Policyholder Protection

1.1

This Part applies to the FSCS, and:

1. (a) for the purposes of Chapter 5A, this Part also applies to insurers under write-down and insurers that have been so, but not to affected market participants or the Society; and
2. (b) for the purposes of chapter 21, 22.6 - 22.8 and Annex 2, this Part also applies to participant firms and the Society.

1.1A

This rule is effective from 23:00 on 31/12/2020.

For the purposes of Chapter 21 and Annex 2, references to “firm” includes CRO insurers.

1.2

In this Part, the following definitions shall apply:

article 9 default

has the meaning given in article 2(2) of the compensation transitionals order.

authorised insurance company

means (in accordance with the compensation transitionals order) a person who was, at any time before 1 December 2001, authorised under section 3 or 4 of the Insurance Companies Act 1982 to carry on insurance business of any class in the UK.

base costs

means management expenses which are not attributable to any insurance class.

base costs levy

means a levy, forming part of the management expenses levy, to meet the base costs in the financial year of the compensation scheme to which the levy relates, each participant firm's (and, where applicable, the Society’s) share being calculated in accordance with the FSCS Management Expenses Levy Limit and Base Costs Part.

building guarantee insurance

means a contract of general insurance providing building guarantee, construction warranty and/or structural defects cover in relation to newly built, converted or renovated residential property, including but not limited to the risk of physical damage and/or defect arising from non-compliance with relevant building or fire regulations or standards.

claim

means a valid claim made in respect of a civil liability:

1. (1) owed by a relevant person; or
2. (2) owed by a relevant person which has been assumed by a successor and which is based on the acts or omissions of the relevant person;

under a contract of insurance.

COMP

means the Compensation Sourcebook of the PRA Handbook in force immediately prior to 3 July 2015.

compensation costs

means the costs incurred:

1. (1) in paying compensation in accordance with this Part;
2. (2) as a result of making the arrangements contemplated in 4.1 or 4.3 or taking the measures contemplated in 5.1;
3. (2A) as a result of taking the other measures contemplated in 5A.1; or
4. (3) in making payments or giving indemnities under 18.2.

compensation costs levy

means a levy imposed by the FSCS on participant firms to meet compensation costs, each participant firm’s share being calculated in accordance with 21.37 – 21.41.

compensation transitionals order

means the Financial Services and Markets Act 2000 (Transitional Provisions, Repeals and Savings) (Financial Services Compensation Scheme) Order 2001 (SI 2001/2967).

contribution group

means one of the groups of participant firms within a sub-scheme in existence prior to 1 April 2008 set out in FEES 6.5.7 R at the time, being groups that carried on business of a similar nature, to which compensation costs and specific costs were allocated in accordance with FEES 6.4 and FEES 6.5 in force at the relevant time.

credit

means the class of contract of insurance, specified in paragraph 14 of Part I of Schedule 1 to the Regulated Activities Order.

CRO insurer

a person to whom Regulation 47 of the EEA Passport Exit Regulations applies in respect of the activities of effecting contracts of insurance or carrying out contracts of insurance.

depositary

has the meaning given to it in regulation 2 of the Alternative Investment Fund Managers Regulations 2013.

directive friendly society

means a friendly society that is a UK Solvency II firm.

EEA Passport Exit Regulations

means the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018.

eligible claimants

means a person who is eligible to bring a claim for compensation under 7.1.

FEES

means the Fees Manual of the PRA Handbook in force immediately prior to 3 July 2015.

friendly society

means an incorporated friendly society or a registered friendly society.

Friendly Societies Protection Scheme

means the Friendly Societies Protection Scheme established in accordance with section 141 of the Financial Services Act 1986.

group

has the meaning given to it in section 421 of FSMA and where the context requires, includes reference to Gibraltar as appropriate.

habitual residence

means:

1. (1) if the policyholder is an individual, the address given by the policyholder as his residence if it reasonably appears to be a residential address and there is no evidence to the contrary;
2. (2) if the policyholder is not an individual or a group of individuals, the State in which the policyholder has its place of establishment, or, if it has more than one, its relevant place of establishment; or
3. (3) in respect of the variation of a life policy, or the purchase of a pension annuity related to a life policy, unless there is evidence to the contrary, the habitual residence of the policyholder at the date on which the policyholder signed the proposal for the life policy.

holding company

has the meaning given to it in section 1159(1) of the Companies Act 2006 (Meaning of “subsidiary” etc).

in default

means the status of being in default following a determination under 10.2 for a relevant person (or where applicable, under 11.2 for a successor).

insurance class

means one of the classes set out in Annex 1.

large company

means a body corporate which does not qualify as a small company under section 247 of the Companies Act 1985, or section 382 of the Companies Act 2006 as applicable.

large mutual association

means an unincorporated mutual association or an unincorporated association (which is not a mutual association) with net assets of more than £1.4 million (or its equivalent in any currency at the relevant time).

large partnership

means a partnership with net assets of more than £1.4 million (or its equivalent in any other currency at the relevant time).

levy limit

means the maximum aggregate amount of compensation costs and specific costs that may be allocated to a particular insurance class in one financial year as set out in Annex 1.

liability subject to compulsory insurance

means any liability required under any of the following enactments to be covered by insurance or (as the case may be) by some other provisions for securing its discharge:

1. (1) section 1(4A)(d) of the Riding Establishments Act 1964 (or any corresponding enactment for the time being in force in Northern Ireland);
2. (2) section 1 of the Employers' Liability (Compulsory Insurance) Act 1969 or Article 5 of the Employers' Liability Order (Defective Equipment and Compulsory Insurance) (Northern Ireland) Order 1972;
3. (3) Part VI of the Road Traffic Act 1988 or Part VIII of the Road Traffic (Northern Ireland) Order 1981;
4. (4) section 19 of the Nuclear Installations Act 1965.

life policy

means (in accordance with the definition of a 'qualifying contract of insurance' in article 3(1) of the Regulated Activities Order) a contract of long-term insurance (other than a reinsurance contract and a pure protection contract) and a long-term care insurance contract.

limited liability partnership

means:

1. (1) a body corporate incorporated under the Limited Liability Partnerships Act 2000;
2. (2) a body corporate incorporated under legislation having the equivalent effect to the Limited Liability Partnerships Act 2000.

Lloyd’s policy

means a contract of insurance written at Lloyd’s.

long-term care insurance contract

means a contract of long-term insurance:

1. (1) which provides, would provide at the policyholder's option, or is sold or held out as providing, benefits that are payable or provided if the policyholder's health deteriorates to the extent that he cannot live independently without assistance and that is not expected to change; and
2. (2) under which the benefits are capable of being paid for periodically for all or part of the period that the policyholder cannot live without assistance;

where 'benefits' are services, accommodation or goods necessary or desirable for the continuing care of the policyholder because he cannot live independently without assistance.

management expenses

means (in accordance with section 223 of FSMA (Management expenses)) expenses incurred or expected to be incurred by the FSCS in connection with its function under FSMA, other than compensation costs and costs incurred under Part 15A of FSMA .

management expenses levy

means a levy imposed by the FSCS on participant firms to meet the management expenses and which is made up of one or more of a base cost levy and a specific costs levy, each participant firm's share being calculated in accordance with 21.28 – 21.35.

mesothelioma regulations

means The Compensation Act 2006 (Contribution for Mesothelioma Claims) Regulations 2006 (SI 2006/3259).

mesothelioma victim

means (in accordance with section 3 (1) of the Compensation Act 2006) a person who has contracted mesothelioma as a result of exposure to asbestos by a responsible person.

money laundering

has the meaning given in Article 1(3) of the Money Laundering Directive 2015/849/EU.

money-purchase benefits

means in relation to a member of a personal pension scheme or an occupational pension scheme or the widow or widower or surviving civil partner of a member of such a scheme, benefits the rate or amount of which is calculated solely by reference to the schemes assets which (because of the nature of the calculation) must necessarily suffice to provide the benefits which fall within section 181 of the Pensions Scheme Act 1993 and section 99 of the Pensions Act 2008, each as amended by section 29 of the Pensions Act 2011.

nominee company

means a body corporate whose business consists solely of acting as a nominee holder of investments or other property.

occupational pension fund management business

means the business of carrying on:

1. (1) pension fund management;
2. (2) (other than in connection with a personal pension scheme) pension fund management written as linked long-term business, for an occupational pension scheme or for an institution referred to in article 2 of the Council Directive of 3 June 2003 on the activities and supervision of institutions for occupation retirement provision (No 2003/43/EC), but only to the extent that:
1. (a) there is no transfer to the participant firm of:
1. (i) investment, market or credit risk;
2. (ii) mortality or expense risk prior to any annuity being effected; and
2. (b) any annuity options provide for the participant firm to change the annuity rates without prior notice.

occupational pension scheme

means a scheme specified in article 3(1) of the Regulated Activities Order which is, in summary, a pension scheme established for the purpose of providing benefits to people with service in employments of a prescribed description.

operator

means (in relation to a personal pension scheme or a stakeholder pension scheme) the person who carries on the regulated activity specified in article 52 of the Regulated Activities Order (Establishing a pension scheme etc).

overseas financial services institution

means an institution authorised to carry on any regulated activity or other financial service by an overseas regulator.

participant firm

means:

(1) a firm which is an insurer, or a member (except:

(a) 21, 22.6 - 22.8 and Annex 2 in respect of a member; and

(b) 21 and Annex 2 in respect of a relevant person which is an insurer under write-down); or

(2) a CRO insurer.

pension annuity

means an investment purchased with the sums derived from the vesting (partial or full) of a pension policy or pension contract, for the purposes of securing the beneficiary's entitlement to immediate or future benefits.

pension contract

means a contract under which rights to benefits are obtained by the making of contributions to an occupational pension scheme or to a personal pension scheme, where the contributions are paid to a regulated collective investment scheme.

pension fund management

means in relation to a class of contract of insurance the class of contract of insurance specified in paragraph VII of Part II of Schedule 1 to the Regulated Activities Order (Contracts of long-term insurance).

pension policy

means a contract under which a right to benefits results from contributions made to an occupational pension scheme or to a personal pension scheme, where the contributions are paid to a long-term insurer.

pension scheme

means a scheme under which a right to benefits results from contributions made under a pension contract or pension policy.

personal pension scheme

means a scheme or arrangement which is not an occupational pension scheme or stakeholder pension scheme and which is comprised in one or more instruments or agreements having or capable of having effect so as to provide benefits to or in respect of people:

1. (1) on retirement;
2. (2) on having reached a particular age; or
3. (3) on termination of service in an employment.

policyholder

means (as defined in article 3 of the Financial Services and Markets Act 2000 (Meaning of "Policy” and "Policyholder") Order 2001 (SI 2001/2361)) the person who for the time being is the legal holder of the policy, including any person to whom, under the policy, a sum is due, a periodic payment is payable or any other benefit is to be provided or to whom such a sum, payment or benefit is contingently due, payable or to be provided.

professional indemnity insurance

means contracts of insurance, including directors’ and officers’ liability and error and omissions liability, against the risks of the persons insured incurring liabilities to third parties arising from wrongful acts (such as breach of duty, breach of trust, negligence, error or omissions) by professionals, named individuals or businesses occurring in the course of the insured’s professional activities.

protected contract of insurance

means a contract of insurance which is covered by the policyholder protection scheme as defined in 9.2.

pure protection contracts

means:

1. (1) a contract of long-term insurance in respect of which the following conditions are met:
1. (a) the benefits under the contract are payable only on death or in respect of incapacity due to injury, sickness or infirmity;
2. (b) the contract has no surrender value, or the consideration consists of a single premium and the surrender value does not exceed that premium; and
3. (c) the contract makes no provision for its conversion or extension in a manner which would result in it ceasing to comply with (a) or (b); or
2. (2) a reinsurance contract covering all or part of a risk to which a person is exposed under a contract of long-term insurance.

