Protections you lose by dealing with an unauthorised firm

Dealing with a firm that is not authorised by the Financial Conduct Authority or the Prudential Regulation Authority means giving up the two safety nets most people assume are always there. The Financial Services Compensation Scheme cannot pay you compensation, because it only covers firms that have been authorised to do business in the UK¹. The Financial Ombudsman Service cannot look at your complaint, because it only handles complaints about firms regulated by the FCA².

The FCA has warned that consumers who deal with unauthorised firms are at greater risk and may lose access to important protections if things go wrong³. That is not a technicality. It is the difference between having a statutory route to get your money back and having none.

The protections you keep are different ones: the fraud and scam reporting routes, and in some cases the Pension Protection Fund for workplace schemes. This page sets out exactly what disappears, what remains, and how to check a firm before you sign anything.

FSCS compensation only covers UK-authorised firms

The Financial Services Compensation Scheme is the statutory compensation fund of last resort for UK financial services. It covers deposits, insurance, investments, pensions, mortgage advice and certain other regulated services if a UK-authorised financial firm fails⁷. The word "authorised" is doing the heavy lifting in that sentence.

FSCS states plainly that it only covers financial services firms that have been authorised by the Financial Conduct Authority or the Prudential Regulation Authority to do business in the UK¹. If the firm you dealt with was never authorised, FSCS has no jurisdiction over it and cannot pay you anything, regardless of how much you lost or how clearly you were misled.

There is a second condition that catches people out even when the firm itself is authorised. The particular activity the firm carried out for you must also be regulated by the PRA or the FCA⁸. A firm can hold authorisation for one type of business and carry out another activity that falls outside the scope of protection. FSCS advises 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 failed⁸.

For deposits, the restriction is geographic as well as regulatory. FSCS can only protect money held by UK branches of authorised banks and building societies and credit unions⁹. Money held with an overseas branch of a UK bank, or with a foreign bank operating in the UK without authorisation, falls outside the scheme.

What FSCS pays back: deposits up to £120,000, investments and advice up to £85,000

The compensation limits are set per person, per authorised firm, and they differ by product type. For deposits at banks, building societies and credit unions, FSCS protects up to £120,000 per person or company, per authorised firm⁴. That limit applies across all accounts you hold with that firm, not per account. If you hold a business account in a business name, FSCS protects you up to £120,000 in total across all accounts you hold in that business name, within the same banking group, in addition to your individual protection¹⁰. For an unincorporated association, the deposit protection limit is also £120,000⁹.

For investment business, the limit is lower. FSCS protects up to £85,000 per person per authorised firm⁵. This covers losses arising from bad investment advice, negligent management, or misrepresentation by an authorised firm that has since failed. It does not cover poor performance, market movements, or the failure of an underlying investment.

The distinction matters for anyone who has been persuaded to move savings into an investment product by a firm that turns out to be unauthorised. The deposit limit of £120,000 would not apply, because the money is no longer held as a deposit. The investment limit of £85,000 would not apply either, because the firm was never authorised. The protection is not reduced; it is absent.

There is also a longstop date. For investment claims, if a claim relates to business conducted before 28 August 1988, FSCS is unlikely to be able to help¹¹. Large businesses are usually excluded from FSCS protection, although there are some exceptions for deposits and insurance¹¹.

Pensions and insurance: cover that disappears with an unauthorised firm

Pension protection under FSCS depends entirely on authorisation. FSCS states that it can only protect you if the Financial Conduct Authority has authorised your pension provider¹². If your pension provider is not authorised, there is no FSCS route.

Occupational pension schemes sit outside FSCS altogether. FSCS cannot protect occupational pension schemes if they fail¹³. Instead, some occupational schemes may be protected by the Pension Protection Fund, which provides compensation in place of your pension if the scheme is eligible and lacks funds to pay promised pensions¹⁴. The PPF is not a substitute for FSCS in the way people often assume; it covers a different type of scheme and a different type of failure.

For workplace pensions, there is a further trap. If you have enhanced protection or fixed protection and you are automatically enrolled into a workplace pension, you may lose that protection unless you opt out¹⁵. That is a tax consequence, not a compensation one, but it is a protection that disappears through inaction.

Defined contribution pensions operate differently again. Pension companies should ringfence your pension savings, which means that if they were to go bust, your pension would be safe¹⁶. That ringfencing is a regulatory requirement on authorised providers. It does not extend to unauthorised firms holding themselves out as pension providers.

On the insurance side, FSCS protection requires the insurer to be PRA-authorised¹⁷. Some insurance types are excluded entirely: aviation insurance and credit insurance claims are not eligible for FSCS protection¹⁷. Where cover does apply, the payout rate varies. Warranty claims are paid at 90%, while employers' liability claims are paid at 100%⁸.

If you transferred a defined benefit pension on the advice of an adviser who is still trading, you can complain to the Financial Ombudsman Service¹³. If the adviser has failed, FSCS handles claims instead¹⁸. If the adviser was never authorised, neither route is available.

