FSCS vs Financial Ombudsman Service: Which One Can Help You

The two names get used as if they were interchangeable, and they are not. The Financial Services Compensation Scheme, usually shortened to the FSCS, pays compensation when a financial firm has failed and cannot pay back your money itself¹. The Financial Ombudsman Service settles individual complaints between financial businesses and their customers, fairly and reasonably, quickly and with minimal formality². One is a compensation scheme for failures; the other is a complaints service for disputes with firms that are still trading.

The dividing line is whether the firm still exists and can answer for itself. If your bank, insurer or adviser is still trading and you think it treated you badly, the route is a complaint to the firm and then, if you are unhappy with the answer, to the Financial Ombudsman Service³. If the firm has failed and cannot pay claims, the FSCS is the body that can pay you¹.

The money is different too. FSCS deposit protection runs to £120,000 per person, per authorised firm, or £240,000 for a joint account⁴. The ombudsman does not work to a fixed limit; it aims to put you back in the position you would have been in if the business had not made a mistake⁵. Neither charges consumers⁶.

FSCS or Financial Ombudsman: the short answer

Ask one question first: is the firm still trading? If it is, and you have a grievance about how it treated you, the Financial Ombudsman Service is the body that can look at your complaint. It resolves individual complaints between financial businesses and their customers², follows the Financial Conduct Authority's dispute resolution rules, and takes into account how the business has tried to put things right⁹. It is operationally independent from both the Financial Conduct Authority and the government¹⁰.

If the firm has failed, the FSCS is the body that pays. It can pay you compensation if your financial services provider fails and cannot pay back your money itself¹. Its coverage runs across deposits, insurance, investments, pensions, mortgage advice and certain other regulated services, where a UK-authorised financial firm has failed¹¹.

The two can meet in the middle. Where an adviser is still trading, you can complain to the Financial Ombudsman Service; where the adviser has failed, the FSCS handles the claim¹². That single distinction decides most cases, and it is worth checking the firm's status before doing anything else.

What the FSCS does: compensation when a firm fails

The FSCS is an independent organisation with its own board of directors, although the Financial Conduct Authority and the Prudential Regulation Authority oversee its operation¹³. It is funded by the financial services industry, not by taxpayers.

To claim, four conditions normally have to be met together: the firm was authorised, it carried out a regulated activity for you, you lost money, and it owes you a legal liability⁸. If any one of those is missing, the claim usually falls away. The scheme covers deposits, insurance, investments, pensions, mortgage advice and certain other regulated services¹¹.

In most circumstances customers will not need to make a claim at all. The FSCS works with the failed firm, the Financial Conduct Authority and the insolvency practitioner to identify who is owed what¹⁴. For a failed bank, building society or credit union, compensation is paid within seven working days in standard cases, though more complex cases, including temporary high balance claims, take longer⁴.

There is one important limit on what the FSCS can do about dishonesty. In most situations it cannot compensate people for money lost due to scams or fraud. The exception is where bad advice came from an authorised financial adviser to invest in something that turns out to be a scam¹⁵.

FSCS protection: up to £120,000 per person, per bank

For money in banks, building societies and credit unions, the headline figure is £120,000 per person, per banking licence¹⁷. The same limit is described across the scheme's own documents as £120,000 per person or company, per authorised firm¹⁸, and as £120,000 per person per firm¹⁹.

The unit that matters is the licence, not the account and not the brand. If you have money in multiple accounts with multiple banks that are part of the same banking group and share a banking licence, they are treated as one bank, and the £120,000 limit applies across all of them⁴. If you hold an individual account and a joint account within the same banking group, the £120,000 compensation limit applies across all those accounts, not to each separate account¹⁹.

Joint accounts work differently. The FSCS protects each holder up to £120,000 in total across all accounts they hold, whatever the number of account holders⁹. Two people on one joint account therefore have £240,000 of cover between them⁴.

Businesses get their own cover where they are separate legal entities. If your business is a limited company or an LLP, you could claim up to £120,000 for each account⁴. The same principle applies in credit unions: if each business is a separate legal entity, the FSCS would protect each one up to £120,000²⁰.

What the Financial Ombudsman does: settling complaints against firms that are still trading

The Financial Ombudsman Service exists to resolve individual complaints between financial businesses and their customers fairly and reasonably, quickly and with minimal formality². It is not a regulator and it does not fine firms. It looks at the facts and evidence from both the business and the customer, including the relevant laws, rules and regulations, guidance, standards and codes of practice that were in place when the event happened, including the Consumer Duty⁹.

Its decisions aim to put things right. If a consumer has lost out financially, the ombudsman will aim to put them back in the position they would have been in if the financial business had not made a mistake⁵. It follows the Financial Conduct Authority's dispute resolution rules and takes into account how the business has tried to settle the complaint²¹.

It is free for consumers⁶, and it is not funded by the taxpayer but by the financial businesses that consumers complain about²². It can consider complaints from microenterprises and small and medium-sized businesses as well as consumers⁷.

