Financial Services Compensation Scheme query

Audaxer · 17 February 2017 at 3:04PM

I know that the FSCS limit for Investments is £50,000. Does that definitely mean that if the platform provider ceases trading, investors are only covered up to £50,000 despite the fact that their underlying investments may be in lots of different funds or companies that are still trading?

Malthusian · 17 February 2017 at 3:12PM

The investors will have lost nothing in that case so the FSCS doesn't apply.

The clients' accounts and their underlying investments will eventually be transferred to another platform who buys the client book from the administrator. In the unlikely event that a buyer can't be found, the investments would be transferred directly to the beneficial owners.

dunstonh · 17 February 2017 at 4:23PM

The scenario where the platform FSCS could apply is say if the platform told you it bought assets and it had not and then failed. i.e fraud. You would then be covered for £50,000. There are so few areas where FSCS protection on the platform is important. It is more applicable to the investments themselves but even then, it is a lower priority than cash deposits.

Audaxer · 17 February 2017 at 6:58PM

That's good to know. I thought that had to be the case. I made this enquiry to Virgin Money a while ago and was told by their representatives that their S&S ISAs (including the Bonds and Gilts fund) were only covered up to £50k if they ceased trading. Was that incorrect as I thought they were just a platform provider?

Linton · 17 February 2017 at 7:54PM

Audaxer wrote: »

That's good to know. I thought that had to be the case. I made this enquiry to Virgin Money a while ago and was told by their representatives that their S&S ISAs (including the Bonds and Gilts fund) were only covered up to £50k if they ceased trading. Was that incorrect as I thought they were just a platform provider?

The manage funds as well. Its £50K/company so I guess that using a virgin fund on a virgin platform could have the effect of reducing the total coverage. However since the circumstances where it could apply are unlikely anyway I cant see it as a major issue - the charges are a better reason not to use VM funds.

Audaxer · 17 February 2017 at 10:19PM

Linton wrote: »

The manage funds as well. Its £50K/company so I guess that using a virgin fund on a virgin platform could have the effect of reducing the total coverage.

Would the same then apply to say, an HL fund on a HL platform?

However since the circumstances where it could apply are unlikely anyway I cant see it as a major issue

It may be unlikely that the FSCS is necessary, but I think that used to be said about banks. More attention/publicity seems to be made as regards ensuring big savers do not exceed the £85k savings limit.

the charges are a better reason not to use VM funds.

Ha ha, why did I guess someone would mention the charges if I referred to Virgin.

bowlhead99 · 18 February 2017 at 6:16AM

Audaxer wrote: »

Would the same then apply to say, an HL fund on a HL platform?

Though they are sister companies, the FCA-registered "Hargreaves Lansdown Fund Managers" is legally a separate and distinct party from the fund platform operator "Hargreaves Lansdown Asset Management Limited" which is the stock-exchange member and has its own separate FCA licence, being approved for a different scope of activities.

I haven't checked out Virgin as I'm not likely to be using them due to limited product range and high fees

It may be unlikely that the FSCS is necessary, but I think that used to be said about banks. More attention/publicity seems to be made as regards ensuring big savers do not exceed the £85k savings limit.

Because with a bank when you deposit funds those customer deposits can legally be used within the bank's own operations, lent out and such - that is the whole business model on which banking relies - and you might not get your money back if the bank fails to manage its assets sensibly, if there wasn't an industry-funded compensation scheme. And there are a greater volume of people using bank accounts than making S&S investments. So getting the message out about the limits, is important.

With investments you are not depositing your money into HL or their competitors for them to use as part of their business operations ; they are a custodian or gatekeeper acquiring ringfenced assets for you, which they hold on your behalf (and someone else could pick up and continue to hold your assets if HL went out of business). So your recourse to FSCS is only likely to be needed in the case of largescale fraud, or for example bad investment advice if you choose to be an advised client instead of DIY execution-only and then they went bust before paying you off for your bad advice complaint. And yes their advisory bit has a separate FCA authorisation.

Ha ha, why did I guess someone would mention the charges if I referred to Virgin.

If Virgin didn't want to be known as an investment provider with high fee, they would have lowered the fees

Statistically most investors are not going to need FSCS protection, so some people comparing providers would look first at things that would definitely be useful to them, like avoidance of high fees.

Audaxer · 14 March 2017 at 9:25PM

I was just looking at the IWeb site and came across the following page:
http://www.iweb-sharedealing.co.uk/about-iweb/financial-services-compensation-scheme.asp
where you will see it says:
'Customer assets are segregated from the firm’s assets and so would be available to be returned to you in the unlikely event that we were to cease trading.'
which is good, but a bit concerned that it goes on to say:
'In the extremely unlikely event of this segregation failing then you would be able to claim under the FSCS up to a value of £50,000.'

I thought there wasn't any chance of losing any funds if a platform provider ceased trading?

dunstonh · 14 March 2017 at 9:58PM

In other words, if a fraud has taken place that affects consumers funds then you are covered up to £50k

grey_gym_sock · 14 March 2017 at 10:09PM

you would have a claim against iweb for 100% of a loss due to fraud. it's just in case iweb had also gone bust, and so couldn't pay, that you could instead claim from the FSCS, and the latter claim would be limited to £50k.

just because there is insurance against something, it doesn't mean it's at all likely that it will happen. the £50k FSCS cover for investment can be relevant for claims against some small dodgy firm of financial advisors; it's very unlikely to come into play for someone like iweb (which may not be huge in platforms, but is owned by the giant lloyds banking group), but it does apply in theory.

you can probably take out insurance against (a.k.a. place a bet on) jeremy clarkson becoming the next archbishop of canterbury, but that doesn't mean it's got any chance of happening.

Audaxer · 14 March 2017 at 11:59PM

dunstonh wrote: »

In other words, if a fraud has taken place that affects consumers funds then you are covered up to £50k

I know it's probably unlikely, but do some large investors split investments between platforms in case there was such a fraud in one of the platforms, as they would only be covered up to £50k?

Financial Services Compensation Scheme query

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