quantification date

means the date as at which the liability of the relevant person in default is to be determined under 19.8 – 19.10.

relevant former scheme

means in relation to an article 9 default, one of the following that applied to the default before 1 December 2001:

1. (1) the Policyholders Protection Scheme established by the Policyholders Protection Act 1975; or
2. (2) the Friendly Societies Protection Scheme established in accordance with section 141 of the Financial Services Act 1986.

relevant general insurance contract

means any contract of general insurance other than a contract falling within any of the following classes:

1. (1) aircraft;
2. (2) ships;
3. (3) goods in transit;
4. (4) aircraft liability;
5. (5) liability of ships; or
6. (6) credit.

relevant person

means a person for claims against whom the policyholder protection scheme provides cover, as defined in 10.1.

remuneration

means any form of remuneration, including salaries, discretionary pension benefits and benefits of any kind.

responsible person

means (in accordance with section 3(1) of the Compensation Act 2006) a person who has negligently or in breach of statutory duty caused or permitted another person to be exposed to asbestos (including an insurer of such a person).

small business

means a partnership, body corporate, unincorporated association or mutual association with an annual turnover of less than £1 million (or its equivalent in any other currency at the relevant time).

small self-administered scheme

means an occupational pension scheme of a kind described in article 4(4) or 4(5) of the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001 (SI 2001/1177).

specific costs

means management expenses other than base costs.

specific costs levy

a levy, forming part of the management expenses levy, to meet the specific costs in the financial year of the compensation scheme to which the levy relates, each participant firm's share being calculated in accordance with 21.34.

stakeholder pension scheme

means a scheme that meets the conditions in section 1 of the Welfare Reform and Pensions Act 1999 or article 3 of the Welfare Reform and Pensions (Northern Ireland) Order 1999.

sub-scheme

means one of the sub-schemes to which the FSCS allocated liabilities for compensation costs prior to 1 April 2008, as described in FEES 6.5.7 R at the time.

successor

means a person for claims against whom the policyholder protection scheme provides cover, as defined in 11.1.

SUP

means the Supervision Manual of the PRA Handbook in force immediately prior to 3 July 2015.

top-up amount

has the meaning given in 5A.4(2).

TPR insurer

means in relation to a contract of insurance, a person to whom Regulation 8 or 11 of the EEA Passport Exit Regulations applied, at the time at which the contract of insurance was issued.

trust account

means the bank account referred to in 5A.2(1)(c).

trust deed

means the trust deed referred to in 5A.2(2)(a).

written-down claim

means a claim as reduced by virtue of a write-down order.

2.1

The FSCS must administer the policyholder protection scheme in accordance with the rules in this Part, the FSCS Management Expenses Levy Limit and Base Costs Part, the Management Expenses in Respect of Relevant Scheme Part, and any other Part of the PRA Rulebook prescribed by law to ensure that the policyholder protection scheme is administered in a manner that is procedurally fair and in accordance with the European Convention on Human Rights.

2.2

The FSCS must publish information for claimants and potential claimants on the operation of the policyholder protection scheme.

2.3

The FSCS may agree to pay the reasonable costs of an eligible claimant bringing or continuing insolvency proceedings against a relevant person (whether those proceedings began before or after a determination of default), if the FSCS is satisfied that those proceedings would help it to discharge its functions under the requirements of this Part.

2.4

The FSCS must have regard to the need to use its resources in the most efficient and economic way in carrying out its functions under the requirements of this Part.

2.5

The FSCS must take appropriate steps to ensure that potential claimants are informed of how they can make a claim for compensation as soon as possible after a determination has been made that a relevant person (or where applicable, a successor) is in default, whether by the FSCS or the PRA.

2.6

The FSCS must put in place and publish procedures which satisfy the minimum requirements of procedural fairness and comply with the European Convention on Humans Rights for the handling of any complaints of maladministration relating to any aspect of the operation of the policyholder protection scheme.

2.7

Notwithstanding anything to the contrary in this Part in relation to the Society, members and Lloyd's policies, the FSCS must act, so far as is reasonably practicable, to ensure that:

1. (1) eligible claimants have protection under this Part in relation to Lloyd's policies equivalent to that otherwise afforded to eligible claimants by the FSCS;
2. (2) the FSCS does not meet claims in relation to Lloyd's policies unless the Central Fund is unlikely to be able to meet them;
3. (3) claims against members under the policyholder protection scheme which arise from the same loss under the same Lloyd's policy must be treated as a single claim; and
4. (4) any recovery resulting from the exercise of any subrogation or assignment of rights to the FSCS, is treated by the FSCS in accordance with 14.1 – 14.6, and any such recovery which is not paid to the claimant in accordance with those rules, is used for the benefit of FSCS in priority to any interest that the Society may have.

2.8

For the purposes of sections 219(1A)(b) and (d) of FSMA (Scheme manager's power to require information), whether a relevant person (or where applicable, a successor) is unable or likely to be unable to satisfy claims, shall be determined by reference to whether:

1. (1) the relevant person (or where applicable, the successor) is in default;
2. (2) the FSCS has secured, or is attempting to secure, continuity of contracts of long-term insurance for policyholders of the relevant person in accordance with 4.1;
3. (3) the FSCS has made, or is considering making, a payment to policyholders of the relevant person in accordance with 4.3; or
4. (4) the FSCS has taken, or is considering taking, measures for the purposes of safeguarding the rights of policyholders of the relevant person in accordance with 5.1.

3.1

The FSCS may pay compensation to an eligible claimant, subject to 18, if it is satisfied that:

1. (1) an eligible claimant has made an application for compensation (or falls within the category of persons referred to in 3.2);
2. (2) the claim is in respect of a protected claim against a relevant person (or where applicable, a successor) who is in default;
3. (3) where the FSCS so:
1. (a) requires, the claimant has assigned the whole or any part of his rights under the protected contract of insurance against the relevant person (or where applicable, a successor) or against any third party to the FSCS, on such terms as the FSCS thinks fit; and/or
2. (b) determines, the claimant has immediately and automatically subrogated all or any part (as determined by the FSCS) of its rights and claims against the relevant person (or where relevant, a successor) under the protected contract of insurance or against any third party to the FSCS, on such conditions (under 13) as the FSCS thinks fit; and
4. (4) it:
1. (a) is not reasonably practicable or appropriate to make, or continue to make, arrangements to secure continuity of insurance under 4.1; and/or
2. (b) would not be appropriate to take, or continue to take, measures under 5.1 to safeguard policyholders of a relevant person in financial difficulties.

3.2

The FSCS may treat persons who are or may be entitled to claim compensation as if they had done so.

3.3

The FSCS may pay compensation (and any recovery or other amount payable by the FSCS to the claimant) to a person who makes a claim on behalf of another person if the FSCS is satisfied that the person on whose behalf the claim is made:

1. (1) is or would have been an eligible claimant; and
2. (2) would have been paid compensation by the FSCS had he been able to make the claim himself, or to pursue his application for compensation further.

3.4

Notwithstanding any provision in this Part to the contrary, the FSCS may:

1. (1) pay compensation in accordance with 18;
2. (2) secure continuity of a contract of long-term insurance in accordance with 4.1;
3. (3) make a payment to an eligible claimant in accordance with 4.3;
4. (4) take such measures as it considers appropriate in accordance with 5.1; or
5. (5) make a payment to an insurer under write-down in accordance with 5A.1, so as to enable the insurer under write-down to pay a top-up amount in respect of a written-down claim in accordance with 5A.4;
6. without fully or at all investigating the eligibility of the claimant and/or the validity and/or amount of the claim, if in the opinion of the FSCS:
1. (a) the costs of investigating the merits of the claim are reasonably likely to be disproportionate to the likely benefit of such investigation; and
2. (b) (as a result or otherwise) it is reasonably in the interests of relevant persons to do so.

4.1

Subject to 6.1, the FSCS must make arrangements to secure continuity of insurance for an eligible claimant under a protected contract of insurance which is a contract of long-term insurance with a relevant person, if:

1. (1) the relevant person is the subject of any of the proceedings listed in 10.4;
2. (2) it is reasonably practicable to do so;
3. (3) in the opinion of the FSCS at the time it proposes to make the arrangements, it would be beneficial to the generality of eligible claimants covered by the proposed arrangements, and, in situations where the cost of securing continuity of insurance might exceed the cost of paying compensation under 3.1, any additional cost is likely to be justified by the benefits; and
4. (4) where the relevant person is a member, the FSCS is satisfied that the amounts which the Society is able to provide from the Central Fund are or are likely to be insufficient to ensure that claims against the member under a protected contract of insurance will be met to the level of protection which would otherwise be available under this Part.

4.2

In order to secure continuity of insurance under 4.1 the FSCS may take such measures as it considers appropriate to:

1. (1) secure or facilitate the transfer of the business of the relevant person that is in default and which consists of carrying out contracts of long-term insurance or any part of that business, to another firm; and/or
2. (2) secure the issue of policies by another firm to eligible claimants in substitution for their existing policies.

4.3

1. (1) If the FSCS is seeking to secure continuity of insurance under 4.1, it must secure 100% of any benefit under a contract of long-term insurance which:
1. (a) falls due, or would have fallen due, to be paid to any eligible claimant; or
2. (b) had already fallen due to be paid to any eligible claimant before the beginning of that period and has not yet been paid;

and is paid to the eligible claimant in question as soon as reasonably practicable after the time when the benefit in question fell due, or would have fallen due, under contract.

1. (2) Any payment under (1) is made subject to and in accordance with any other terms which apply or would have applied under the contract.
2. (3) A payment made under (1) is required to be made regardless of whether the cost of making the payment is more or less than the cost of paying compensation under 3.1 – 3.3.
3. (4) Where a payment is due under (1), the FSCS may:
1. (a) make payments to or on behalf of eligible claimants on such terms (including any terms requiring repayment in whole or in part) and on such conditions as it thinks fit (subject to (1)); or
2. (b) secure that payments (subject to (1)) are made to or on behalf of any such eligible claimants by the liquidator, administrator or provisional liquidator by giving him an indemnity covering any such payments or any class or description of such payments.

4.4

For the purposes of 4.3 and 6.1 – 6.3, "benefit" does not include:

1. (1) any bonus provided for under the contract unless it was declared and the policyholder was contractually entitled to it before the relevant person became the subject of one or more of the proceedings listed in 10.4; or
2. (2) any reduction which the FSCS has determined, or any benefit which the FSCS has decided to disregard under 20.7, to the extent that the FSCS has decided so to treat it.

4.5

Unless the FSCS has decided to treat the liability of the relevant person under the contract as reduced or (as the case may be) disregarded under 20.7, it must not treat as a reason for failing to secure, or for delaying the securing of, payments under 4.3 the fact that:

1. (1) it considers that any benefit referred to in 4.3 is or may be excessive in any respect;
2. (2) it has referred the contract in question to an independent actuary under 20.6; or
3. (3) it considers that it may at some later date decide to treat the liability of the relevant person under a contract as reduced or disregarded under 20.7;

save where the FSCS decides to exclude certain benefits to the extent that they arise out of the exercise of any option under the policy and for this purpose the option includes, but is not restricted to, a right to surrender the policy.

4.6

In making arrangements to secure continuity of insurance the FSCS must use its reasonable endeavours to seek the most cost-effective arrangements available.

5.1

1. (1) Subject to 6.1 and 6.2, the FSCS may take such measures as it considers appropriate for the purpose of safeguarding the rights of eligible claimants under protected contracts of insurance which are:
1. (a) contracts of general insurance with a relevant person in financial difficulties as described in 5.4; or
2. (b) contracts of long-term insurance with a relevant person in financial difficulties as described in 5.4 but in respect of which the FSCS is not securing continuity of insurance within 4.1;
2. if, in the opinion of the FSCS at the time it proposes to make the measures, it would be beneficial to the generality of eligible claimants covered by the proposed measures, and, in situations where the cost of taking those measures might exceed the cost of paying compensation under 3.1, any additional cost is likely to be justified by the benefits.
3. (2) Measures under (1) may be taken on such terms (including terms reducing or deferring payment of any liabilities or benefits provided under any protected contracts of insurance) as the FSCS considers appropriate.