The ombudsman cannot give personal advice about financial matters or debt problems²³. It also cannot help with solving a crime itself, which is a matter for the police²¹. What it can do is decide whether a firm treated you fairly and, where it did not, require it to put you back where you were.

Which one to contact: complaint or failed firm

The sequence starts with the firm, whichever body you may end up using. The same rule is repeated across the ombudsman's own guidance: your client must complain to the financial business before bringing the complaint to us²⁴. If the firm does not reply, or you are not happy with its final response, the ombudsman can take it on²⁵.

If the firm has failed, the order changes. Where an adviser is still trading, you would complain to the Financial Ombudsman Service; where the adviser has failed, the FSCS handles the claim¹². The FSCS also works with the failed firm, the Financial Conduct Authority and the insolvency practitioner, so in most circumstances customers will not need to make a claim at all¹⁴.

A few practical points help. If your complaint is about poor service from a claims management company, you will be referred to the Financial Ombudsman Service²⁶. If you are unhappy with a credit union's final response, or the timeframe has passed, you can take the complaint to the free Financial Ombudsman Service²⁷. Where a firm is not on the Financial Conduct Authority's register, the ombudsman cannot take the complaint and it should be referred to the Pensions Ombudsman²⁸.

Pensions and investments: where FSCS cover works differently

Pensions are where the two bodies overlap most confusingly, because different parts of the same pension can sit with different schemes. FSCS protection varies depending on the type of pension product, and there are limits to the amount the scheme can compensate³⁰. The FSCS does protect pension advice, so it can pay compensation if your adviser fails³¹.

On the complaints side, the split is by subject. The Pensions Ombudsman handles complaints about the administration of workplace, employer and stakeholder pension schemes, small self-administered pension schemes, self-invested personal pensions, free standing additional voluntary contribution schemes, annuities and section 32 buy-out policies, and executive, group and personal pension plans³². Complaints about the sale or marketing of pensions, or about financial advisers, need to go to the Financial Ombudsman Service instead³³.

For personal pension administration, either the Financial Ombudsman Service or the Pensions Ombudsman could help you³². The Financial Ombudsman Service covers advice to take out a personal pension, advice to transfer from a defined benefit occupational pension scheme to a personal or other defined contribution pension scheme, advice to take out an annuity or go into drawdown, advice on investments in SIPP, EPP or SSAS plans, and advice about management of a personal pension portfolio³².

Investments follow a similar pattern. The FSCS covers claims across general insurance, investment, contract for difference derivatives, debentures, home income plans, shares, mortgage advice, mortgage endowments, pensions, payment protection insurance, structured deposits and whole of life insurance³⁴. The ombudsman can look at savings endowments where you were given the wrong investment advice or misleading information, or lost money through an administrative error or a delayed transfer or payment into an ISA account³⁵.

Where neither service can help

Both bodies have hard edges, and knowing them saves time. The FSCS does not protect money that a debtor pays under an individual voluntary arrangement arranged by insolvency practitioners, who are not regulated by the Financial Conduct Authority, or debt advice¹⁸. It does not cover payment services¹⁶.

The ombudsman has its own limits. It can only look at how a lender dealt with your case, not at the underlying decision to lend³⁶. It cannot give personal advice about financial matters or debt problems²³, and it cannot investigate a crime²¹. The Payment Systems Regulator has no adjudicatory function and cannot consider individual complaints from consumers; those go to the Financial Ombudsman Service³⁷.

The biggest gap is the one that catches people out most often. If you do not use a Financial Conduct Authority-authorised firm, you also will not have access to the FSCS or the Financial Ombudsman Service, so you are unlikely to get your money back if things go wrong³⁸. The same applies to firms that are registered but not authorised: you are unlikely to have protection from the FSCS if the firm goes out of business, or access to the Financial Ombudsman Service if you want to complain³⁸. Payment and electronic money agents carry a related risk: if the agent has gone beyond the activities the principal agreed, you may not be covered by the ombudsman, and if your agent goes out of business your money will not be protected by the FSCS³⁸.

Checking takes a minute. Search the Financial Conduct Authority's register using the firm's reference number; if the status shows authorised, the FSCS may compensate you if the firm fails³⁸. The FSCS protection checker uses the same register³⁹, and the ombudsman points consumers to the same firm checker to confirm a firm is authorised and to help avoid scams⁴⁰. The FSCS can only protect money held by UK branches of authorised banks and building societies³⁹.

Where a firm has failed, the FSCS publishes which firms are under investigation, but an investigation is not the same as a failure and does not by itself trigger compensation. You can ask your firm to confirm that the activity it is carrying out for you is a regulated activity and under what circumstances FSCS protection would apply if the firm failed³¹.

Free, impartial help exists if you are unsure which route fits. MoneyHelper explains how credit union current accounts work and where protection sits²⁷, and the Pensions Ombudsman publishes guidance on where to go for help with a pension complaint³³. If a claims management company is involved, the government's own guidance explains how to complain about one²⁶.