What is the Financial Services Compensation Scheme?

Explore who the FSCS is and what they do to protect consumers

Written in line with our editorial policy.

If you are thinking about unlocking some of the value from your bricks and mortar to boost your finances, there are a number of standards and regulations to protect you. One such body is the Financial Services Compensation Scheme (FSCS).

In this guide we will be discussing the following points to help you understand who the FSCS is, and how the scheme protects equity release customers.

• What is the Financial Services Compensation Scheme and what are they responsible for?
• A brief history of the Financial Services Compensation Scheme.
• How does this scheme give protection to someone taking out equity release? 
• Who regulates equity release?
• Find out more about equity release.

For fully regulated advice on unlocking your property wealth, please speak to our friendly selected advisers on 0808 178 3055, or request a call back for a time that suits you. Alternatively, check your eligibility and get an initial indication of how much tax-free cash you could release.

What is the Financial Services Compensation Scheme and what are they responsible for?

The Financial Services Compensation Scheme (FSCS) exists to protect customers of financial services firms that go bust. If the company you’ve been dealing with has gone bust and can’t pay claims against it, the FSCS steps in to pay compensation.

For example, you could claim compensation from the FSCS if you receive bad mortgage advice that causes you to lose money, or if you have been mis-sold a mortgage endowment. In all cases, the firm, broker or adviser you dealt with must have gone bust for the FSCS to be able to help.

A brief history of the Financial Services Compensation Scheme

The FSCS was set up in 2001 under the Financial Services and Markets Act 2000 and is independent of the government and financial services industry. 

The FSCS can pay compensation to consumers thanks to levies that authorised financial services firms have to pay. So successful is the scheme that since 2001 they have:

• Recovered £20 billion from the 2008 bank failures and repaid all £20.5 billion borrowed from HM Treasury that year.
• Returned £375 million from other recoveries to the industry in the last five years alone.
• Paid out millions of pounds to customers of failed firms, including £448m to 425,760 customers in 2018-2019.

How does this scheme give protection to someone taking out equity release? 

Should anything go wrong during or after your equity release application, homeowners can seek advice and compensation from the Financial Services Compensation Scheme (FSCS).

The FSCS enables you to claim compensation if you lost money in some circumstances. For example, you may be eligible if you were advised to take out a lifetime mortgage that was unsuitable for you at the time and the broker or adviser you dealt with has gone bust. 

The FSCS offers protection specific to equity release customers who lose money due to:

• Advice to take out a lifetime mortgage that was unsuitable (for advice given after 31 October 2004). 
• Bad advice about home reversion plans (since 6 April 2007).

Importantly, your claim must relate to a property in the UK which is your primary residence. It cannot relate to an investment property, for example, such as a buy-to-let.

Who regulates equity release?

Prospective equity release customers have the reassurance of other consumer protections, too, when arranging an equity release plan. From your initial conversations with an adviser and at every step of the process, strict equity release regulations are in place.

Thanks to the many consumer protections, the equity release horror stories of the 90s are a thing of the past. The industry now offers more guarantees and safeguards than ever before, ensuring customers and their families feel as protected as possible.

Here are some of the regulatory bodies that work to protect equity release customers:

Financial Conduct Authority

Anyone offering you advice on equity release, or providing you with an equity release product, must be regulated by the Financial Conduct Authority, more commonly known as the FCA. 

The focus of the specific FCA equity release standards is on ensuring that consumers take out an equity release plan that is suitable for their needs and circumstances.

You can read all about how the FCA protects equity release customers in our blog “What is the Financial Conduct Authority?”.

Equity Release Council

The Equity Release Council has been the UK’s industry body for over 30 years, setting standards to protect consumers. 

Advisers and lenders who are members of the Equity Release Council, such as our selected advisers, must sign up the organisation’s code of conduct and standards. They must commit to giving you ‘fair, simple and complete’ information about your equity release plan. 

You will benefit from the Equity Release Council guarantees when choosing a plan from one of their members.

Remember, our carefully selected advisers are fully regulated by the FCA and comply with FCA equity release standards. In addition, they are members of the Equity Release Council and will only recommend plans from members to offer you as much protection as possible.

Find out more about equity release

Equity release plans enable homeowners who are 55+ to boost your finances using the tax-free cash from the value of your home. There are typically no monthly repayments to make as repayment of the loan plus interest is done when you pass away or move into long-term care through the sale of your home.

Not 55 or over yet? Read our blog here to explore how to release equity if you are under 55.Ready to find out more? For regulated advice that puts your individual wants and needs for retirement first, call us on 0808 178 3055, or request a call back and we will arrange an appointment with one of our selected advisers. Alternatively, check your eligibility and get an initial indication of how much tax-free cash you could release.

About Clare Yates. With over a decade’s experience writing about later life financial planning, Clare offers a wealth of knowledge about equity release, pension annuities, wills, LPAs and more. When she isn’t writing, Clare likes to spend her time baking and going on walks with her husband, two children and their rescue dog. Follow Clare on LinkedIn