern time barometers or gauges of what would actually happen.

If they're not, they'll have limited runs in terms of providing cash.

Card payments will probably still work, might be a little bit intermittent here and there.

And when it comes to your savings, well, whilst you've got the protection by the Financial Services Compensation Scheme, the fact is it's not going to help you buy food.

It's not going to put food on the table at the stage where access and actually having access to your money is most important of all.

And especially if you're someone who wants to save rather than invest, because, of course, with savings, your money is always going to be safe.

You know, you're protected under the Financial Services Compensation Scheme.

You know, your money is safe there and you make some interest as well.

So I always think that's a really good grounding.

Well, yes.

It is backed by insurance like, uh, the FDIC in the United States or the FSCS over in the UK, but the mechanism of that insurance is wildly misunderstood.

How so?

People assume that if a bank fails, the government just, like, drives a truck full of cash to their house the next morning.

But do you think the profession is still haunted a little bit with the trust challenge? You know, I'm just racking my brains.

British Steel, you see headlines around footballers losing money on tax advantage products, scams, FSCS failures, ongoing advice, redress issues, et cetera.

Uh, what do you think the professions need to do to kind of continue to improve public confidence in, in financial advice?

Yeah, I, I think, I think unfortunately we've still got a long way to go, and it's not helped by the headlines, the media.

I think we're at an inflection point, as in you look, you look at, you look at Uber, you look at Booking.com and Vinted, they've all, um, acquired, or not acquired, but obtained EMI licenses.

Um, so I, I guess with those particular brands, there's a, it's a trust mark, right? Um, however, like I think the reality is like if you flip to what Revolut have experienced in recent years before obtaining their license, consumers still recognize that banks provide FS- FSCS protection, um, and also fulfill cust- uh, customer, uh, duty, right? So, um, I think in terms of the industry, it's very clear that banks still fulfill the, the core needs for consumers in terms of protecting them and ensuring that services are, are carried out in line with the regulatory framework.

Um, however, I, I guess there is, to answer your question, there is that risk that it becomes quite, um, you know, it becomes a- A, a risk where, where, where consumers are, are perhaps influenced by brands as opposed to, uh, trust marks.

And then you get to that point where when something does go wrong, it's, oh, it was the, the plumbing provider that actually caused that thing, right?

Yeah.

S- so I think, like, selfishly, I think banks are winners here.

Um, ultimately when you bring it back to the core service of protecting the consumer, um, safeguarding funds and so on, um, FS- FSCS protection, that sits with the bank.

So, like, the regulation's not gonna change on that basis.