5.2

The measures contemplated in 5.1 include measures to:

1. (1) secure or facilitate the transfer of the insurance business of the relevant person, or any part of the business, to another firm;
2. (2) give assistance to the relevant person to enable it to continue to effect contracts of insurance or carry out contracts of insurance; and
3. (3) secure the issue of policies by another firm to eligible claimants in substitution for their existing policies.

5.3

If it thinks appropriate, the PRA may, in relation to any relevant person which is in financial difficulties:

1. (1) give the FSCS assistance in determining what measures under 5.1 are practicable or desirable;
2. (2) impose constraints on the measures which may be taken by the FSCS under 5.1; and/or
3. (3) require the FSCS to provide it with information about any measures which it is proposing to take under 5.1.

5.4

A relevant person is in financial difficulties for the purpose of 5.1 if:

1. (1) a liquidator, administrator, provisional liquidator, administrative receiver or interim manager is appointed to the relevant person, or a receiver is appointed by the court to manage the relevant person’s affairs;
2. (2) there is a finding by a court of competent jurisdiction that the relevant person is unable to pay its debts;
3. (3) a resolution is passed for winding up of the relevant person, unless a declaration of solvency has been made in accordance with section 89 of the Insolvency Act 1986;
4. (4) the PRA determines that the relevant person is likely to be unable to satisfy protected claims against it;
5. (5) approval is given to any company voluntary arrangement made by the relevant person;
6. (6) the relevant person makes a composition or arrangement with any one or more of its creditors providing for the reduction of, or deferral of payment of, the liabilities or benefits provided for under any of the relevant person’s policies;
7. (7) the relevant person is dissolved or struck off from the Register of Companies;
8. (8) a receiver is appointed over particular property of the relevant person;
9. (9) any of (1) to (8) or anything equivalent occurs in respect of the relevant person in a jurisdiction outside England and Wales; or
10. (10) in the case of a relevant person which is a member, the FSCS is satisfied that any of (1) to (9) apply to the member, and the amounts which the Society is able to provide from the Central Fund are or are likely to be insufficient to ensure that claims against the member under a protected contract of insurance will be met to the level of protection which would otherwise be available under this Part.

5A.1

1. (1) The FSCS must pay an insurer under write-down in accordance with 5A.3 if the conditions in 5A.2(1) are satisfied.
2. (2) The FSCS may also take such measures as it considers appropriate in respect of an insurer under write-down in accordance with:
1. (a) Chapter 4 (in respect of contracts of long-term insurance), as if the insurer under write-down were within the scope of 4.1; and/or
2. (b) Chapter 5, as if the insurer under write-down were in financial difficulties within the meaning of 5.4.

5A.2

1. (1) The conditions referred to in 5A.1(1) are:
1. (a) the FSCS has been notified in accordance with section 377F of FSMA and 2.1(7) of the Insurers in financial difficulties: Notification of Affected Persons Part that a write-down order has been made in respect of the insurer under write-down;
2. (b) a write-down manager has been appointed in respect of the insurer under write-down;
3. (c) an account has been opened in the name of the insurer under write-down for the purpose of receiving payments from the FSCS which will then fund top-up amounts (the ‘trust account’); and
4. (d) a trust has been entered into in respect of any funds from time-to-time held in the trust account which satisfies the minimum criteria in (2).
2. (2) The minimum criteria of the trust are that:
1. (a) it is established and documented under a trust deed entered into by the insurer under write-down;
2. (b) it has the insurer under write-down as the trustee;
3. (c) it is over any funds from time-to-time held in the trust account (including any interest that accrues on the account);
4. (d) the only funds to be held in the trust account will be those received from the FSCS under this Chapter and any accrued interest;
5. (e) it is a discretionary trust with the following beneficiaries:
1. (i) first, any policyholder of the insurer under write-down, insofar as the policyholder is an eligible claimant with a written-down claim by virtue of the write-down order (to be described in the trust deed by class of contract of insurance); and
2. (ii) second, the FSCS, in respect of any residual amounts held in the trust account (including residual amounts existing upon the write-down order ceasing to have any further effect in accordance with section 377H of FSMA); and
6. (f) in accordance with section 217ZA(5)(a) of FSMA, amounts paid into the trust account by the FSCS under 5A.1(1) shall not be used by the insurer under write-down (whether or not by the write-down manager acting on its behalf) for any other purpose.

5A.3

1. (1) Payments to be made by the FSCS in accordance with 5A.1(1) must be paid into the trust account in such amounts and at such times as the FSCS determines sufficient for the insurer under write-down to be able to pay top-up amounts to eligible claimants.
2. (2) Such payments must include an amount sufficient for such top-up amounts to be paid by the insurer under write-down in respect of any due and payable written-down claim (or such a claim that would be due and payable but for the effect of the write-down order) including an amount in respect of any such interest as the FSCS may consider appropriate.
3. (3) In determining payments under (1) and (2), the FSCS must have regard in each case to any representations or other relevant information provided by the insurer under write-down.

5A.4

1. (1) The insurer under write-down must pay a top-up amoun to a policyholder that is an eligible claimant with a due and payable written-down claim (or that would be due and payable but for the write-down order), but only if:
1. (a) there are sufficient funds in the trust account to do so; and
2. (b) the written-down claim is less than the amount that the FSCS would pay if, rather than the claim being subject to the write-down order, the circumstances were such that the claim gave rise to an entitlement to compensation under Chapter 3.
2. (2) The top-up amount in respect of an eligible claimant in respect of a claim is: A x B% - C where:
1. ’A’ is the claim (as if the write-down order were not in effect);
2. ’B’, expressed as a percentage, is the level of cover that would apply under Chapter 17 in respect of the claim if, rather than the claim being subject to the write-down order, the circumstances were such that the claim gave rise to an entitlement to compensation under Chapter 3; and
3. ’C’ is the written-down claim.
3. (3) The insurer under write-down must add interest to the top-up amount, if the FSCS has provided funding for it to do so.

5A.5

1. (1) Where a write-down order ceases to have any further effect in accordance with section 377H of FSMA, the FSCS shall have a right of recovery from the insurer to which that write-down order applied, in respect of any amounts paid to it by the FSCS under this Chapter.
2. (2) The FSCS must pursue all and only such recoveries under (1) as it considers are likely to be both reasonably possible and cost effective to pursue.
3. (3) The FSCS may not seek any form of recovery under (1) from current or former policyholders of the insurer to which that write-down order applied (whether or not the policyholder received payment of a top-up amount).
4. (4) Chapters 12, 13 and 14 do not apply in respect of amounts paid under this Chapter by the FSCS to an insurer under write-down and their recovery by the FSCS.

5A.6

For the purposes of this Chapter, where a write-down order is varied (but not terminated):

1. (1) this Chapter applies as if references to the write-down order were to the order as varied; and
2. (2) the insurer under write-down and the FSCS shall take such steps as may be necessary to amend the trust deed so as to ensure that the arrangements of the trust established under the trust deed reflects the write-down order as varied.

6.1

If the FSCS makes arrangements to:

1. (1) secure continuity of insurance under 4.1; or
2. (2) take measures for the purpose of safeguarding the rights of eligible claimants under 5.1 in respect of a contract of long-term insurance,

it must ensure that the claimant will receive 100% of any future benefit under his contract of long-term insurance, on terms corresponding in all material respects (so far as it appears to the FSCS to be reasonable in the circumstances), to those which have applied under the contract of long-term insurance.

6.2

If the FSCS takes measures for the purpose of safeguarding the rights of eligible claimants under 5.1 in respect of a contract of general insurance:

1. (1) where claims:
1. (a) arise in respect of a liability subject to compulsory insurance; or
2. (b) arise in respect of a liability subject to professional indemnity insurance; or
3. (c) arise from the death or incapacity of the policyholder due to injury, sickness, or infirmity; or
4. (d) arise in respect of a liability subject to building guarantee insurance;
5. it must ensure that the claimant will receive 100% of any benefit under his contract of general insurance; and
2. (2) in all other cases, it must ensure that the claimant will receive at least 90% of any benefit under his contract of general insurance;

and in either case, on terms corresponding in all material respects (so far as it appears to the FSCS to be reasonable in the circumstances), to those which have applied under the contract of general insurance.

6.3

If the FSCS secures less than 100% of any benefit of a claimant under a contract falling under 6.2(2), then the FSCS must ensure that any future premiums that the claimant is committed to paying under the contract will be reduced by an equivalent amount to reflect the reduced benefit.

6.4

For the purposes of 4.1(3) and 5.1(1), when assessing the cost of paying compensation under 3.1 – 3.3, the FSCS may have regard to the likely total cost of paying compensation arising out of the default, not just the compensation amounts likely to be payable to particular eligible claimants covered by the proposed arrangements for continuity.

7.1

Unless 7.3 applies, an eligible claimant is any person who at any material time:

1. (1) did not come within 7.2; or
2. (2) did come within 7.2, but satisfied a relevant exception in 8.

7.2

The following persons are not eligible to claim unless an exception in 8.1 – 8.5 applies:

1. (1) Firms other than a:
1. (a) sole trader firm;
2. (b) credit union;
3. (c) trustee of a:
1. (i) stakeholder pension scheme (which is not an occupational pension scheme); or
2. (ii) personal pension scheme;
4. (d) firm carrying on the regulated activity of operating, or winding up, a:
1. (i) stakeholder pension scheme (which is not an occupational pension scheme); or
2. (ii) personal pension scheme; or
5. (e) small business;
6. in each case, whose claim arises out of a regulated activity for which they do not have a permission).
2. (2) Overseas financial services institutions.
3. (3) Collective investment schemes, and anyone who is the operator or trustee of such a scheme.
4. (4) Pension and retirement funds, and anyone who is a trustee of such a fund, other than:
1. (a) a trustee of a personal pension scheme or a stakeholder pension scheme (which is not an occupational pension scheme); or
2. (b) a trustee of a small self-administered scheme or an occupational pension scheme of an employer which is not a large company, large partnership or large mutual association.
5. (5) Supranational institutions, governments, and central administrative authorities.
6. (6) Provincial, regional, local and municipal authorities.
7. (7) Directors of the relevant person (or where applicable, the successor) in default, unless:
1. (a) both of the following apply:
1. (i) the relevant person (or where applicable, the successor) in default is a mutual association which is not a large mutual association; and
2. (ii) the directors do not receive a salary or other remuneration for services performed by them for the relevant person (or where applicable, the successor) in default; or
2. (b) the relevant person (or where applicable, the successor) in default is a credit union.
8. (8) Bodies corporate in the same group as the relevant person (or where applicable, the successor) in default unless that body corporate is:
1. (a) a trustee of:
1. (i) a stakeholder pension scheme (which is not an occupational pension scheme) or a personal pension scheme (but in each case if the trustee is a firm it will only be an eligible claimant if its claim arises out of a regulated activity for which it does not have a permission);
2. (ii) (if the claim is with respect to a contract of long-term insurance) a small self-administered scheme or an occupational pension scheme; or
3. (iii) (if the claim is not with respect to a contract of long-term insurance) a small self-administered scheme or an occupational pension scheme of an employer which is not a large company, large partnership or large mutual association; or
2. (b) carrying on the regulated activity of operating or winding up a stakeholder pension scheme (which is not an occupational pension scheme) or personal pension scheme.
9. (9) Persons who, in the opinion of the FSCS, are responsible for, or have contributed to, the relevant persons (or where applicable, the successor’s) default.
10. (10) Bodies corporate, partnerships, mutual associations and unincorporated associations which are not small businesses.
11. (11) Persons whose claim arises from transactions in connection with which they have been convicted of an offence of money laundering.
12. (12) Persons whose claim arises under the Third Parties (Rights against Insurers) Act 1930 (as amended or replaced).
13. (13) Alternative investment funds and anyone who is the AIFM or depositary of an alternative investment fund.
14. (14) Any person who is or was a partner in a partnership, regardless of whether or not that person is or may be personally liable for any act or omission of the partnership, in respect of a contract of insurance entered into by, or for the benefit of, that partnership.

