The Financial Services Compensation Scheme
The Financial Services Compensation Scheme (FSCS) is the UK's compensation fund of last resort for investors of authorised financial services firms.
It may pay compensation if a firm is unable, or likely to be unable, to pay claims against it. This is usually because it has stopped trading or has been declared in default. The FSCS is independent of the government and the financial industry and was set up under the Financial Services and Markets Act 2000, becoming operational on 1 December 2001 (although it still covers claims from before this date). It does not charge individual consumers for using its service.
How does the FSCS impact on Meteor and our structured product issuances?
Meteor Asset Management (MAM) and Meteor Investment Management (MIM) are covered by the FSCS. Investors may be entitled to compensation from the FSCS in the event that MAM or MIM were declared to be in default and you have a valid financial claim against the company which it is unable to meet.
The fact that an investment loses value would not, in itself, lead you to have a valid claim against MAM or MIM.
In the event that a counterparty fails and is therefore unable to pay the amounts due from the securities issued with regard to a structured investment plan or the deposits arranged in respect of a structured deposit plan would not in itself give you a valid claim against MAM or MIM. Whether you are able to make claim to FSCS in respect of the failure of the counterparty is described below.
During the period between the receipt of a customer’s investment and the purchase of Securities, Investor’s money will be held as Client Money. This is also the case for the period from the maturity or early redemption of a security until the proceeds are reinvested, transferred or returned to the investor. We currently use a range of banks to hold Client Money. Investors may be eligible to make a claim if any of the banks we use, or may use in the future, becomes insolvent whilst holding Client Money.
In this event, the compensation limit is currently £85,000 per person and this applies to all deposits the investor holds with the insolvent bank and any other member of its group. Investors would not be covered for any excess amount over the compensation limit.
In the event that a counterparty fails to meet its obligations to pay the amount due from the Securities, this will not in itself entitle you to compensation from the FSCS.
In such circumstance, you may be able to make a claim to the FSCS if you have a valid complaint against Meteor or your adviser in respect of the investment and your adviser or Meteor were unable to meet an obligation to redress your loss. For example, if an adviser did not advise you properly about the investment and is then unable to pay you the compensation for your loss and has been declared in default.
For investments covered by the Scheme, the compensation limit is currently £50,000 per person. Investors would not be covered for any excess amount over the compensation limit of £50,000. If an investment Plan is taken in joint names the compensation limit would apply to each investor.
The Deposits arranged to provide the returns for a structured deposit plan are established through a bare trust. We will notify the Deposit Taker that the Deposits we make represent deposits made by and belonging to the individual Plan holders. Therefore, investors may be entitled to compensation from the FSCS in the event that the Deposit Taker is declared to be in default and is unable to pay the amount due from the fixed term deposit and where the Deposit Taker is a participant in the Financial Services Compensation Scheme.
Whether investors are eligible to make a claim under the FSCS will depend on various factors, including the size of the relevant Deposits and the laws and regulations applicable to the relevant financial institution (which may vary depending on where they are based). When Meteor act as bare trustee it may, depending on the laws, regulations and the facts at the time, make a claim on an investor’s behalf.
For deposits, the compensation limit is currently £85,000 per person and this applies to all deposits held with the Deposit Taker and/or any other deposit takers included under the same registration on the Financial Services Register. Investors would not be covered for any excess amount over the compensation limit. If investors take out any deposit in joint names the compensation limit would apply to each joint holder. A review of the limit is currently due in 2020, at which time the limit may be decreased or increased.
Investors should be aware that whether they are eligible to make a claim under the FSCS will depend on a variety of factors and that there are limits to the amount of compensation the FSCS will pay.
Entitlements would depend on the type of business and the circumstances of the claim. The information above is only a summary of the protection provided by the Scheme.
You can get more information about compensation arrangements from the FSCS.