The Financial Ombudsman route is also closed

The Financial Ombudsman Service is the free, independent dispute resolution service for complaints about financial firms. Its jurisdiction is defined by regulation. It can look at complaints about a financial adviser or pensions provider that is regulated by the Financial Conduct Authority². If the firm is not regulated, the ombudsman has no power to consider the complaint.

This closure is absolute. There is no discretionary route, no exceptional circumstances provision, and no alternative ombudsman scheme that picks up unauthorised financial firms. The ombudsman's own guidance on scams covers complaints about the way a financial business has dealt with a scam involving unauthorised payments, stolen details or identity theft¹⁹. It can still help where reimbursement rules do not apply, such as me-to-me scams, card payments to genuine merchants, overseas payments and cash withdrawals handed to a scammer²⁰. But in each case, the complaint is about a regulated business, not an unauthorised one.

The ombudsman's decisions are binding on firms. Firms have no right to reject a FOS determination and no route of appeal; judicial review examines only the lawfulness of a determination, not the merits²¹. That power is what makes the ombudsman effective. It is also why its absence matters so much when the firm is unauthorised: there is no equivalent body with the power to order an unauthorised firm to pay.

Where the ombudsman cannot help, the practical routes are different. You can report the firm to the FCA, which maintains a Warning List of unauthorised firms. You can report the fraud to the police through Action Fraud in England, Wales and Northern Ireland, or Police Scotland. You can seek civil redress through the courts, though enforcing a judgment against a firm that may not exist in a recoverable form is often impractical.

How to check a firm is authorised before you sign up

The check takes minutes and is free. The FCA register is the authoritative source. FSCS advises checking your provider is authorised by the Financial Conduct Authority as the first step²². The second step is to find out if the particular activity the firm is carrying out for you is regulated by the PRA or the FCA²².

The FCA's Firm Checker can be used to confirm a firm is authorised and help avoid scams before considering an investment, pension opportunity, loan or other financial service²³. For lending specifically, the FCA advises searching the firm by name, selecting "Borrowing money, including credit card lending and credit information", and checking that the firm is "Authorised" and has permission to "Lend you money on an unsecured basis"²⁴.

If you cannot find the firm on the register, or if the permissions do not match what you are being offered, that is the answer. Do not proceed.

There are additional checks worth making. Age UK advises visiting the FCA website to check whether a company is authorised²⁵. MoneyHelper advises always checking that the company or organisation contacting you is legitimate by searching for it on Companies House and using the contact details listed there, not the ones provided in the message²⁶. If a firm is not on the FCA register but is on Companies House, that tells you it is a registered company but not an authorised financial firm. The two are not the same.

For insurance, FSCS advises searching the FCA register using your insurance provider's firm reference number and checking that the status shows "authorised"¹⁷. If it does, FSCS may compensate you if the firm fails. If it does not, it will not.

What still applies when the firm is unauthorised

Losing FSCS and the ombudsman does not mean losing everything. Several protections operate independently of the firm's authorisation status.

If you paid by debit or credit card, your card issuer may be liable under Section 75 of the Consumer Credit Act for purchases over £100 and up to £30,000, or may consider a chargeback claim. These routes depend on the card issuer's own rules and the payment type, not on the recipient firm being authorised.

If you were tricked into making a bank transfer to an unauthorised firm, the authorised push payment reimbursement rules may apply to your bank. The ombudsman can still help where reimbursement rules do not apply, such as me-to-me scams, card payments to genuine merchants, overseas payments and cash withdrawals handed to a scammer²⁰. The complaint is about your bank's handling, not the unauthorised firm's conduct.

If you were misled into transferring a pension, and the adviser is still trading, you can complain to the Financial Ombudsman Service¹³. If the adviser has failed, FSCS handles claims¹⁸. If the adviser was never authorised, neither applies, but the firm may still be committing a criminal offence, and reporting it to the FCA and the police is the appropriate step.

For workplace pension contributions that were deducted from your pay but not paid into the scheme, you can claim for contributions deducted during the 12 months before your employer became insolvent²⁷. That is an Insolvency Service route, not an FSCS one, and it operates independently of whether the pension provider was authorised.

Where the protection stops

The boundary is authorisation. Everything on the FSCS side, and everything on the ombudsman side, depends on the firm being authorised by the FCA or PRA and the specific activity being a regulated one. Where that condition is met, the protections are substantial: £120,000 for deposits, £85,000 for investments and advice, free claims, and a binding dispute resolution service. Where it is not met, none of it applies.

The practical consequence is that the check must happen before you hand over money, not after. Once money has gone to an unauthorised firm, the statutory safety nets are gone, and recovery depends on civil action, criminal investigation, or the firm choosing to return the money. None of those is reliable.

The FCA has taken enforcement action against firms it alleges were carrying out unauthorised activity, including High Court action³. That enforcement protects future consumers. It does not compensate past ones.