Financial Services Compensation Scheme: what it means for charities
(9 October 2008)
1. Who is this guidance for?
We know that many charities are not sure whether they are eligible to claim compensation for the loss of their savings and deposits should their bank or building society fail. This guidance is tailored specifically for charities and their trustees.
2. What is the Financial Services Compensation Scheme (FSCS)?
The FSCS covers business conducted by firms (eg banks or building societies) authorised by the Financial Services Authority (FSA) and can pay compensation to consumers if an authorised firm is unable, or likely to be unable, to pay claims against it. The rules for the FSCS are made by the FSA and they set out which types of claims can be considered. The compensation limit for deposits increased in December 2010 to £85,000.
3. Can charities apply for compensation under the Scheme?
The information provided by the FSCS about the Scheme does not specifically mention charities. However, charities are covered by the Scheme to the same extent as other organisations and individuals.
The FSA Handbook of rules and guidance sets out which claims will not be eligible for compensation. Many charities should be eligible to claim compensation but there appear to be a number of important exceptions. In our view, the exceptions that are most likely to include charities are:
- a body corporate (which includes a company, industrial and provident society, Royal Charter body, and statutory corporation) which has two or more of the following:
- more than £6.5 million turnover
- more than £3.26 million balance sheet total
- more than 50 employees
- an unincorporated association which has assets of more than £1.4 million;
- collective investment funds (these would include common investment funds).
If charities want more information about the FSCS, or wish to submit a claim, they should contact the FSCS directly (full contact details below).
3.1 The FSCS does not extend to deposits in the Isle of Man or the Channel Islands.
4. Could a trustee be personally liable for any loss of funds?
In administering the property of a charity, a trustee must use the same kind of diligence and care in the execution of his or her office that a person of ordinary prudence would use in the management of their own affairs. This means that providing the trustees have done so, they are unlikely to be at risk. In addition, the courts are likely to make allowances where trustees are not investment professionals and are not paid.
When exercising any power of investment trustees must follow standard investment criteria on the suitability and diversification of investments. They must also review the investments from time to time, and take proper advice when investing or reviewing those investments.
For more details on the investment of charitable funds, please see our guidance Charities and Investment Matters (CC14).
Full FSCS contact details
FSCS Contact details
Financial Services Compensation Scheme
7th floor, Lloyds Chambers
London E1 8BN