7.3

A person who is a small business is an eligible claimant in respect of a relevant general insurance contract entered into before 1 December 2001 only if the person is a partnership.

8.1

A person other than one which comes within any of paragraphs (7), (8), (9) or (11) of 7.2 is eligible to claim compensation in respect of a contract of long-term insurance.

8.2

1. (1) A person falling within paragraphs (1) – (4) of 7.2 is eligible to claim compensation in respect of a relevant general insurance contract if, at the date the contract commenced, he was a small business.
2. (2) Where the contract has been renewed, the last renewal date shall be taken as the commencement date.

8.3

A person who comes within 7.2(12) is eligible to claim compensation if:

1. (1) the person insured would have been an eligible claimant at the time that his rights against the insurer were transferred to and vested in the person who comes within 7.2(12);
2. (2) the liability of the person insured in respect of the person who comes within 7.2(12) was a liability under a contract of employer's liability insurance which would have been a liability subject to compulsory insurance had the contract been entered into after 1 January 1972 or (for contracts in Northern Ireland) 29 December 1975; or
3. (3) the extent of the liability of the person insured in respect of the person who comes within 7.2(12) had been agreed in writing by the insurer, or determined by a court or arbitrator, before the date on which the insurer is determined to be in default.

8.4

A person who comes within 7.2 is eligible to claim compensation in respect of a liability subject to compulsory insurance if the claim is a claim under a protected contract of insurance.

8.5

The FSCS may treat a person who comes within paragraph (7) or (9) of 7.2 as eligible to claim compensation where:

1. (1) this is desirable to achieve the efficient performance of any of its functions, including without limitation, to facilitate a transfer of business or any part thereof, to secure the issue of policies by another firm to eligible claimants in substitution for their existing policies, to achieve the efficient payment of compensation, to secure under 4.3 the payment of benefits under a contract of long-term insurance; and
2. (2) treating these persons as eligible to claim compensation would, in the opinion of the FSCS, be beneficial to the generality of eligible claimants who will be affected by the action in (1).

8.6

8.7 – 8.12 apply to the FSCS in respect of any claim for a contribution by a responsible person made on or after 25 July 2006 in relation to a mesothelioma victim's claim which is determined by agreement in writing, a court or an arbitrator on or after 3 May 2006.

8.7

In 8.8 – 8.12, references to an insurer include an authorised insurance company, and references to in default include an article 9 default.

8.8

The rules in this Part shall have effect as modified to the extent necessary to enable the FSCS to receive, assess, determine and make payments in respect of applications for compensation from responsible persons in accordance with article 9A of the compensation transitionals order and regulation 3 of the mesothelioma regulations.

8.9

The following specific provisions apply in relation to claims of the type referred to in 8.6:

1. (1) a responsible person is eligible to claim in accordance with the provisions of this chapter;
2. (2) subject to (3), the FSCS may pay compensation to a responsible person where it is satisfied that an eligible claimant has a claim under a protected contract of insurance issued by an insurer that is in default, which, but for satisfaction of that claim by the responsible person, the FSCS would have paid;
3. (3) the FSCS may only pay compensation to a responsible person in accordance with (2) if, having satisfied a claim in relation to a mesothelioma victim, he could claim contribution from an insurer that is in default; and
4. (4) the FSCS may pay compensation in respect of any contribution for which an insurer in default is liable by agreement in writing, or by a determination of a court or arbitrator.

8.10

The requirement in 19.5 to take into account payments to the claimant does not require the FSCS, in paying compensation in respect of such a claim, to take into account payments referred to in that rule made by a responsible person in calculating the claimant’s overall claim.

8.11

8.6 – 8.10 also apply to the extent that any liabilities of an authorised insurance company have been assumed by a successor.

8.12

The FSCS must not pay, in respect of a claim in accordance with the provisions of 8.6 – 8.11, more than the amount that it would have paid if the mesothelioma victim (or a responsible person other than an insurer of such a person) to whom the contribution claim relates had made that claim directly against the FSCS.

9.1

A protected claim is a claim under a protected contract of insurance.

9.2

The changes to this rule are effective from 23:00 on 31/12/2020.

A protected contract of insurance is:

1. (A1) (if issued on or after IP completion day) a contract of insurance within 9.2A;
2. (1) (if issued after 1 December 2001 and before IP completion day) a contract of insurance within 9.3; or
3. (2) (if issued before 1 December 2001) a contract of insurance within 9.6.

9.2A

This rule is effective from 23:00 on 31/12/2020.

A contract of insurance issued on or after IP completion day which:

1. (1) relates to a protected risk or commitment as described in 9.2B;
2. (2) was issued by a relevant person (whether or not there is now a successor in respect of that relevant person) through an establishment in:
1. (a) the UK; or
2. (b) (in relation only to a TPR insurer, a SRO insurer or a CRO insurer that (in each case) has no establishment in the UK) an EEA State; or
3. (c) the Channel Islands or the Isle of Man; or
4. (d) Gibraltar
3. (3) is a contract of long-term insurance or a relevant general insurance contract;
4. (4) is not a reinsurance contract; and
5. (5) if it is a contract of insurance entered into by a member, was entered into on or after 1 January 2004;

is a protected contract of insurance.

9.2B

This rule is effective from 23:00 on 31/12/2020.

A risk or commitment is a protected risk or commitment for the purpose of 9.2A if:

1. (1) in the case of a contract of insurance falling within 9.2A(2)(a) it is situated in the UK, Gibraltar, the Channel Islands or the Isle of Man;
2. (2) in the case of a contract of insurance falling within 9.2A(2)(b) it is situated in the UK;
3. (3) in the case of a contract of insurance falling within 9.2A(2)(c), it is situated in the UK, the Channel Islands or the Isle of Man;
4. (4) in the case of a contract of insurance falling within 9.2A(2)(d) where the relevant person is a UK firm, it is situated in the UK or Gibraltar;
5. (5) in the case of a contract of insurance falling within 9.2A(2)(d) where the relevant person is incorporated in Gibraltar, it is situated in the UK; or
6. (6) in the case of a contract of insurance falling within 9.2A(2)(d) where the relevant person is a TPR insurer, SRO insurer or CRO insurer, it is situated in the UK.

9.3

The changes to this rule are effective from 23:00 on 31/12/2020.

A contract of insurance issued after 1 December 2001 and before IP completion day which:

1. (1) relates to a protected risk or commitment as described in 9.4;
2. (2) was issued by a relevant person (whether or not there is now a successor in respect of that relevant person) through an establishment in:
1. (a) the UK; or
2. (b) an EEA State other than the UK;
3. (c) the Channel Islands or the Isle of Man; or
4. (d) Gibraltar.
3. (3) is a contract of long-term insurance or a relevant general insurance contract;
4. (4) is not a reinsurance contract; and
5. (5) if it is a contract of insurance entered into by a member, was entered into on or after 1 January 2004;

is a protected contract of insurance.

9.4

The changes to this rule are effective from 23:00 on 31/12/2020.

A risk or commitment is a protected risk or commitment for the purpose of 9.3 if:

1. (1) in the case of a contract of insurance falling within 9.3(2)(a), it is situated in the UK, Gibraltar, an EEA State, the Channel Islands or the Isle of Man;
2. (2) in the case of a contract of insurance where the relevant person was, at the time of issue, a UK firm within the meaning of paragraph 10 of Schedule 3 of FSMA (as in force immediately before IP completion day) and issued that contract of insurance through an establishment falling within 9.3(2)(b), it is situated in the UK, Gibraltar or an EEA State;
3. (3) in the case of a contract of insurance where the relevant person was not, at the time of issue, a UK firm within the meaning of paragraph 10 of Schedule 3 of FSMA (as in force immediately before IP completion day) and issued that contract of insurance through an establishment falling within 9.3(2)(b) or 9.3(2)(d), it is situated in the UK; or
4. (4) in the case of a contract of insurance falling within 9.3(2)(c), it is situated in the UK, the Channel Islands or the Isle of Man.

9.5

The changes to this rule are effective from 23:00 on 31/12/2020.

For the purpose of 9.2B, 9.4 and 9.6, the situation of a risk or commitment is determined as follows:

1. (1) for a contract of insurance relating to a building or a building and its contents (in so far as the contents are covered by the same contract of insurance), the risk or commitment is situated where the building is situated;
2. (2) for a contract of insurance relating to vehicles of any type, the risk or commitment is situated where the vehicle is registered;
3. (3) for a contract of insurance lasting four months or less covering travel or holiday risks (whatever the class concerned), the risk or commitment is situated where the policyholder took out the contract of insurance; and
4. (4) in cases not covered by (1) – (3):
1. (a) where the policyholder who first took out the contract of insurance is an individual, the risk or commitment is situated where he has his habitual residence at the date when the contract of insurance commenced;
2. (b) where the policyholder who first took out the contract of insurance is not an individual, the risk or commitment is situated where the establishment to which the risk or commitment relates is situated at the date when the contract of insurance commenced;
3. (c) where the policyholder who first took out the contract of insurance is a trustee the risk or commitment is situated:
1. (i) if the trustee is an individual, where the trustee has his habitual residence at the date when the contract of insurance commenced;
2. (ii) if the trustee is not an individual, where the establishment to which the risk or commitment relates is situated at the date when the contract of insurance commenced; and
4. (d) where there are two or more policyholders, so long as one policyholder’s risk or commitment under (a) – (c) is a protected risk or commitment, that shall be where the risk or commitment is situated.

9.6

1. (1) If after 1 December 2001, a relevant person (or where applicable, a successor) is subject to one or more of the proceedings listed in 10.4 (or 11.4, in the case of a successor) or where a relevant person (or where applicable, a successor) is declared in default, then a contract of insurance issued by a relevant person before 1 December 2001 which is within (2) is a protected contract of insurance, provided that the relevant person (or where applicable, a successor) was not a member at the time the contract of insurance was issued, and:
1. (a) (unless it comes within (b)) at the earlier of the events in (1) it was a "United Kingdom policy" for the purposes of the Policyholders Protection Act 1975; or
2. (b) if the contract of insurance is a contract of employers' liability insurance entered into before 1 January 1972 or (for contracts in Northern Ireland) 29 December 1975, and the claim was agreed after the default of the insurer; the risk or commitment was situated in the UK (as set out in 9.5).
2. (2) The contracts of insurance referred to in (1) are:
1. (a) a relevant general insurance contract;
2. (b) a contract of insurance within the credit class; and
3. (c) a contract of long-term insurance;

which in each case is not a reinsurance contract.

9.7

If it appears to the FSCS that a person is insured under a contract which is not evidenced by a policy, and it is satisfied that if a policy evidencing the contract had been issued, the person in question would have had a protected contract of insurance, the FSCS must treat the contract as a protected contract of insurance.

9.8

The FSCS must treat liabilities of a relevant person (or where applicable, a successor) which is in default, in respect of the following items, as giving rise to claims under a protected contract of insurance:

1. (1) (if the contract is not a reinsurance contract and has not commenced) premiums paid to a relevant person;
2. (2) proceeds of a contract of long-term insurance that is not a reinsurance contract and that has matured or been surrendered which have not yet been passed to the claimant;
3. (3) the unexpired portion of any premium in relation to relevant general insurance contracts which are not reinsurance contracts; or
4. (4) claims by persons entitled to the benefit of a judgement under section 151 of the Road Traffic Act 1988 or Article 98 of the Road Traffic (Northern Ireland) Order 1981.

