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When FSCS protection does not apply
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masonic
Posts: 27,204 Forumite
We are seeing an increase in the number of non-standard savings products, often offered by small fintech companies. One example is Raisin UK, which many savers have used to take advantage of an introductory offer, and which is an example of a firm that has been carefully scrutinised and does offer FSCS protection on money that is held on behalf of customers (via a third party provider to whom you actually send the money).
There are also services that allow customers to hold money in foreign currencies in order to lock into, or wait for, a better exchange rate. One example is Premier FX, which last month was forced into Administration by the FCA (see statement here)
According to a Sky News article published yesterday, "The company was licensed only to transfer clients' money, but many were encouraged to leave their cash with it in the hope they would benefit from a rise in currency exchange rates... Victims say they believed their money was deposited in segregated accounts with the company's bankers Barclays, but that was not the case."
The FCA (see above link) and FSCS have both clarified that no FSCS protection can be claimed on the money purportedly held in segregated Barclays accounts because the firm did not have the specific FCA permissions that would have protected the money.
People are often told to check that a firm is FCA Authorised and a member of the FSCS before handing over any money, but many legitimate firms will tell customers they hold money in segregated accounts with other FSCS member banks, so it is important to be able to tell whether or not you actually have protection in this situation.
To check a firm is authorised, you can look them up on the FCA register at: https://register.fca.org.uk
But you shouldn't stop there. You need to select the firm name and look at the record in more detail, particularly the expandable "Permissions" section at the bottom. You'll be looking for "Client Money" and/or "Accepting Deposits" permissions for any FSCS protection to apply to cash held with the firm.
If neither of those permissions apply to the firm to which you are sending your money, then it won't have FSCS protection while they hold it.
Some energy companies pay interest on credit balances built up by customers. While these are generally not protected by the FSCS, they have separate protection by Ofgem's safety-net rules.
There are also services that allow customers to hold money in foreign currencies in order to lock into, or wait for, a better exchange rate. One example is Premier FX, which last month was forced into Administration by the FCA (see statement here)
According to a Sky News article published yesterday, "The company was licensed only to transfer clients' money, but many were encouraged to leave their cash with it in the hope they would benefit from a rise in currency exchange rates... Victims say they believed their money was deposited in segregated accounts with the company's bankers Barclays, but that was not the case."
The FCA (see above link) and FSCS have both clarified that no FSCS protection can be claimed on the money purportedly held in segregated Barclays accounts because the firm did not have the specific FCA permissions that would have protected the money.
People are often told to check that a firm is FCA Authorised and a member of the FSCS before handing over any money, but many legitimate firms will tell customers they hold money in segregated accounts with other FSCS member banks, so it is important to be able to tell whether or not you actually have protection in this situation.
To check a firm is authorised, you can look them up on the FCA register at: https://register.fca.org.uk
But you shouldn't stop there. You need to select the firm name and look at the record in more detail, particularly the expandable "Permissions" section at the bottom. You'll be looking for "Client Money" and/or "Accepting Deposits" permissions for any FSCS protection to apply to cash held with the firm.
If neither of those permissions apply to the firm to which you are sending your money, then it won't have FSCS protection while they hold it.
Some energy companies pay interest on credit balances built up by customers. While these are generally not protected by the FSCS, they have separate protection by Ofgem's safety-net rules.
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Comments
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Great post, if this was Britain's got talent and I had a gold buzzer in front of me which said "sticky" I would be pressing it!
In your first paragraph, should you not be saying "does NOT offer FSCS protection"?0 -
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ThanksGreat post, if this was Britain's got talent and I had a gold buzzer in front of me which said "sticky" I would be pressing it!
In your first paragraph, should you not be saying "does NOT offer FSCS protection"?
