FSCS claims scope extended to 29k charities and partnerships

Plans published by the regulator today (3 October) could see the number of claims going to the Financial Services Compensation Scheme increase as the scope to apply to the scheme for redress widens to include 29,000 large charities, societies and partnerships.

The Financial Conduct Authority is consulting on proposals to extend eligibility for FSCS compensation to all “unincorporated associations” and to certain large partnerships if an investment firm fails.

It estimates these changes would apply to 5,000 associations and 24,000 partnerships.

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The FCA states it is consulting on widening the scope for claims following the collapse of Kaupthing Singer and Friedlander Bank (KSF) and Iceleand’s Landsbanki Islands hf in 2008.

In August 2009, building societies, credit unions and banks were asked to pay £406m as their initial contribution to the costs of bank defaults in 2008, which also included the collapse of Bradford & Bingley, Heritable, Kaupthing Singer and Friedlander and London Scottish Bank.

When the then Financial Services Authority transposed the original rules, large unincorporated associations and certain large partnerships were excluded from compensation for investments, the FCA says.

It adds it is “not aware that any claims were wrongly rejected, but it will consider claims from claimants who believe they may be eligible for help”, up to a maximum of £50,000.

The size cut-off for partnerships being eligible to claim will change from net assets not exceeding £1.4m to the higher size limit that applies to companies. Partnerships will be able to claim if they do not exceed two of the three criteria: turnover of £6.5m, balance sheet total £3.26m, and 50 employees.

This would mean such organisations have the same protection as other consumers with similar investment claims, the FCA notes.

Alongside the FCA consultation, the Prudential Regulation Authority is consulting on proposals to clarify the compensation rules for deposits so that in the future all unincorporated associations, regardless of size, are within the scope of FSCS cover for deposits.

The FCA also said that it was possible some unincorporated associations and large partnerships may also be entitled to compensation payments for investments following the past failure of investment firms.

Christopher Woolard, FCA director of policy risk and research, said: “Once it became clear that some organisations may have missed out on compensation, we acted to put that right and are now saying to anybody that thinks it may be eligible for help to get in touch with the FSCS.”

The deadline for responses to the FCA consultation paper is 30 October, with a policy statement expected at the end of this year or early 2014.