The role of the Financial Services Compensation Scheme (FSCS) is to provide consumers of financial products with a degree of loss protection if a financial firm becomes unable, or is likely to be unable, to pay claims against it. This will generally be because a firm has stopped trading and has insufficient assets to meet claims, or is in insolvency. The existence of the FSCS is meant to give consumers greater confidence in dealings with financial firms.
The FSCS is an independent body created under the Financial Services and Markets Act 2000. It became operational on 1 December 2001. The Scheme covers business conducted by firms authorised by the Financial Services Authority. Customers of European firms (authorised by their home state regulator) that operate through branches in the UK may be protected by the home state scheme but they may also have additional protection from the FSCS in certain circumstances. The FSCS consists of a number of sub-schemes that offer protection against losses on deposits or in connectiom with other regulated activities such as providing insurance policies.