Who Pays Investor Compensation Bill

Who Pays Investor Compensation Bill.

The collapse back in 2008 of various Icelandic bankers across Europe, notably those in the UK and offshore in the Isle of Man, costs savers millions of pounds.

Banks such as Icesave (Landsbanki) and Kauper Singer Friedlander, whilst being headquartered in Iceland, had bank licences in the UK and the Isle of Man.

The collapse resulted in billions of pounds being lost and investor compensation schemes coming into force.

In the UK, the Financial Services Compensation Scheme (FSCS) came into force and most investors had been compensation within a matter of weeks.

In the Isle of Man, it took a little longer, over a period of a year.

In both of the above, it was only personal investors that were protected and not company accounts or local authority accounts.

The bill for the UK alone, was suggested at over £1bn.  So who is paying for it?

The simple answer is:  The financial services industry pays for the bill by yearly levy.

Whether it is a bank, an insurance company or a financial adviser, they each have to pay yearly levies into the compensation fund to pay for any compensation as a result of a company going into liquidation.

In the UK scheme, the Government loaned money to the FSCS to pay the bills immediately, but the banking sector is now gradually paying this back.  At the last count, the banking sector had paid an addition £363 million pounds in levies to be ready for when the FSCS has to repay the government loan back in April 2016.

For financial advisers, many ‘rogue’ financial advisers mis-sell and then avoid paying compensation claims by going into liquidation.  The FSCS then picks up the bill, which the remaining “good and honest” financial advisers pay additional levies each year to cover the costs.

The Reality

It is the consumer that pays.  Your financial adviser of bank cannot keep their charges that low if they continually have to pay high fees to regulators or compensation funds.

Next time you get approached to make a claim from a claims company, just remember ultimately it is you that pays. Next time you make an additional personal injury or motor insurance claim, remember costs eventually filter back to you by having to pay higher premiums or higher financial advice charges overall.

Financial Services Compensation Schemes are not paid for by Government, they are paid for by the industry and ultimately, paid for by you.