As Reed says above, Raisin UK currently uses Meteor Asset Management as its agent (and will soon switch over to using Starling). In both cases the firm handling the money does offer FSCS protection. By contrast, the second example (Premier FX) does not offer FSCS protection.0 -
There has been similar threads on the P2P independent forum . The general conclusion seemed to be that:
In most cases the P2P sites were FCA authorised and as part of that they should keep clients cash in a segregated account at a bank covered by FSCS. However you could never be 100% sure this is what was happening , especially if there was any fraudulent activity at the P2P site , or they were taking short cuts etc
On the other side it is not seen as a big issue, because normally the large bulk of money invested in P2P is not held as cash, but lent out to borrowers . This lent money is for sure NOT FSCS protected .So whether the relatively small proportion that funds that may be in cash is protected or not is not the major riskissue when investing in these sites.0 -
Yes, P2P has also been mired in the confusion of 'Interim Permissions'. This issue has mostly gone away with the last of the firms in that category finally being granted full authorisation.Albermarle wrote: »There has been similar threads on the P2P independent forum . The general conclusion seemed to be that:
In most cases the P2P sites were FCA authorised and as part of that they should keep clients cash in a segregated account at a bank covered by FSCS. However you could never be 100% sure this is what was happening , especially if there was any fraudulent activity at the P2P site , or they were taking short cuts etc
On the other side it is not seen as a big issue, because normally the large bulk of money invested in P2P is not held as cash, but lent out to borrowers . This lent money is for sure NOT FSCS protected .So whether the relatively small proportion that funds that may be in cash is protected or not is not the major riskissue when investing in these sites.
We've witnessed what happens when a firm operating without Authorisation (Collateral) gets shut down (no FSCS protection, even for uninvested cash).
In the situation where a firm with Full Authorisation and Client Money permission goes under and it transpires your money was not properly segregated, then FSCS compensation should be payable by going down the formal complaint -> FOS judgement -> FSCS compensation route, but this will depend on the specific circumstances of the situation. I regularly sweep my P2P accounts of uninvested cash to avoid the risk of protection not being available in any specific instance.
Hopefully the above issue will be addressed in the FCA's consultation regarding enhancing consumer protection in the P2P sector.0 -
I was looking today on the raisin website and seen this.
"Your deposit will be administered by Meteor Asset Management Limited (MAM) and Meteor Investment Management Limited (MIM) who will process your application and cash respectively. Cash and deposits will be held by MIM and MAM in trust for you under FCA client money and asset rules.
In the event that MIM or MAM cannot meet their obligations you will remain the beneficial owner of any deposits purchased for you, and also cash held on your behalf in MIM’s client account. In both cases these will remain covered under the FSCS protection for the deposit taker or the banks holding client money to £85,000. For more details please see our Meteor Asset Management Terms and Conditions."
So that does look like your deposit is protected by FSCS during the few days MIM/MAM holds client money before sending it to your chosen bank account, after viewing masonic's post.0 -
Thanks for attempting to confirm my assertion that FSCS protection does apply to the money while held at MIM/MAM. However, I think you are rather missing the point if you did not go to the FCA register and confirm that MIM/MAM actually holds the necessary permissions for FSCS protection to apply.So that does look like your deposit is protected by FSCS during the few days MIM/MAM holds client money before sending it to your chosen bank account, after viewing masonic's post.0 -
Thanks for attempting to confirm my assertion that FSCS protection does apply to the money while held at MIM/MAM. However, I think you are rather missing the point if you did not go to the FCA register and confirm that MIM/MAM actually holds the necessary permissions for FSCS protection to apply.
I am just trying to understand some of the rules etc which is easy for some people, but sometimes the way they put things is still not 100% clear to the less savy like myself.
I am now again still not sure after going to the FCA website if FSCS covers MIM/MAM deposits. I know it covers ICICI bank which i went with.1 -
Did you find a company named Meteor Asset Management and Meteor Investment Management on the FCA register? Were they Authorised and did they hold either of the permissions I mentioned in my first post?I am just trying to understand some of the rules etc which is easy for some people, but sometimes the way they put things is still not 100% clear to the less savy like myself.
I am now again still not sure after going to the FCA website if FSCS covers MIM/MAM deposits. I know it covers ICICI bank which i went with.0 -
Did you find a company named Meteor Asset Management and Meteor Investment Management on the FCA register? Were they Authorised and did they hold either of the permissions I mentioned in my first post?
Yes i saw Client Money as a permission, so i will now take it that FSCS does apply.
Thanks for replying.0
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