10.1

A relevant person is a person who was, at the time the act or omission giving rise to the claim against it took place, a participant firm.

10.2

A relevant person is in default if the FSCS has determined it to be in default under 10.3 and/or 10.4.

10.3

Subject to 10.6 and 10.7, and provided that the FSCS is not taking measures for the purpose of safeguarding the rights of eligible claimants in accordance with 5, the FSCS may determine a relevant person to be in default when it is, in the opinion of the FSCS or the PRA:

1. (1) unable to satisfy protected claims against it; or
2. (2) likely to be unable to satisfy protected claims against it.

10.4

The changes to this rule are effective from 23:00 on 31/12/2020.

The FSCS may determine a relevant person to be in default if it is satisfied that a protected claim exists, and the relevant person is the subject of one or more of the following proceedings in the UK (or of equivalent or similar proceedings in another jurisdiction):

1. (1) the passing of a resolution for a creditors' voluntary winding up;
2. (2) a determination by the relevant person’s regulator or competent authority that the relevant person appears unable to meet claims against it and has no early prospect of being able to do so;
3. (3) the appointment of a liquidator or administrator, or provisional liquidator or interim manager;
4. (4) the making of an order by a court of competent jurisdiction for the winding up of a company, the dissolution of a partnership, the administration of a company or partnership, or the bankruptcy of an individual; or
5. (5) the approval of a company voluntary arrangement, a partnership voluntary arrangement, or of an individual voluntary arrangement.

10.5

For claims arising in connection with a relevant person in default in accordance with this chapter, the FSCS must treat any term in the relevant person’s constitution or in its contracts of insurance, limiting its liabilities under a contract of long-term insurance to the amount of its assets, as limiting its liabilities to any claimant to an amount which is not less than the gross assets of the undertaking.

10.6

The FSCS may not declare a member to be in default unless it is satisfied that the amounts which the Society may provide from the Central Fund are or are likely to be insufficient to ensure that claims against the member under a protected contract of insurance will be met to the level of protection which would otherwise be available under this Part.

10.7

The FSCS may not declare an insurer under write-down to be in default while the write-down order is in effect.

11.1

A successor is a person who has assumed responsibility for liabilities arising from acts or omissions of a relevant person.

11.2

Subject to 11.6, a successor is in default if the FSCS has determined it to be in default under 11.3 and/or 11.4.

11.3

The FSCS may determine a successor to be in default when it is, in the opinion of the FSCS, or the PRA:

1. (1) unable to satisfy protected claims against it; or
2. (2) likely to be unable to satisfy protected claims against it.

11.4

The changes to this rule are effective from 23:00 on 31/12/2020.

The FSCS may determine a successor to be in default if it is satisfied that a protected claim exists, and the successor is the subject of one or more of the following proceedings in the UK (or of equivalent or similar proceedings in another jurisdiction):

1. (1) the passing of a resolution for a creditors' voluntary winding up;
2. (2) where relevant, a determination by the successor’s regulator or competent authority that the successor appears unable to meet claims against it and has no early prospect of being able to do so;
3. (3) the appointment of a liquidator or administrator, or provisional liquidator or interim manager;
4. (4) the making of an order by a court of competent jurisdiction for the winding up of a company, the dissolution of a partnership, the administration of a company or partnership, or the bankruptcy of an individual; or
5. (5) the approval of a company voluntary arrangement, a partnership voluntary arrangement, or of an individual voluntary arrangement.

11.5

For claims arising in connection with a successor in default in accordance with this chapter, the FSCS must treat any term in the successor’s constitution or in its contracts of insurance, limiting its liabilities under a contract of long-term insurance to the amount of its assets, as limiting its liabilities to any claimant to an amount which is not less than the gross assets of the undertaking.

11.6

The FSCS may not declare a successor that is a member to be in default unless it is satisfied that the amounts which the Society may provide from the Central Fund are or are likely to be insufficient to ensure that claims against the successor that is a member under a protected contract of insurance will be met to the level of protection which would otherwise be available under this Part.

12.1

The FSCS must, or if the FSCS is subrogated automatically to the eligible claimant’s rights may, make any payment of compensation to a claimant in respect of a protected claim conditional on the claimant assigning the whole or any part of his rights against the relevant person (or where applicable, the successor) or against any third party, or both, to the FSCS on such terms as the FSCS thinks fit.

12.2

Upon payment of compensation by the FSCS (including partial compensation) to an eligible claimant in respect of a protected claim, all of that claimant’s rights against the relevant person (or where applicable, the successor) and any third party involved in or connected to the claim will be deemed to be automatically assigned by way of legal assignment to the FSCS absolutely on terms published by the FSCS.

12.3

Production of a statement showing such payment was made pursuant to 12.2 shall be conclusive evidence (or in Scotland sufficient evidence) that a legal assignment has been deemed to have been made.

12.4

An assignment completed and signed electronically in a form prescribed by the FSCS will be deemed to satisfy the formalities for a valid legal assignment.

12.5

Production of a hard copy of the electronically signed assignment form shall be conclusive evidence (or in Scotland sufficient evidence) that the formalities of a legal assignment have been complied with and that a legal assignment has occurred.

12.6

An assignment completed electronically in the prescribed form shall be treated as having been made by writing under the hand of the assignor for the purposes of section 136 of the Law of Property Act 1925 and any other formal requirement whatsoever without limitation.

12.7

If a claimant assigns the whole or any part of his rights against any person to the FSCS in accordance with this chapter, the effect of this is that any sum payable in relation to the rights so assigned will be payable to the FSCS and not the claimant.

12.8

The FSCS must inform the claimant that if, after taking assignment of rights, the FSCS decides not to pursue recoveries using those rights it will, if the claimant so requests in writing, reassign the assigned rights to the claimant. The FSCS must comply with such a request in such circumstances.

12.9

The changes to this rule are effective from 23:00 on 31/12/2020.

1. (1) The FSCS may determine that:
1. (a) if the claimant does not assign or transfer his rights under this Chapter;
2. (b) if it is impractical to obtain such an assignment or transfer; and/or
3. (c) if it is otherwise necessary or desirable in conjunction with the exercise of the FSCS’s powers under this Chapter or 13;
2. that claimant shall be treated as having irrevocably and unconditionally appointed the chairman of the FSCS for the time being to be his attorney and agent and on his behalf and in his name or otherwise to do such things and execute such deeds and documents as may be required under such laws of the UK, Gibraltar or any other state or country to create or give effect to such assignment or transfer or otherwise give full effect to those powers.
3. (2) The execution of any deed or document under (1) shall be as effective as if made in writing by the claimant or by his agent lawfully authorised in writing or by will.

13.1

The FSCS's powers in this Chapter may be used:

1. (1) separately or in any combination as an alternative and in substitution for the powers and processes elsewhere in this Part; and/or
2. (2) in relation to all or any part of a protected claim or class of protected claim made with respect to the relevant person (or where applicable, the successor).

13.2

The FSCS may determine that the exercise of any power in this Chapter is subject to such incidental, consequential or supplemental conditions as the FSCS considers appropriate.

13.3

1. (1) Any power conferred on the FSCS to make determinations under this Chapter is exercisable in writing.
2. (2) An instrument by which the FSCS makes the determination must specify the provision under which it is made, the date and time from which it takes effect and the relevant person (or where applicable, the successor) and protected claims, parts of protected claims and/or classes of protected claims in respect of which it applies.
3. (3) The FSCS must take appropriate steps to publish the determination as soon as possible after it is made. Such publication must be accompanied by a statement explaining the effect of 13.2.
4. (4) Failure to comply with any requirement in this rule does not affect the validity of the determination.
5. (5) A determination by the FSCS under this Chapter may be amended, remade or revoked at any time and subject to the same conditions.

13.4

1. (1) The production of a copy of a determination purporting to be made by the FSCS under this Chapter:
1. (a) on which is endorsed a certificate, signed by a member of the FSCS’s staff authorised by it for that purpose; and
2. (b) which contains the required statements;
2. is evidence (or in Scotland sufficient evidence) of the facts stated in the certificate.
3. (2) The required statements are:
1. (a) that the determination was made by the FSCS; and
2. (b) that the copy is a true copy of the determination.
4. (3) A certificate purporting to be signed as mentioned in (1) is to be taken to have been properly signed unless the contrary is shown.
5. (4) A person who wishes in any legal proceedings to rely on a determination may require the FSCS to endorse a copy of the determination with a certificate of the kind mentioned in (1).

13.5

Other provisions in this Part are modified to the extent necessary to give full effect to the powers provided for in this Chapter.

13.6

Other than as expressly provided for, nothing in this Chapter is to be taken as limiting or modifying the rights or obligations of or powers conferred on the FSCS elsewhere in this Part.

13.7

The FSCS may determine that the payment of compensation by the FSCS shall have all or any of the following effects:

1. (1) the FSCS shall immediately and automatically be subrogated, subject to such conditions as the FSCS determines are appropriate, to all or any part (as determined by the FSCS) of the rights and claims in the UK and elsewhere of the claimant against the relevant person (or where applicable, the successor) and/or any third party (whether such rights are legal, equitable or of any other nature whatsoever and in whatever capacity the relevant person (or where applicable, the successor) or third party is acting) in respect of or arising out of the claim in respect of which the determination under 13.2 was made;
2. (2) the FSCS may claim and take legal or any other proceedings or steps in the UK or elsewhere to enforce such rights in its own name or in the name of, and on behalf of, the claimant or in both names against the relevant person (or where applicable, the successor) and/or any third party;
3. (3) the subrogated rights and claims conferred on the FSCS shall be rights of recovery and claims against the relevant person (or where applicable, the successor) and/or any third party which are equivalent (including as to amount and priority and whether or not the relevant person (or where applicable, the successor) is insolvent) to and do not exceed the rights and claims that the claimant would have had; and/or
4. (4) such rights and/or obligations (as determined by the FSCS) as between the relevant person and the claimant arising out of the protected claim in respect of which the determination under 13.2 was made may be transferred to, and subsist between, another firm with an appropriate permission and the claimant provided that the firm has consented (but the transferred rights and/or obligations shall be treated as existing between the relevant person and the FSCS to the extent of any subrogation, transfer or assignment for the purposes of (1) to (3) and 12).

14.1

If the FSCS takes assignment or transfer of rights from the claimant or is otherwise subrogated to the rights of the claimant, it must pursue all and only such recoveries as it considers are likely to be both reasonably possible and cost effective to pursue.

14.2

If the FSCS decides not to pursue such recoveries and a claimant wishes to pursue those recoveries himself and so requests in writing, the FSCS must comply with that request and assign the rights back to the claimant.

14.3

If the FSCS makes recoveries in relation to a claim it may deduct from any recoveries paid over to the claimant under 14.4 part or all of its reasonable costs of recovery and distribution (if any).

14.4

If a claimant assigns or transfers his rights to the FSCS or a claimant's rights and claims are otherwise subrogated to the FSCS and the FSCS subsequently makes recoveries through those rights or claims, those recoveries must be paid to the claimant:

1. (1) to the extent that the amount recovered exceeds the amount of compensation (excluding interest paid under 18.6) paid to the claimant in relation to the protected claim in accordance with 18; or
2. (2) in circumstances where the amount recovered does not exceed the amount of compensation paid, to the extent that failure to pay any sums recovered to the claimant would leave a claimant who had promptly accepted an offer of compensation or whose rights and claims had been subrogated to the FSCS at a disadvantage relative to a claimant who had delayed accepting an offer of compensation or whose claims had not been subrogated (in accordance with 14.6).

14.5

For the purpose of 14.4, compensation received by eligible claimants in relation to Lloyd's policies may include payments made from the Central Fund.

14.6

The FSCS must endeavour to ensure that a claimant will not suffer disadvantage arising solely from his prompt acceptance of the FSCS’s offer of compensation or from the subrogation of his rights and claims to the FSCS compared with what might have been the position had he delayed his acceptance or had his claims not been subrogated.

