FSCS or Financial Ombudsman: who to go to

The Financial Ombudsman Service and the Financial Services Compensation Scheme (FSCS) do two different jobs, and mixing them up is the most common reason people lose time on a complaint. The Ombudsman settles disputes with a firm that is still trading. The FSCS pays compensation when a firm has failed and cannot pay claims against it itself¹.

So the question is not which one is better. It is whether the firm is still there. If your bank, lender, insurer or adviser is still trading and you think it treated you unfairly, the Ombudsman is the route. If it has gone bust, the FSCS is. Both are free, and neither requires you to pay a claims management company³.

The two also pay different amounts. The FSCS pays up to £85,000 for most claims, though savings and deposits are protected up to £120,000 per eligible person, per firm².

The Ombudsman handles complaints, the FSCS pays out when a firm fails

The Financial Ombudsman Service provides dispute resolution between banks and customers, looking at the individual circumstances of a complaint¹. It is funded by the financial businesses that consumers complain about, not by the people who complain³. It can look at complaints from individual or joint consumers of a financial business that provides services or products in the UK, regardless of nationality or where they live⁷.

The FSCS was set up by parliament to pay back money to eligible people when their financial firm fails⁸. It is funded by the financial services industry and describes itself as a completely independent and free service⁹. A firm is in default when it cannot pay claims made against it, or is likely to be unable to do so². That is the trigger for FSCS involvement, not a dispute about how you were treated.

The practical difference: the Ombudsman can order a firm to put you back where you would be if it had not made a mistake, and can add an award for distress and inconvenience⁴. The FSCS pays compensation for money you have lost, within set limits, once a firm has failed.

When to go to the Financial Ombudsman

The Ombudsman is for complaints about how a firm treated you while it was trading. That covers a wide field: current accounts, savings accounts, direct debits, money transfers, electronic payment platforms, cheques and banker's drafts, and issues such as account closures, disputed transactions, IT failures and problems with switching services⁴. It also covers consumer credit complaints about payday loans, the affordability of lending, the quality of goods bought or hired with credit, and other types of lending including mortgages¹⁰.

It can look at complaints about early repayment charges on mortgages from consumers who believe a charge is unfair¹¹, complaints about individual savings accounts where an adviser or investment company made an admin error or delayed a transfer or payment⁷, and complaints about insurance, including income protection and wedding insurance¹². Credit union members who are unhappy with a final response can take the complaint to the free Financial Ombudsman Service¹⁴.

The Ombudsman decides cases on relevant law and regulations, the regulator's rules, guidance and standards, industry codes of practice and, where appropriate, good industry practice⁷. It considers facts and evidence from both the business and the customer, then sets out findings explaining the decision and what needs to be done to put things right¹⁰.

When to go to the FSCS

The FSCS is for when a firm has failed. It covers a range of financial products if a UK-authorised financial firm fails, including deposits, insurance, investments, pensions, mortgage advice and certain other regulated services¹². The full range includes banks and building societies, credit unions, pensions, investments, mortgages, insurance, debt management, PPI and, from 29 July 2022, funeral plans¹⁵.

There are limits on how far back it reaches. For investment claims, if a claim relates to business conducted before 28 August 1988, the FSCS is unlikely to be able to help. For mortgage advice and arranging, it can only help if the claim relates to business conducted on or after 31 October 2004, and for insurance intermediaries, on or after 14 January 2005². Claims against an insurer, bank or investment firm that failed before 1 December 2001 are covered by the rules governing the separate compensation schemes that existed before that date².

If a regulated adviser fails and you lost money because they recommended a mortgage that was not right for you, you could claim compensation with the FSCS¹⁶. If the adviser is still trading, the FSCS directs you to complain to the Financial Ombudsman Service instead⁶.

Complain to the firm first: eight weeks, then six months

Both routes start the same way: with a formal complaint to the firm. If it does not send you a final response letter within eight weeks, or you are unhappy with its response, you can bring the complaint to the Ombudsman⁶.

Once the firm sends its final response, the clock starts. You need to make a complaint to the Ombudsman within six months from the date on your final response³. A firm has a maximum of eight weeks to try to resolve a complaint before a consumer can refer it²⁰. Some providers set out the same six-month rule in their own complaint documents²¹.

There is also an outer time limit on the underlying problem. Customers may have the opportunity to pursue a claim via the Financial Ombudsman Service up to six years from a problem happening, or longer if still within three years of becoming aware, or of when they should reasonably have become aware, of the problem⁷.

What each can pay: £85,000 from the FSCS for most claims

The Ombudsman can order a firm to put things right, and awards are built from what you lost plus, where appropriate, an amount for distress and inconvenience, which can be up to £1,500²². The Ombudsman publishes worked examples: in one mis-sold PPI case on a credit card with complete records, the total compensation was £3,836.30 (£3,189.97 plus £518.73 plus £127.60)²³. In a case with incomplete records, it was £2,310.58 (£2,212.70 plus £97.88), and in a case where a loan was sold on to a third party, the total redress was £2,995, including interest of £555²³.

The FSCS pays up to £85,000 for most claims, but the savings limit is higher at £120,000 per eligible person, per firm⁵. The two figures apply to different things, and the FSCS is explicit that only its deposits and savings limit is £120,000 per eligible person, per eligible firm²⁴.

