Financial services

The Financial Services Compensation Scheme (FSCS) and the financial crisis

The Financial Services Compensation Scheme (FSCS) is the UK's compensation fund “of last resort”, available to consumers who have bought financial services from firms regulated in the UK. The FSCS offers protection to consumers across the spectrum of financial services – bank account deposits, insurance, investments, and mortgages.

During the financial crisis, the compensation provided by the FSCS was extended from covering the first £35,000 of losses in an institution, to the first £50,000. From 31 December 2010, new rules increase this limit to the sterling equivalent of €100,000 as a result of the European Deposit Guarantee Scheme Directive.

In Autumn 2008, HM Treasury provided loan facilities of approximately £20 billion to the FSCS in relation to the failure of five banks: Bradford & Bingley, Heritable, Kaupthing, Singer & Friedlander, London Scottish Bank, and the UK branch of Landsbanki (which provided IceSave accounts). The Treasury’s loans to the FSCS attract interest, consistent with state aid rules set by the European Commission. State aid rules ensure that interventions by national governments do not distort competition or trade within the EU, and so help to promote a level-playing field across Europe for financial services.

The Government is working with the FSCS and the Financial Services Authority to agree a credible and affordable loan repayment schedule for the £20 billion of legacy costs. Further details will be available in due course.

The Financial Services Compensation Scheme (FSCS) and the financial crisis

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