15.1

If an application for compensation contains any material inaccuracy or omission, the FSCS may reject the application unless this is considered by the FSCS to be wholly unintentional.

15.2

The FSCS must reject an application for compensation if:

1. (1) the FSCS considers that a civil claim in respect of the liability would have been defeated by a defence of limitation at the earlier of:
1. (a) the date on which the relevant person (or where applicable, the successor) is determined to be in default; or
2. (b) the date on which the claimant first indicates in writing that he may have a claim against the relevant person (or where applicable, the successor); or
2. (2) the liability of the relevant person (or where applicable, the successor) to the claimant has been extinguished by the operation of law.

15.3

The FSCS may withdraw any offer of compensation made to a claimant if the offer is not accepted or if it is not disputed within 90 days of the date on which the offer is made.

15.4

Where the amount of compensation offered is disputed, the FSCS may withdraw the offer but must consider exercising its powers to make a reduced or interim payment under 18.4 or 18.5 before doing so.

15.5

The FSCS may repeat any offer withdrawn under 15.3 or 15.4.

15.6

The FSCS must withdraw any offer of compensation if it appears to the FSCS that no such offer should have been made.

15.7

The FSCS must seek to recover any compensation paid to a claimant if it appears to the FSCS that no such payment should have been made, unless the FSCS believes on reasonable grounds that it would be unreasonable to do so, or that the costs of doing so would exceed any amount that could be recovered.

16.1

The FSCS must pay a claim as soon as reasonably possible after:

1. (1) it is satisfied that the conditions in 3.1 have been met; and
2. (2) it has calculated the amount of compensation due to the claimant;

and in any event within three months of that date, unless the PRA has granted the FSCS an extension, in which case payment must be made no later than six months from that date.

16.2

The FSCS may postpone paying compensation if:

1. (1) it considers that the liability to which the claim relates or any part of the liability is covered by another contract of insurance with a solvent insurance undertaking (or where applicable, a member), or where it appears that a person, other than the liquidator, may make payments or take such action to secure the continuity of cover as the FSCS would undertake;
2. (2) it is not practicable for payment to be made within the usual time limit laid out in 16.1;
3. (3) the claimant has been charged with an offence arising out of or in relation to money laundering, and those proceedings have not yet been concluded; or
4. (4) the claim relates solely to a bonus provided for under a protected contract of insurance the value of which the FSCS considers to be of such uncertainty that immediate payment of compensation in respect of that bonus would not be prudent and a court has yet to attribute a value to such bonus.

17.1

The limits on the maximum compensation sums payable by the FSCS for protected claims are set out in 17.2.

17.2

1. (1) For a protected contract of insurance when the contract is a relevant general insurance contract:
1. (a) if the claim:
1. (i) is in respect of a liability subject to compulsory insurance; or
2. (ii) is in respect of a liability subject to professional indemnity insurance; or
3. (iii) is in respect of and arises from the death or incapacity of the policyholder due to injury, sickness, or infirmity; or
4. (iv) is in respect of a liability subject to building guarantee insurance;
5. the level of cover is 100% of the claim; and
2. (b) in all other cases the level of cover is 90% of the claim; and
3. in each case, cover shall be determined in accordance with 19 and 20 and there is no upper limit on the amount that can be paid.
2. (2) For a protected contract of insurance when the contract is a contract of long-term insurance, the level of cover is 100% of the claim determined in accordance with 19 and 20 and there is no upper limit on the amount that can be paid.

17.3

In applying the financial limits in 17.2 and in calculating the amount of a claim in respect of a protected contract of insurance arising from the default of one or more members, a policyholder is to be treated as having a single claim for the aggregate of all such amounts as may be payable on the claim in respect of the protected contract of insurance.

18.1

If the FSCS determines that compensation is payable (or any recovery or other amount is payable by the FSCS to the claimant), it must pay it to the claimant, or if the FSCS so decides, as directed by the claimant, unless:

1. (1) arrangements have or are being made to secure continuity of insurance under 4.1;
2. (1A) the FSCS is taking measures it considers appropriate to safeguard eligible claimants under 5.1;
3. (1B) the FSCS is making payments to an insurer under write-down, or taking any other permitted action in respect of written-down claims of eligible claimants under Chapter 5A; or
4. (2) 18.2 applies.

18.2

Where an eligible claimant has a claim under a protected contract of insurance against a relevant person (or where applicable, the successor) that is in administration, provisional liquidation, or liquidation, the FSCS may:

1. (1) make payments to or on behalf of eligible claimants on such terms (including any terms requiring repayment in whole or in part) and on such conditions as it thinks fit (subject to 17); or
2. (2) secure that payments (subject to 17) are made to or on behalf of any such eligible claimants by the liquidator, administrator or provisional liquidator by giving him an indemnity covering any such payments or any class or description of such payments.

18.3

The FSCS may pay compensation in any form and by any method (or any combination of them) that it determines is appropriate including, without limitation:

1. (1) by paying the compensation (on such terms as the FSCS considers appropriate) to an authorised person with permission to accept deposits which agrees to become liable to the claimant in a like sum;
2. (2) by paying compensation directly into an existing deposit account of (or for the benefit of) the claimant, or as otherwise identified by (or on behalf of) the claimant, with an authorised person (but before doing so the FSCS must take such steps as it considers appropriate to verify the existence of such an account and to give notice to the claimant of its intention to exercise this power); and/or
3. (3) (where two or more persons have a joint beneficial claim) by accepting communications from and/or paying compensation to any of those persons where this is in accordance with the terms and conditions of the contract of insurance.

18.4

If the FSCS is satisfied that in principle compensation is payable in connection with any protected claim, but considers that immediate payment in full would not be prudent because of uncertainty as to the amount of the claimant's overall claim, it may decide to pay an appropriate lesser sum in final settlement, or to make payment on account.

18.5

The FSCS may also decide to make a payment on account or to pay a lesser sum in final settlement if the claimant has any reasonable prospect for recovery in respect of the claim from any third party or by applying for compensation to any other person.

18.6

The FSCS may pay interest on the compensation sum in such circumstances as it considers appropriate.

18.7

Interest under 18.6 is not to be taken into account when applying the limits on the compensation sum payable in respect of a claim under 17.

18.8

Where the FSCS considers that the conditions in 18.4 are satisfied but, in relation to a class of claim, in order to provide fair compensation for the generality of such claims it would be appropriate, it may for that class of claim:

1. (1) receive whether by assignment, subrogation, transfer or operation of law the whole or any part of a claimant's rights against the relevant person (or where applicable, the successor), or against any third party, or all of them on such terms as the FSCS thinks fit; and
2. (2) disregard the value of the rights so received in determining the claimant's overall claim;

rather than pay an appropriate lesser sum in final settlement or make a payment on account, for that class of claims.

19.1

The amount of compensation payable to the claimant in respect of a protected claim is the amount of the overall net claim against the relevant person (or where applicable, the successor) at the quantification date and any reference in this Part to overall claim shall be construed accordingly.

19.2

19.1 is, however, subject to the other provisions of this Part, in particular those rules that set limits on the amount of compensation payable for the protected claim. The limits are set out in 17.

19.3

A claimant's overall claim is the sum of the protected claims of the same category that he has against a relevant person (or where applicable, a successor) in default, less the amount of any liability which the relevant person (or where applicable, the successor) may set off against any of those claims.

19.4

In calculating the claimant's overall claim, the FSCS may rely, to the extent that it is relevant, on any determination by:

1. (1) a court of competent jurisdiction;
2. (2) a trustee in bankruptcy;
3. (3) a liquidator;
4. (4) any other recognised insolvency practitioner;

and on the certification of any net sum due which is made in default proceedings of any exchange or clearing house.

19.5

Save as provided in 8.10, the FSCS must take into account any payments to the claimant (including amounts recovered by the FSCS on behalf of the claimant) made by the relevant person (or where applicable, the successor) or the FSCS or any other person, if that payment is connected with the relevant person’s (or where applicable, the successor’s) liability to the claimant in calculating the claimant's overall claim.

19.5A

For the purposes of 19.5, where a relevant person was an insurer under write-down and paid a top-up amount in relation to a relevant claim, the FSCS must take that payment into account when calculating the claimant’s overall claim.

19.6

The FSCS must calculate the amount of compensation due to the claimant as soon as reasonably possible after it is satisfied that the conditions in 3.1 have been met.

19.7

In calculating the claimant's overall claim the FSCS must take into account the amounts paid by, or expected to be paid by, the Society from the Central Fund to meet a member's liabilities under the contract which gives rise to the claim.

19.8

For a claim under a protected contract of insurance that is a contract of long-term insurance, the FSCS must determine as the quantification date a specific date by reference to which the liability of the relevant person (or where applicable, the successor) to the eligible claimant is to be determined.

19.9

For a claim under a protected contract of insurance that is a relevant general insurance contract, the FSCS must determine as the quantification date a specific date by reference to which the liability of the relevant person (or where applicable, the successor) to the eligible claimant is to be determined.

19.10

For a claim in respect of the unexpired premiums under a protected contract of insurance that is a relevant general insurance contract (treated in accordance with 9.8(3)), the quantification date, being the date by which the liability of the relevant person (or where applicable, the successor) to the eligible claimant is to be determined, is the date the policy was terminated or cancelled.

20.1

The FSCS must pay a sum equal to 100% of any liability of a relevant person (or where applicable, a successor) in respect of a liability subject to compulsory insurance to the claimant as soon as reasonably practicable after it has determined the relevant person (or where applicable, the successor) to be in default.

20.2

The FSCS must calculate the liability of a relevant person (or where applicable, the successor) to the claimant under a relevant general insurance contract in accordance with the terms of the contract, and (subject to any limits in 17.2(1)) pay that amount to the claimant.

20.2A

Where a relevant person was an insurer under write-down and paid a top-up amount in relation to a claim in respect of a contract of insurance to which this Chapter applies, the FSCS must take that payment into account when calculating the liability under that contract of insurance.

20.3

Unless the FSCS is making arrangements to secure continuity of insurance cover under 4.1, the FSCS must calculate the liability of a relevant person (or where applicable, a successor) to the claimant under a contract of long-term insurance in accordance with the terms of the contract as it would be valued in a liquidation of the relevant person (or where applicable, the successor), or (in the absence of such relevant terms) in accordance with such reasonable valuation techniques as the FSCS considers appropriate.

20.4

1. (1) Unless the FSCS is seeking to secure continuity of cover for a relevant person under 4.1 it must:
1. (a) pay compensation in accordance with 20.3 for any benefit provided for under a protected contract of long-term insurance which has fallen due or would have fallen due under the contract to be paid to any eligible claimant and has not already been paid; and
2. (b) do so, as soon as reasonably practicable after the time when the benefit in question fell due or would have fallen due under the contract (but subject to and in accordance with any other terms which apply or would have applied under the contract).
2. (2) If the FSCS decides to treat the liability of the relevant person (or where applicable, the successor) under the contract as reduced or (as the case may be) disregarded under 20.7 then, for the purposes of (1), the value of benefits falling due after the date of that decision must be treated as reduced or disregarded to that extent.
3. (3) Unless it has decided to treat the liability of the relevant person (or where applicable, the successor) under the contract as reduced or disregarded under 20.7 the FSCS must not treat as a reason for failing to pay, or for delaying the payment of compensation in accordance with (1), the fact that:
1. (a) it considers that any benefit referred to in (1) is or may be excessive in any respect;
2. (b) it has referred the contract in question to an independent actuary under 20.6; or
3. (c) it considers that it may at some later date decide to treat the liability of the relevant person (or where applicable, the successor) under a contract as reduced or (as the case may be) disregarded under 20.7;
4. save where the FSCS decides to exclude certain benefits to the extent that they arise out of the exercise of any option under the policy (for this purpose option includes, but is not restricted to, a right to surrender the policy).

