A trusted compensation scheme boosts consumer confidence in financial services and contributes to financial stability, according to new research.

The research of 2,000 consumers who own financial products was commissioned by the UK's main compensation body, the government-backed Financial Services Compensation Scheme (FSCS).

The findings revealed that improved consumer protection was the top driver of trust in financial services.

More than half of adults surveyed also reckoned that awareness of the FSCS supported financial stability. They also indicated that knowledge of the FSCS was key to tackling low levels of trust in the industry, with awareness of existing protections helping to boost consumer confidence for almost two thirds of respondents.

Some 63% of consumers said they would invest or spend more of their money when financial providers were FSCS-protected, while 59% were more likely to recommend FSCS-protected products and providers.

The research highlighted 'improved consumer protection' as the top driver of trust but revealed that only a quarter of consumers trusted the financial services industry to always act in the best interests of customers.

Only utilities, a sector facing high consumer scrutiny due to price rises and record profits, fared worse than financial services.

The FSCS said the findings indicated that a clear opportunity existed to leverage the role that the FSCS plays in supporting investment into the UK and contributing to economic growth.

Caroline Rainbird, chief executive at FSCS, said: “It has never been more important for the public to have trust in the financial services industry and confidence that their money is safe.

“Understanding of FSCS’s role in promoting trust and confidence is key to helping consumers to feel more confident when making decisions about their finances and can contribute to greater financial stability.”

Since the research was conducted in November 2022, consumer trust and confidence in the industry is likely to have been impacted by recent global events in the banking sector, the FSCS pointed out.

The collapse of Silicon Valley Bank (SVB) in the US, earlier this year, followed swiftly by a second high profile failure in the form of Credit Suisse, provided a reminder of how easily trust in the industry, and the confidence that goes with it, can be lost.

• This research was conducted online among 2,001 people age 18+ in the UK between 4 and 16 November 2022 and collected based on controlled quotas evenly distributed between age group, gender and region. All respondents were reported to own financial services products.