The Financial Services Compensation Scheme (FSCS) paid a total of £473m in compensation to 425,760 customers of failed firms during 2018/19, it has been revealed.

This was compared with the £405m FSCS paid in compensation in the previous year.

FSCS says it “worked hard and with empathy to handle the wide range of claims from customers, many of whom were vulnerable after suffering financial loss”.

The scheme says it “was able to put its customers back on track and in doing so helped to restore confidence in the financial services industry”.   
 
FSCS’s Annual Report and Accounts showed it raised levies on 49,224 regulated financial services firms, with a total levy income of £517m, to fund the costs of compensation and of running the scheme.
 
During the year FSCS recovered £4.7bn from Bradford & Bingley, to repay the remaining borrowing from HM Treasury provided for the 2008/09 banking failures.

A further £26m was recovered from other failures and FSCS says it continued to monitor and pursue other available recovery opportunities.
 
SIPP related claims continued to rise, as FSCS paid £123m in compensation, £11m higher than in 2017/18.

Overall FSCS paid £157m in the Life and Pensions Intermediation Class a development it said necessitated a supplementary levy of £78m which was funded by the retail pool.

The rise in SIPP related claims contrasted with the fall in Payment Protection Insurance claims, as the amount paid in compensation for PPI claims was £11m, down £5m from the previous year.
 
The failure of Alpha Insurance was responsible for the large number of premiums returned to customers in 2018/19 – 371,000 – compared to 27,000 in 2017/18.

Alpha Insurance was declared in default on 8 May 2018, shortly after the final levies were announced.  

This, FSCS says, necessitated it to raise a supplementary levy of £14m, at the same time as the retail pool levies were collected in January 2019.
 
For deposits, FSCS paid £29m to customers of deposit taking firms.

Of this, £22m was paid to customers of Dial-A-Cab Credit Union – one of eight Credit Unions to fail in 2018/19 – and the largest deposit taker failure since the crisis.

To cover the failure of Dial-A-Cab, FSCS raised a supplementary levy on the Deposits class of £13m in January 2019.
 
Caroline Rainbird, FSCS chief executive, said: “We recognise that we were only able to pay compensation to so many thousands of people because of the firms who paid our levy and the diligent work of FSCS staff who successfully pursued recoveries from the estates of failed firms.

“Our customers, the wider financial services industry and consumers, are always central to our decision-making process.

“As an important part of our work is to help to both prevent future failures and restore consumer confidence in the financial services industry we introduced our strategy, FSCS into the 2020s: Protecting the Future.

“It identifies the challenges of the coming decade, and our priorities in meeting those challenges, as it focusses on four pillars: Prepare, Protect, Promote and Prevent. 

“As we continue to see a rise in SIPP related claims we are working with our partners in industry through our Prevent pillar to gain valuable insight into the causes of firm failures and about the directors and advisors involved in mis-selling.”