The FSA and Financial Services Compensation Scheme (FSCS)


Hello to you all,

I'm a newby on here and have had my fingers burned in the past with SparenFX. I'm considering trying again and wondered just how secure my money is generally under the above scheme in the UK. I contacted the FSA regarding this and had the following detailed response from them.

Does anyone else have any worries about the scheme, or have I turned into a drama queen in my old age!! Point 5 made me think as not all Forex transactions are covered.


Thank you for your e-mail about potential protection for investments involving currency trading with FOREX companies trading within the United Kingdom.

The Financial Services Compensation Scheme (FSCS) is a fund of last resort, which deals with claims for compensation against financial services firms that are no longer trading and cannot honour claims against them. We review all claims in line with our rules, as set by the Financial Services Authority (FSA), and our policies, as agreed by our board of Directors.

For your reference our rules are available for review on the FSA’s website at FSA Handbook - Full Handbook The COMP section applies to the role and responsibility of FSCS.

A “claim” is defined for the purposes of the COMP Rules, as a “valid claim made in respect of a civil liability owed by the [firm] to the claimant.” In accordance with that definition (which can be found within the Glossary of COMP), FSCS determines claims for compensation on a civil liability basis in light of all the information available to it. As FSCS may only compensate for a civil liability, it may not pay compensation in excess of the damages a court would award.

I hope the information below will provide you with guidance on the potential role of the FSCS with regard to compensation available for funds deposited with authorised firms for the purpose of trading CFDs, Spread betting or FOREX within the United Kingdom.

1. In the event of an FSA authorised firm being declared “in default” (i.e. we are satisfied that it is unable, or likely to be unable, to meet the claims against it), cash held with that firm in nominee accounts (for the purposes of investing in futures contracts, commodity options, currency, etc.) would, depending on the exact terms on which the funds are held, most likely be protected by the FSCS as an investment.

You will need to check with Vantage FX (UK) / CB Financial Services Ltd whose responsibility it is to determine and clarify the following points.

What type of product/service they provide (confirming if it is a regulated deposit / investment/insurance contract), and how it would be protected by FSCS as a result. This is because we are not privy to the terms and conditions of a particular product and it is not feasible for us to provide definitive answers relating to all potential circumstances.

The types of products/services they are permitted to provide, based on their authorisation from the UK regulator, (FSA). You can also check this with the FSA on their website Financial Services Authority

2. Investors from outside the United Kingdom generally would receive the same level of protection as a citizen of the UK for funds held by a UK (FSA) regulated firm, but you would need to check this with the firm concerned.

3. If the regulated investment service becomes insolvent and owes money to the investor, the limit is £50,000. For example if the Investment firm misappropriated funds held for investment then that would be limited to £50,000.00.

4. It would be appropriate to check the manner investments and funds are held by the investment service you are considering using. We are not able to comment on individual companies or the time that would be taken by such a firm or a liquidator to recompense investor with potential losses following a failure.

5. Please be aware that if funds held for you are kept in a pooled / client account with a UK authorised deposit taker, such as a bank, and the bank failed, different limits may apply. From 31 December 2010, when a bank or building society, authorised by the FSA, is unable to pay back the deposits that have been made, the FSCS can pay the sterling equivalent of €100,000 of each depositor's claim, per authorised institution.

The sterling equivalent has been set at £85,000 by the FSA. The sterling compensation figure is set for a five year period and will only be subject to change if there are substantial fluctuations between the sterling / euro exchange rate during that period. Such protection is also available to depositors not normally resident within the United Kingdom, where the deposit is held within a FSA authorised bank or building society.

Please note that not all FOREX transactions/accounts are protected by FSCS. Ultimately, it depends on whether the particular product comes within the definition of a “designated investment” per the FSA Handbook (which derives from the Regulated Activities Order in the Annex to FSMA). In summary:
(a) A Spot FX Transaction will not be a designated investment unless the parties intend never to deliver the other currency.
(b) If a Forward FX Transaction is settled financially, it will be a designated investment. If it is settled physically then it will not be a designated investment.
(c) A Currency Future is a designated investment.
(d) A Currency Option is a designated investment.
The information provided in this email should be considered a guide based on our understanding on the information you have provided and the current rules we operate under. This email is not to be considered to provide definitive answers in relation to your relationship with a financial service firm now or in the future.

You will appreciate, from the points above, that a huge array of often complex financial products is now available to consumers, and that the vast majority of financial transactions will never be subject of a claim to the FSCS. With this in mind, we seek to provide general guidance to consumers who contact us. However, we are not geared up to examine individual products and the circumstances of their purchase in order to give advice, as to whether a claim would be successful, and if so, for what amount, should a claim be made to us.As you can appreciate, each claim is considered on its individual merits, including reference to the manner in which a product is being held (individually or part of a larger product / instrument) and of course the reason for a claim being presented. This is why we encourage consumers to seek clear advice from the product provider, who is of course best placed to answer their questions about a particular product, and how that relates to the general information provided by the FSCS.