How is the Financial Services Compensation Scheme funded?

The Financial Services Compensation Scheme (FSCS) is funded by a levy on Financial Conduct Authority (FCA) authorized firms. This means that the financial institutions regulated by the FCA contribute to the FSCS by paying a fee, which is then used to compensate consumers who have lost money due to the insolvency of a financial services firm.

This funding mechanism ensures that the scheme has a pool of resources to draw upon when it needs to pay out compensation to eligible claimants. Since the primary role of the FSCS is to provide a safety net for consumers, particularly in cases where firms fail and are unable to return clients’ investments or deposits, the funding model is designed to spread the financial responsibility across the industry rather than relying on taxpayers or individual policyholders. This approach ensures the sustainability of the scheme while maintaining consumer trust in the financial system.