20.5

The FSCS must not treat any bonus provided for under a contract of long-term insurance as part of the claimant's claim except to the extent that:

1. (1) a value has been attributed to it by a court in accordance with the Insurers (Winding Up) Rules 2001 or any equivalent rules or legislative provision in force from time to time; or
2. (2) the FSCS considers that a court would be likely to attribute a value to the bonus if it were to apply the method set out in those rules.

20.6

1. (1) If the FSCS is:
1. (a) seeking to secure continuity of cover under 4.1 or to calculate the liability owed to an eligible claimant under 20.3; and
2. (b) considers that the benefits provided for under a protected contract of long-term insurance are or may be excessive in any respect;
2. it must refer the contract to an actuary who is independent of the eligible claimant and of the relevant person (or where applicable, the successor).
3. (2) In this rule and in 20.7, a benefit is only "excessive" if, at the time when the relevant person decided to confer or to offer to confer that benefit, no reasonable and prudent insurer in the position of the relevant person would have so decided given the premiums payable and other contractual terms.

20.7

If the FSCS is satisfied, following the actuary's written recommendation, that any of the benefits provided for under the contract are or may be excessive, it may treat the liability of the relevant person (or where applicable, the successor) under the contract as reduced or (as the case may be) disregarded for the purpose of any payment made after the date of that decision.

20.8

The FSCS may rely on the value attributed to the contract by the actuary when calculating the compensation payable to the claimant, or when securing continuity of cover.

20.9

When calculating compensation payable to the claimant in accordance with this Chapter, the FSCS must treat any term in the relevant person’s (or where applicable, the successor’s) constitution or in its contracts of insurance, limiting its liabilities under a contract of long-term insurance to the amount of its assets, as limiting its liabilities to any claimant to an amount which is not less than the gross assets of the undertaking.

20.10

If a claimant's claim includes a claim as:

1. (1) trustee; or
2. (2) the operator of, or the person carrying on the regulated activity of winding up, a stakeholder pension scheme (which is not an occupational pension scheme) or personal pension scheme;

the FSCS must treat him in respect of that claim as if his claim was the claim of a different person.

20.11

If a claimant has a claim as a bare trustee or nominee company for one or more beneficiaries, for the purpose of calculating compensation, the FSCS must treat the beneficiary or beneficiaries as having the claim, and not the claimant.

20.12

If a claimant has a claim:

1. (1) as the trustee of a small self-administered scheme, or an occupational pension scheme of an employer which is not a large company, large partnership or large mutual association, or the trustee or operator of, or the person carrying on the regulated activity of winding up a stakeholder pension scheme (which is not an occupational pension scheme) or personal pension scheme;
2. (2) for one or more members of a pension scheme (or, where relevant, the beneficiary of any member) whose benefits are money-purchase benefits;

for the purpose of calculating compensation, the FSCS must treat the member or members (or, where relevant, the beneficiary of any member) as having the claim, and not the claimant.

20.13

If any group of persons has a claim as:

1. (1) trustees; or
2. (2) operators of, or as persons carrying on the regulated activity of winding up, a stakeholder pension scheme (which is not an occupational pension scheme) or a personal pension scheme;

(or any combination thereof), the FSCS must treat them as a single and continuing person distinct from the persons who may from time to time be the trustees, operators or persons winding up the relevant pension scheme.

20.14

Where the same person has a claim as:

1. (1) trustee for different trusts or for different stakeholder pension schemes (which are not occupational pension schemes) or personal pension schemes; or
2. (2) the operator of, or the person carrying on the regulated activity of winding up, different stakeholder pension schemes (which are not occupational pension schemes) or personal pension schemes;

this Chapter applies as if the claims relating to each of these trusts or schemes were claims of different persons.

20.15

Where the claimant is a trustee, and some of the beneficiaries of the trust are persons who would not be eligible claimants if they had a claim themselves, the FSCS must adjust the amount of the overall claim to eliminate the part of the claim which, in the FSCS's view, is a claim for those beneficiaries.

20.16

Where any of the provisions of 20.10 – 20.15 apply, the FSCS must try to ensure that any amount paid to:

1. (1) the trustee; or
2. (2) the operator of, or the person carrying on the regulated activity of winding up, a stakeholder pension scheme (which is not an occupational pension scheme) or personal pension scheme;
3. is, in each case:
4. (3) for the benefit of members or beneficiaries who would be eligible claimants if they had a claim themselves; and
5. (4) no more than the amount of the loss suffered by those members or beneficiaries.

20.17

Where a person numbers among his claims a claim as the personal representative of another, the FSCS must treat him in respect of that claim as if he were standing in the shoes of that other person.

20.18

If a claimant has a claim under a contract of insurance as agent for one or more persons, for the purpose of calculating compensation, the FSCS must treat each person as having the claim, not the claimant.

20.19

If two or more persons have a joint beneficial claim, the claim is to be treated as a claim of the partnership if they are carrying on business together in partnership. Otherwise each of those persons is taken to have a claim for his share, and in the absence of satisfactory evidence as to their respective shares, the FSCS must regard each person as entitled to an equal share.

20.20

In applying this Part to claims arising out of business done with a branch or establishment of the relevant person (or where applicable, the successor) outside the UK, the FSCS must interpret references to:

1. (1) persons entitled as personal representatives, trustees, bare trustees or agents, operators of pension schemes or persons carrying on the regulated activity of winding up pension schemes; or
2. (2) persons having a joint beneficial claim or carrying on business in partnership;

as references to persons entitled, under the law of the relevant country or territory, in a capacity appearing to the FSCS to correspond as nearly as may be to that capacity.

21.1

If a participant firm does not pay the total amount of the participant firm’s share of the FSCS levy, before the end of the date on which it is due, under the relevant provision in this Part, that participant firm must pay an additional amount as follows:

1. (1) if the share of the FSCS levy owing was not paid in full before the end of the due date, an administrative fee of £250; plus
2. (2) interest on any unpaid part of the share of the FSCS levy owing at the rate of 5% per annum above the Official Bank Rate from time to time in force, accruing on a daily basis from the date on which the amount concerned became due.

21.2

If it appears to the PRA or the FSCS that in the exceptional circumstances of a particular case, the payment of any FSCS levy would be inequitable, the PRA or the FSCS may (unless 21.4 applies) reduce or remit all or part of the levy in question which would otherwise be payable.

21.3

If it appears to the PRA or the FSCS that in the exceptional circumstances of a particular case to which 21.2 does not apply, the retention by the FSCS of any FSCS levy which has been paid would be inequitable, the FSCS may (unless 21.4 applies) refund all or part of that fee or levy.

21.4

The PRA or the FSCS may not consider a claim under 21.2 and/or 21.3 to reduce, remit or refund any overpaid amounts paid by a fee or levy payer in respect of a particular period, due to a mistake of fact or law by the fee or levy payer, if the claim is made by the fee or levy payer more than 2 years after the beginning of the period to which the overpayment relates.

21.5

1. (1) A participant firm which does not conduct business that could give rise to a protected claim by an eligible claimant and has no reasonable likelihood of doing so is exempt from a specific costs levy, or a compensation costs levy, or both, provided that:
1. (a) it has notified the FSCS in writing that those conditions apply, and has received written confirmation from FSCS that those conditions apply; and
2. (b) the conditions in fact continue to apply.
2. (2) The exemption takes effect from the date on which the participant firm receives confirmation from the FSCS that those conditions apply.

21.6

A participant firm which is exempt under 21.5 must notify the FSCS in writing as soon as reasonably practicable if the conditions in 21.5 no longer apply.

21.7

If a participant firm ceases to conduct business that could give rise to a protected claim by an eligible claimant and notifies the FSCS of this under 21.5(1)(a), it will be treated as a participant firm to which 21.48 applies until the end of the financial year of the compensation scheme in which the notice was given.

21.8

For the purposes of 21.5, a participant firm will only be exempt from a specific costs levy or compensation costs levy for any given financial year if it met the conditions in 21.5 on 31 March of the immediately preceding financial year.

21.9

The FSCS may at any time impose a management expenses levy or a compensation costs levy, provided that the FSCS has reasonable grounds for believing that the funds available to it to meet relevant expenses are, or will be, insufficient, taking into account expenditure already incurred, actual and expected recoveries and:

1. (1) in the case of a management expenses levy, the level of the FSCS’s expected expenditure in respect of those expenses in the financial year of the compensation scheme in relation to which the levy is imposed;
2. (2) in the case of a compensation costs levy relating to protected claims:
1. (a) the FSCS’s expenditure in respect of compensation costs expected in the 12 months following the levy; or, if greater
2. (b) one third of the FSCS’s expenditure in respect of compensation costs expected in the 36 months following the levy.

21.10

In the calculation of levies, the FSCS will also take into account previous levies, where funds raised in anticipation of meeting liabilities prove either more or less than the amount actually required.

21.11

The maximum aggregate amount of compensation costs and specific costs for which the FSCS can levy each insurance class in any one financial year of the compensation scheme is limited to the amounts set out in the table in Annex 1.

21.12

The FSCS may include in a compensation costs levy the costs of compensation paid by the FSCS in error, provided that the payment was not made in bad faith.

21.13

The FSCS must hold any amount collected from a specific costs levy or compensation costs levy to the credit of the insurance classes in accordance with the allocation established under 21.31 and 21.35.

21.14

Any funds received by the FSCS by way of levy or otherwise for the purposes of the policyholder protection scheme are to be managed as the FSCS considers appropriate, and in doing this the FSCS must act prudently.

21.15

Interest earned by the FSCS in the management of funds held to the credit of an insurance class must be credited to that insurance class, and must be set off against the management expenses or compensation costs allocated to that insurance class.

21.16

The FSCS must keep accounts which include:

1. (1) the funds held to the credit of each insurance class; and
2. (2) the liability of that insurance class.

21.17

1. (1) The FSCS may use any money held to the credit of one insurance class (the creditor insurance class) to pay compensation costs or specific costs attributable or allocated by way of levy to the other insurance class (the debtor insurance class) if the FSCS has reasonable grounds to believe that this would be more economical than borrowing funds from a third party or raising a levy.
2. (2) Where the FSCS acts in accordance with (1), it must ensure that:
1. (a) the creditor insurance class is reimbursed by the debtor insurance class as soon as possible;
2. (b) the debtor insurance class pays interest at a rate equivalent to the Bank of England's repo rate from time to time in force; and
3. (c) the amount lent by the creditor insurance class to the debtor insurance class is taken into account by the FSCS when considering whether to impose a compensation costs levy on the creditor insurance class under 21.9.

21.18

Unless 21.19 applies, any recoveries made by the FSCS in relation to protected claims must be credited to the insurance classes to which the related compensation costs was attributable.

21.19

1. (1) Where the FSCS makes recoveries in relation to protected claims where a related compensation costs levy would have been allocated to a insurance class (class X) had the levy limit for class X not been reached and has been allocated to the other insurance class, the recoveries must be applied:
1. (a) first, to the insurance class to which the costs levied were allocated in the same proportion as that insurance class contributed, up to the total amount of that allocation plus interest at a rate equivalent to the Bank of England's Official Bank Rate from time to time in force; and
2. (b) thereafter, to class X.
2. (2) This rule applies even though the recovery is made in a subsequent financial year.

21.20

Recoveries under 21.19 are net of the costs of recovery.

21.21

If the FSCS has more funds (whether from levies, recoveries or otherwise) to the credit of an insurance class than the FSCS believes will be required to meet levies on that insurance class for the next 12 months, it may refund the surplus to members or former members of the insurance class on any reasonable basis.

21.22

The FSCS may adjust the calculation of a participant firm’s share of any levy imposed in accordance with this Chapter to take proper account of:

1. (1) any excess, not already taken into account, between previous levies of that type imposed in relation to previous periods and the relevant costs actually incurred in that period;
2. (2) participant firms that are exempt from the levy under 21.5 to 21.8;
3. (3) amounts that the FSCS has not been able to recover from participant firms as a result of 21.11;
4. (4) amounts that the FSCS has not been able to recover from participant firms after having taken reasonable steps;
5. (5) 21.25, 21.33 or 21.40; or
6. (6) anything else that the FSCS believes on reasonable grounds should be taken into account.

