FSCS £50,000 maximum payouts

masonic

Arbury wrote: »

It is encouraging to hear that from April next year that more investments capped at £50k will be equalised at £85k for people who might have taken on more risky investments and not realised.

I disagree. Having different limits gives a clear warning sign to those interested in savings that they may be getting mis-sold risky investment bonds rather than savings bonds. There is no compensation available for investment risk and £50k is more than sufficient to cover the per-client costs of a firm with ring-fenced client assets going into administration and being wound up / sold.

Audaxer

masonic wrote: »

There is no compensation available for investment risk and £50k is more than sufficient to cover the per-client costs of a firm with ring-fenced client assets going into administration and being wound up / sold.

I'll be happier to hold up to £85k through one platform or one fund house, when the limit goes up to £85k in April, just to cover me for the risk (albeit a small one) of a major fraud in the platform or fund house.

masonic

Audaxer wrote: »

I'll be happier to hold up to £85k through one platform or one fund house, when the limit goes up to £85k in April, just to cover me for the risk (albeit a small one) of a major fraud in the platform or fund house.

It's arguable whether there is any FSCS protection for fraud on a DIY platform. Any fraud would have to involve non-investment of client money - so the FSCS protection for investments would not apply - and the underlying cash protection is in relation to money held in a segregated clients account held with a FSCS protected bank, who would not be liable in the case of fraud by the platform.

So that leaves the fund house, which would be unable to meet investor claims due to the fraud and enter into administration. The loss would need to be shared between investors. If you held £50k in investments by the fund house, then a shortfall of anything up to 100% would be compensated. But even for £250k in investments, the fraud would need to be in excess of 20% of the total assets under management by the fund house before any loss would not be compensated (this would be in the tens or hundreds of billions for the largest fund houses). One would hope the auditors might notice before such a large theft of assets had occurred.

...and of course (as has already been mentioned), if you hold ETFs, Investment Trusts, individual shares, REITs, P2P loans or unregulated investments, there is no FSCS protection available to you under any circumstances.

Audaxer

masonic wrote: »

It's arguable whether there is any FSCS protection for fraud on a DIY platform. Any fraud would have to involve non-investment of client money - so the FSCS protection for investments would not apply

I'd be surprised if that was the case. If somehow your money wasn't invested because of fraud or your investments were taken by fraud and records falsified for example, my understanding from previous conversations on here and from platform websites security pages, is that you would be covered under the FSCS. I know the risk of a major fraud happening on a mainstream platform is very low, but it is good know that you are covered anyway.

masonic

Audaxer wrote: »

I'd be surprised if that was the case. If somehow your money wasn't invested because of fraud or your investments were taken by fraud and records falsified for example, my understanding from previous conversations on here and from platform websites security pages, is that you would be covered under the FSCS. I know the risk of a major fraud happening on a mainstream platform is very low, but it is good know that you are covered anyway.

That is indeed the case if you invested under advice, because you can claim against your financial adviser - this is why FSCS compensation was paid out in relation to the advisory platform Beaufort Securities for example. For DIY investors, this layer of protection does not exist. I note the FSCS has revamped its page on investments protection recently and it doesn't make pretty reading: https://www.fscs.org.uk/what-we-cover/investments/

Audaxer

masonic wrote: »

That is indeed the case if you invested under advice, because you can claim against your financial adviser - this is why FSCS compensation was paid out in relation to the advisory platform Beaufort Securities for example. For DIY investors, this layer of protection does not exist.

This HL page indicates that FSCS can apply if the platform ceases trading:
https://www.hl.co.uk/security-centre/how-safe-is-your-investment

Mr.Bojangles_2

Is there any advice on any (current HQ UK banks/institutions) that currently have FSCS protection in place, & what happens to the £85k compensation limit should they relocate their HQs to Europe/elsewhere, as several banks/institutions are threatening to do re Brexit debacle?

eskbanker wrote: »

You're perhaps confused by the ambiguous term 'bond', which is used to cover multiple different types of product.

If you're referring to savings, where fixed-term accounts issued by banks or building societies are sometimes referred to as bonds, then these are capital-protected cash deposits that benefit from the FSCS £85K compensation limit in the event of institution failure.

If you're referring to investments, where bonds are typically issued by governments or corporates, and as such fall within the lower £50K FSCS coverage applicable to investment firms.

However, the figures will be equalised next April when the latter limit is raised to £85K, which will make the point moot, although it's obviously critically important for those buying bonds to understand the difference between bank-issued bonds (savings) and government/corporate bonds (investments).

eskbanker

Mr.Bojangles wrote: »

Is there any advice on any (current HQ UK banks/institutions) that currently have FSCS protection in place, & what happens to the £85k compensation limit should they relocate their HQs to Europe/elsewhere, as several banks/institutions are threatening to do re Brexit debacle?

Which UK-headquartered banks are threatening to go elsewhere?

Given the current levels of uncertainty about so many fundamental issues, it's too early to speculate about what may or may not happen to individual banks, but in general banks regulated by the FCA have FSCS coverage, so banks (or their subsidiaries) operating in the UK should remain covered. I'm not sure but suspect that RCI's current model of a UK subsidiary protected by the French deposit guarantee scheme won't be applicable post-Brexit....

As for the limit, again too early to draw any conclusions - the EU €100K limit is higher than the UK one was before they were aligned, but that doesn't mean that the UK would revert back to a lower limit.

dunstonh

Is there any advice on any (current HQ UK banks/institutions) that currently have FSCS protection in place, & what happens to the £85k compensation limit should they relocate their HQs to Europe/elsewhere, as several banks/institutions are threatening to do re Brexit debacle?

Dont mix up retail banks with investment banks.

If they want to transact in the UK, then they have to meet the regulatory requirements. Regardless of where the HQ is.

masonic

Audaxer wrote: »

This HL page indicates that FSCS can apply if the platform ceases trading:
https://www.hl.co.uk/security-centre/how-safe-is-your-investment

Yes, it does say FSCS compensation can apply, and that there are restrictions and limits that would need to be confirmed with the FSCS to determine scenarios in which it would apply.

The information currently on the FSCS website paints a very different picture to the one I originally had. I originally believed, as you do now, that it was a simple case of if an investment platform goes bust or suffers fraud, I would always have the FSCS to fall back on. I had to temper that view when I learned that direct equity investments were specifically excluded from FSCS cover. I then learned that the cover for DIY investments was weaker than advised. It's not really a concern to me whether FSCS protection applies to my investment as most of my investments are excluded, but for someone such as yourself, it may be worthwhile questioning the FSCS on the conditions quoted above and whether they really are the criteria for all investment protection.