Savings and deposits: up to £120,000 per person, paid automatically

If a bank, building society or credit union fails, eligible savers are automatically compensated up to £120,000 per eligible person, per bank, building society or credit union⁵. The same limit is stated across the FSCS's own materials: up to £120,000 per person or company, per authorised firm²⁵. Joint accounts are also eligible for FSCS protection up to the same limit of £120,000 per eligible person²⁴, which is why the FSCS describes the joint-account figure as £240,000 per authorised firm²⁹.

The FSCS says it will automatically pay back customers' money within seven working days in most cases after a bank or building society failure⁹. That automatic route is the reason savers do not need to do anything when a bank goes under: the payment comes to them.

There is more protection for money that is only briefly in an account. Certain qualifying temporary high balances up to £1.4 million are covered for six months, such as money from the sale of a house²⁹. The FSCS also states that if a balance is temporary, it covers up to £1m for up to six months³⁰. The two figures come from different FSCS documents and are not reconciled in them.

How to claim or complain, and how long it takes

For the Ombudsman, the process is: complain to the firm, wait for its final response or eight weeks, then fill in the Ombudsman's complaint form³. If you are considering using AI to help complete the form, the Ombudsman publishes guidelines: avoid entering personal information you would not want shared, such as health or banking information, use AI only to help organise information or put it clearly, and check the resulting text carefully³.

How long an investigation takes depends on what the complaint is about, how complex it is and how quickly all the information needed can be obtained⁴. There is no fixed timetable.

For the FSCS, an online application takes between one and two hours to complete³¹. The FSCS is a free service³¹. For standard deposit claims after a bank or building society failure, payment is automatic and within seven working days in most cases⁹. For other claims, the FSCS cannot confirm the eligibility of specific deposits until the point of the firm failing, which matters for deposits held through wealth management companies or online platforms⁹.

Where neither can help

Some things sit outside both schemes. The Ombudsman cannot help with solving a crime itself, which is a matter for the police⁴. The Payment Systems Regulator has no adjudicatory function and cannot consider individual complaints from consumers, though consumers may complain to the Financial Ombudsman Service³².

The FSCS cannot protect e-money or payment services firms³². Most cryptoassets are not FSCS protected because they are not regulated, including virtual currencies such as Bitcoin and Litecoin³³. If your account is not a bank account, it is likely to be a virtual current account covered by e-money rules, which means your money is kept safe at a different bank, but you would need to make a claim to the administrator if your provider failed³⁴.

The FSCS also cannot protect occupational pension schemes if they fail⁶. It does not protect money that a debtor pays under an individual voluntary arrangement arranged by insolvency practitioners, which are not regulated by the FCA, or debt advice²⁶. Credit insurance claims are not eligible for FSCS protection³⁵. Large businesses are usually excluded, although there are some exceptions for deposits and insurance².

The Pensions Ombudsman is a separate body and is unlikely to take on a complaint where you have already been compensated, or may be eligible for compensation, from another body such as the Financial Services Compensation Scheme or the Fraud Compensation Fund³⁶.

If a firm has failed: what changes for you

When a firm fails, the FSCS takes over the compensation question, and the Ombudsman route usually falls away because there is no trading firm left to order to pay. The FSCS states that if the adviser is still trading, you can complain to the Financial Ombudsman Service, which confirms the dividing line⁶.

For PPI, the deadline for claims was 29 August 2019, but the FSCS says this does not apply to it, because the deadline applies to claims against companies that are still trading, while the FSCS compensates when financial firms have failed³⁷. If you bought a PPI policy and the information you were given was misleading or insufficient, and the firm that gave you that advice has since failed, you may be eligible to claim compensation with the FSCS³⁷. The Ombudsman's own PPI deadline of 29 August 2019 applied to complaints to the business³⁸.

Checking a firm before you need either

The first step in either route is checking who you are dealing with. The Ombudsman advises using the Financial Conduct Authority's Firm Checker to confirm the firm is authorised and to help avoid scams⁴. The FSCS says to check your provider is authorised by the Financial Conduct Authority, then find out whether the particular activity the firm is carrying out for you is regulated by the Prudential Regulation Authority or the FCA²². You can search the FCA register using the provider's firm reference number, and if the status shows authorised, the FSCS may compensate if the firm fails³⁵. The FSCS protection checker draws its results from the FCA's Financial Services Register²¹.

For investment protection, the FSCS suggests asking 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 failed³². The FSCS can only protect you if the Prudential Regulation Authority has authorised your insurance provider³⁵.

Free help if you are unsure

Both bodies are free, and neither requires paid representation. The Ombudsman states that you do not need to pay anyone to represent you, for example a lawyer or claims management company, though you can ask a family member, friend or someone else to help³. The FSCS is a completely independent and free service⁹.

MoneyHelper, the government-backed money guidance service, explains how to choose the right bank account and how cash savings bonds work, which is useful background if you are trying to work out whether an account is a bank account or something else³⁴. If your complaint is about a pension rather than a bank or insurer, the Pensions Ombudsman is the separate body to approach³⁶.