21.23

The FSCS may not adjust the calculation of a participant firm's share of any levy imposed under this Chapter under 21.22 on the grounds that it would be inequitable for that firm to pay that share or part of it or on the grounds that it would be inequitable for the FSCS to retain that share or part of it.

21.24

1. (1) This rule applies to the calculation of the levies of a firm (A) if:
1. (a) A:
1. (i) acquires all or a part of the business of another firm (B), whether by merger, acquisition, goodwill or otherwise; or
2. (ii) becomes authorised as a result of B’s simple change of legal status (as defined in Fees 4.5 (4));
2. (b) B is no longer liable to pay a levy; and
3. (c) that acquisition or change takes place after the date to which, or as of which, A’s most recent statement of business under 21.42A is drawn up so far as concerns the insurance classes covered by B’s business.
2. (2) A must pay an additional amount equal to the levy that would have been payable by B in relation to the relevant business and relevant insurance class if the acquisition or change in legal status had not taken place and B had remained liable to pay levies. The amount is based on the most recent information supplied by B under 21.42A. A is included in the insurance classes applicable to the relevant business.
3. (3) This rule only applies with respect to those financial years of the FSCS for which A's levies are calculated on the basis of a statement of business under 21.42A drawn up to a date.

21.25

If a participant firm's share of a levy or an additional administrative fee under 21.42A would be so small that, in the opinion of the FSCS, the costs of collection would be disproportionate to the amount payable, the FSCS may treat the participant firm as if its share of the levy or additional administrative fee amounted to zero.

21.26

The FSCS may impose a levy on the Society to be calculated as the aggregate of the levies that would be imposed on each member if this Chapter applied to members, as follows:

1. (1) a proportionate share of a base costs levy in respect of the compensation scheme's costs for the period from 1 January 2004 to the end of the compensation scheme's financial year and a share of such levies for all subsequent financial years; and
2. (2) a specific costs levy and a compensation costs levy in respect of costs arising out of a relevant person being in default, arrangements made under 4.1 or measures taken under 5.1 where:
1. (a) the default occurs or the circumstances giving rise to the arrangements being made or the measures being taken, as the case may be, occur; and
2. (b) the protected contracts of insurance in connection with which the costs arise were entered into;

on or after 1 January 2004.

21.27

A participant firm must pay to the FSCS a share of each management expenses levy.

21.28

A participant firm's share of a management expenses levy consists of one or more of:

1. (1) a share of a base costs levy; and
2. (2) a share of a specific costs levy.

21.29

The FSCS must ensure that each participant firm's share of a management expenses levy separately identifies the firm's share of the base costs levy and specific costs levy.

21.30

Subject to 21.25, the FSCS must calculate a participant firm's share of a base costs levy in accordance with the FSCS Management Expenses Levy Limit and Base Costs Part.

21.31

The FSCS must allocate any specific costs levy amongst the relevant insurance class in proportion to the amount of relevant costs arising from the different activities for which firms in that insurance class has permission up to the levy limit of the relevant insurance class.

21.32

The FSCS must calculate a participant firm's share of a specific costs levy (subject to 21.24) by:

1. (1) identifying each relevant insurance class to which the participant firm belongs, using the statement of business most recently supplied under 21.42A;
2. (2) identifying the management expenses other than base costs which the FSCS has incurred, or expects to incur, in the relevant financial year of the compensation scheme, allocated to the insurance classes identified in (1), but not yet levied;
3. (3) calculating, in relation to each relevant insurance class, the participant firm's tariff base (see Annex 2) as a proportion of the total tariff base of all participant firms in the insurance class, using the statement of business most recently supplied under 21.42A;
4. (4) applying the proportion calculated in (3) to the figure in (2); and
5. (5) if more than one insurance class is relevant, adding together the figure in (4) for each insurance class.

21.33

A firm which becomes a participant firm part way through a financial year of the compensation scheme will not be liable to pay a share of a specific costs levy made in that year.

21.34

1. (1) This rule deals with the calculation of:
1. (a) a participant firm’s specific costs levy in the financial year of the FSCS following the FSCS financial year in which it became a participant firm; or
2. (b) a participant firm’s specific costs levy in the financial year of the FSCS in which it had its permission extended, and the following FSCS financial year; and
3. (c) the tariff base for the insurance classes that relate to the relevant permissions or extensions, as the case may be.
2. (2) Unless this rule says otherwise the tariff base is calculated, where necessary, using the projected valuation of the business to which the tariff relates.
3. (3) The rest of this rule only applies to a firm that becomes a participant firm, or extends its permission, on or after 1 April 2009:
1. (a) If a participant firm’s tariff base is calculated using data from a period that begins on or after it became a participant firm or on or after the date that the participant firm receives its extension of permission, as the case may be, the participant firm must use that data.
2. (b) If a participant firm satisfies the following conditions it must calculate its tariff base under (c) for the FSCS financial year following the FSCS financial year it became a participant firm:
1. (i) it became a participant firm or receives its extension of permission, as the case may be, between 1 April and 31 December inclusive; and
2. (ii) its tariff base, but for this rule, is calculated by reference to the financial year ended in the calendar year ending 31 December or the twelve months ending 31 December before the FSCS financial year.
3. (c) If a participant firm satisfies the conditions in (b) it must calculate its tariff base as follows:
1. (i) it must use actual data in relation to the business to which the tariff rather than projected valuations;
2. (ii) the tariff is calculated by reference to the period beginning on the date it became a participant firm or had its permission extended, and ending on the 31 December before the start of the FSCS financial year; and
3. (iii) the figures are annualised by increasing them by the same proportion as the period of 12 months bears to the period starting from when the participant firm became a participant firm or had its permission extended to 31 December, as the case may be.
4. (d) Where a participant firm is require to use a method in (c) it must notify the FSCS of its intention to do so by the date specified in 21.42A.
5. (e) Where a participant firm is required to use actual data under this rule, Annex 2 is disapplied, to the extent it is incompatible, in relation to the calculation of that participant firm’s valuation date in its second financial year.

21.35

The FSCS must allocate any compensation costs levy to the relevant insurance classes in proportion to the amount of compensation costs arising from, or expected to arise from, claims in respect of the different activities for which firms in those insurance classes have permission up to the levy limit of each relevant insurance class.

21.36

If a participant firm which is in default has carried on a regulated activity other than in accordance with a permission, the FSCS must treat any compensation costs or specific costs arising out of that activity as if the relevant permission were held by the participant firm.

21.37

A participant firm must pay to the FSCS a share of each compensation costs levy allocated to the insurance classes of which it is a member unless the firm is exempt under 21.5 to 21.8 or the FSCS has chosen to exercise its discretion under 21.25 in respect of that firm.

21.38

The FSCS must calculate each participant firm's share of a compensation costs levy (subject to 21.22) by:

1. (1) identifying each of the insurance classes to which each participant firm belongs, using the statement of business most recently supplied under 21.42A;
2. (2) identifying the compensation costs falling within 21.35 allocated, in accordance with 21.32, to the insurance classes identified in (1);
3. (3) calculating, in relation to each relevant insurance class, the participant firm's tariff base (see Annex 2) as a proportion of the total tariff base of all participant firms in the insurance class, using the statement of business most recently supplied under 21.42A;
4. (4) applying the proportion calculated in (3) to the figure in (2); and
5. (5) if more than one insurance class is relevant, adding together the figure in (4) for each insurance class.

21.39

When calculating a participant firm's share of a compensation costs levy or specific costs levy allocated to each insurance class the FSCS must use the insurance classes and tariff bases as set out in the table in Annex 2.

21.40

A firm which becomes a participant firm part way through a financial year of the compensation scheme will not be liable to pay a share of a compensation costs levy made in that year.

21.41

21.34 applies to the calculation of a participant firm's compensation costs levy and its tariff base as it applies to the calculation of its specific costs levy.

21.42

[deleted]

21.42A

1. (1) Unless exempt under 21.5, a participant firm must provide the FSCS by the end of May each year (or, if it has become a participant firm part way through the financial year, by the date requested by the PRA) with a statement of:
1. (a) the insurance class to which it belongs; and
2. (b) the total amount of business (measured in accordance with the appropriate tariff base or tariff bases) which it conducted, in respect of the most recent valuation period (as specified by Annex 2) ending before the relevant year in relation to each insurance class.
2. (2) In this rule and 21.44A the relevant year means the year in which the month of May referred to in (1) falls.

21.43

If the information in 21.42A has been provided to the PRA under other rule obligations, a participant firm will be deemed to have complied with 21.42A.

21.44

If a participant firm does not submit a complete statement by the date on which it is due in accordance with 21.42A and any prescribed submission procedures:

1. (1) the firm must pay an administrative fee of £250 (but not if it is already subject to an administrative fee for non-submission of data in the same financial year required under this Part, or any other PRA rule or rule in the FCA Handbook); and
2. (2) the compensation costs levy and any specific costs levy will be calculated using (where relevant) the valuation or valuations of business applicable to the previous period, multiplied by a factor of 1.10 (or if it has become a participant firm part way through the financial year, on the basis of information provided to the PRA for the purposes of Fees or on any other reasonable basis, making such adjustments as seem appropriate in subsequent levies once the true figures are known).

21.44A

In the event of a compensation costs levy and any specific costs levy being made in a financial year of the compensation scheme before a participant firm has submitted a complete statement in accordance with 21.42A, the compensation costs levy and any specific costs levy should be calculated using the statement of business submitted in respect of the previous valuation period.

21.45

A participant firm must pay its share of any levy made by the FSCS in one payment.

21.46

A participant firm's share of a levy to which 21.45 applies is due on, and payable within 30 days of, the date when the invoice is issued.

21.47

A participant firm liable to pay its share of the levy under 21.45 must do so using one of the methods specified by the PRA’s collection agent for fees as required by Fees 2.5 save that no additional amount or discount is applicable.

21.48

If a firm ceases to be a participant firm or carries out activities within one or more insurance classes part way through a financial year of the compensation scheme:

1. (1) it will remain liable for any unpaid levies which the FSCS has already made on the firm; and
2. (2) the FSCS may make one or more levies upon it (which may be before or after the firm has ceased to be a participant firm or carry out activities within one or more insurance classes, but must be before it ceases to be an authorised person) for the costs which it would have been liable to pay had the FSCS made a levy on all participant firms or firms carrying out activities within that insurance class in the financial year it ceased to be a participant firm or carry out activities within that insurance class.

22.1

With effect on and from 3 July 2015, the rules in this Part apply to defaults or circumstances giving rise to arrangements made under 4.1 or measures taken under 5.1 or other such actions of the FSCS or any levy levied by the FSCS.

22.2

Prior to 3 July 2015, the rules in COMP and/or FEES (as the case may be) apply to defaults or circumstances giving rise to arrangements made under COMP 3.3.1R or to measures taken under COMP 3.3.3R or other such actions of the FSCS or any levy levied by the FSCS.

22.3

In this Part:

1. (1) subject to (3), a claim under a protected contract of insurance includes a claim in respect of an article 9 default;
2. (2) where the claim is in respect of an article 9 default, the FSCS must apply the rules of the relevant former scheme, as they applied to the default before 1 December 2001 unless (3) applies;
3. (3) a claim must be treated as a claim in relation to a protected contract of insurance under 9.6 if the conditions in article 9A or 10(1)(a)–(d) of the compensation transitionals order are satisfied.

22.4

The rules of the Friendly Societies Protection Scheme are amended so that:

1. (1) references to the person managing the scheme are replaced by references to the FSCS; and
2. (2) references to functions conferred upon the Friendly Societies Protection Scheme Board are replaced by references to functions conferred upon the FSCS.

22.5