How is the Financial Services Compensation Scheme funded?

The Financial Services Compensation Scheme (FSCS) is primarily funded by the financial services industry, which includes banks, building societies, credit unions, and insurance companies. These firms pay levies to the FSCS, which are calculated based on the level of risk each institution represents and their share of the market. This funding mechanism ensures that consumers are protected in the event of a firm failing, as it creates a pool of resources available for compensation claims.

While regulatory bodies like the FCA oversee the FSCS and enforce compliance within the industry, the direct funding comes from financial institutions rather than the FCA itself or taxpayer contributions. This system emphasizes that the financial industry itself covers the costs associated with protecting consumers, aligning the interests of regulators and firms with those of consumers who rely on a stable and trustworthy financial system.