Clients investing in offshore funds are not protected by the Financial Services Compensation Scheme.
This is a significant drawback to investing in offshore funds. The FSCS protects UK-domiciled investments up to the first £50,000 invested, while deposits are protected up to the first £85,000. Such schemes in other jurisdictions are rare, but some are in operation.
For example, the Isle of Man offers its own scheme in the event of a failure of an authorised collective investment scheme, which is funded by levies on the island’s authorised scheme managers and trustees and can provide 100 per cent compensation on the first £30,000 of losses and 90 per cent on the next £20,000, to a maximum of £48,000.
The island also has a depositors protection scheme funded by banks based on the island on a matched basis with the government, which will cover up to £200m of losses should a bank or financial institution fail. Maximum compensation is £50,000 per individual.
Jersey and Guernsey both similarly offer a deposit protection scheme that offers £50,000 of individual compensation - £100,000 for joint accounts - to cover lost bank savings.
The situation with offshore bonds is slightly different. If an EU-based insurance company could not meet its liabilities, the FSCS will pay 100% of a UK’s investor’s first £2,000 and 90% of the remaining liabilities, regardless of how much it is.
This does not extend to the Isle of Man, which is not part of the EU, even though it is a British dependent territory.
However, the Isle of Man does have its own investor compensation scheme alongside its depositor compensation scheme, which compensates investors for up to 90% of the surrender value of the policy should the insurer fail.
A spokesperson for the Investment Management Association said that in the case of failure of an offshore fund purchased via a UK adviser, investors could complain to the adviser and, if they are dissatified with the response, the Financial Ombudsman Service.
For complaints about non-UK advisers an investor would need to contact the ombudsman in the country in which the adviser is based.
