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Investor Protection – Where Are We Now?
2008 has seen the issue of investor compensation come to the fore, with the demise of several high profile deposit-taking institutions.
In October, as the Icelandic banks were melting, the Financial Services Compensation Scheme (FSCS) cover for deposits with UK banks was raised to 100% of the first £50,000. However, the Chancellor chose to give individual depositors unlimited protection for their savings in Bradford & Bingley, Icesave, Heritage and Kaupthing Edge. Mr Darling's generosity was probably prompted by concerns about creating a run on the UK banking system, which as we now know, the Services Authority (FSA) believed to be in serious need of fresh capital. However, it would be wrong to assume that the Treasury will always step into the breach to rescue wealthy depositors.
With one important new exception, the improved £50,000 limit still applies per banking license , not per institution. So a bank that uses one banking license to cover several deposit-taking brands (eg Santander with Abbey National, Cahoot, Bradford & Bingley and Asda) only offers you £50,000 total cover. This one license restriction is becoming more of an issue as banks merge but retain their old names.
In late November the FSA announced a temporary exception when building societies merge. If the merged societies continue to operate under their former names, then until September 2009, the £50,000 limit will apply separately to pre-merger accounts.
There have been no changes to other FSCS compensation limits or rules (see table).
| Product | Maximum Compensation |
| Deposit accounts | £50,000 per person per licensed bank |
| Investments (eg unit trusts) | £48,000 per person per investment firm: 100% of first £30,000 and 90% of next £20,000 |
| Long term insurance (including investment bonds) | No monetary limit 100% of first £2,000 plus 90% of balance of claim |
Two points are about the FSCS are worth remembering:
• FSCS compensation only covers businesses authorised by the FSA. If you invest offshore, you may have a different level of protection or none at all. While the Chancellor did step in to rescue Bradford & Bingley's Isle of Man depositors, that was the exception that proves the rule.
• The FSCS provides covers if an FSA authorised business becomes unable to pay claims against it. It does not offer compensation for poorly performing or failed investments. The line between the two may not be immediately clear, but it is very important one.
ACTION 
For deposits, it still makes sense to limit investment with any one banking license holder to £50,000, unless you are dealing with National Savings & Investments or Northern Rock. These both offer 100% security, but neither pays particularly competitive rates.
If you have any concerns about the security of any investments we have arranged for you, please do not hesitate to talk to us.