Financial Services and Markets Act 2000, section 213

The compensation scheme

Part XV The Financial Services Compensation Scheme

(1)The [F1622regulatorsF1622] must by rules[F1623 made in accordance with an order under subsection (1A)F1623] establish a scheme for compensating persons in [F1624cases where—

(a)relevant persons are unable, or likely to be unable, to satisfy claims against them, F1625...

[F1626 (aa)relevant exchanges are unable, or likely to be unable, to satisfy claims made against them in connection with a regulated activity relating to a trading facility carried on by the exchange, orF1626]

(b) persons who have assumed responsibility for liabilities arising from acts or omissions of relevant persons [F1627 or relevant exchanges F1627] (“successors”) are unable, or likely to be unable, to satisfy claims against the successors that are based on those acts or omissions. F1624]

[F1628 (1A)The Treasury must by order specify—

(a)the cases in which the FCA may, or may not, make rules under subsection (1), and

(b)the cases in which the PRA may, or may not, make rules under that subsection.F1628]

(2) The rules[F1629 (taken together) F1629] are to be known as the Financial Services Compensation Scheme (but are referred to in this Act as “the compensation scheme”).

(3)The compensation scheme must, in particular, provide for the scheme manager—

[F1630 (a)to assess and pay compensation, in accordance with the scheme, to claimants in respect of claims made in connection with—

(i)a regulated activity carried on (whether or not with permission) by relevant persons; and

(ii)a regulated activity relating to a trading facility carried on (whether or not in accordance with any requirements relating to that activity resulting from section 286) by relevant exchanges; and

(b)to have power to impose levies for the purpose of meeting its expenses (including in particular expenses incurred, or expected to be incurred, in paying compensation, borrowing or insuring risks)—

(i)on authorised persons, or any class of authorised person;

(ii)on recognised investment exchanges carrying on a regulated activity relating to a trading facility, or any class of such exchanges; or

(iii)on authorised persons and on recognised investment exchanges carrying on a regulated activity relating to a trading facility, or on any class of such persons and exchanges.F1630]

[F1631 (4)The compensation scheme may provide for the scheme manager to have power to impose levies—

(a)on authorised persons, or any class of authorised person;

(b)on recognised investment exchanges carrying on a regulated activity relating to a trading facility, or any class of such exchanges; or

(c)on authorised persons and on recognised investment exchanges carrying on a regulated activity relating to a trading facility, or on any class of such persons and exchanges,

for the purpose of recovering the cost (whenever incurred) of establishing the scheme.F1631]

[F1632 (5)In making any provision of the scheme by virtue of subsection (3)(b), the regulators must take account of the desirability of ensuring that the amount of the levies imposed on a particular —

(a)class of authorised person;

(b)class of recognised investment exchange carrying on a regulated activity relating to a trading facility; or

(c)class of authorised person and of recognised investment exchanges carrying on a regulated activity relating to a trading facility;

reflects, so far as is practicable, the amount of claims [F1633 or recapitalisation payments within the meaning of section 214E, as the case may be,F1633] made, or likely to be made in respect of that class of person, exchange, or persons and exchanges.F1632]

[F1634 (5A)The compensation scheme may not allow the scheme manager to impose levies on credit unions in relation to recapitalisation payments under section 214E.

(5B) In subsection (5A), the reference to “credit unions” is to credit unions within the meaning of—

(a)the Credit Unions Act 1979 (see section 31);

(b)the Credit Unions (Northern Ireland) Order 1985 (S.I. 1985/1205 (N.I. 12)) (see Article 2).F1634]

(6)An amount payable to the scheme manager as a result of any provision of the scheme made by virtue of subsection (3)(b) or (4) may be recovered as a debt due to the scheme manager.

(7)Sections 214 to 217 make further provision about the scheme but are not to be taken as limiting the power conferred on the [F1622regulatorsF1622] by subsection (1).

(8) In those sections “specified” means specified in the scheme.

(9) In this Part (except in sections 219, 220 or 224) “relevant person” means a person who was—

(a)an authorised person at the time the act or omission giving rise to the claim against him [F1635, or against a successor falling within subsection (1)(b),F1635] took place; or

(b)an appointed representative at that time.

[F1636 (10A)But a person is not to be regarded as a relevant person in relation to a regulated activity if, at that time, the person—

(a)was a Gibraltar-based person with a Schedule 2A permission to carry on the activity, and

(b)fell within a prescribed category, either generally or in relation to the activity.

(10B)Regulations prescribing a category of person for the purposes of subsection (10A) may, among other things, make provision by reference to—

(a)whether the activity is carried on through a branch in the United Kingdom;

(b)the level of protection provided by the compensation scheme and by any comparable scheme operating in Gibraltar.F1636]

F1637 (10). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1637 (11). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F1638 (12) In this Part (except in sections 220 and 224) “relevant exchange” means a body corporate or unincorporated association which was a recognised investment exchange carrying on a regulated activity relating to a trading facility at the time the act or omission giving rise to the claim against it, or against a successor falling within subsection (1)(b), took place.

(13) In this Part “regulated activity relating to a trading facility” means—

(a)the regulated activity of operating a multilateral trading facility; or

(b)the regulated activity of operating an organised trading facility.F1638]

[F1639 (14) In this Part, “funeral plan contract” has the same meaning as in article 59(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 . F1639]

Read section 213 in the full Act → Definitions (16) Cases (16)

Definitions used in section 213

regulator

“regulator” has the meaning given in section 3A(2);

Defined in s.417(1) · see it in the full Act
rule

“rule” means a rule made by the FCA or the PRA under this Act;

Defined in s.417(1) · see it in the full Act
claim

“claim”, in relation to the Financial Services Compensation Scheme under Part XV, is to be construed in accordance with section 214(1B);

Defined in s.417(1) · see it in the full Act
the FCA

(2) The Financial Conduct Authority is in this Act referred to as “the FCA”.

Defined in s.1A(2) · see it in the full Act

“the FCA” means the Financial Conduct Authority;

Defined in s.417(1) · see it in the full Act
the PRA

“the PRA” means the Prudential Regulation Authority;

Defined in s.417(1) · see it in the full Act
the scheme manager

“the scheme manager” has the meaning given in section 212(1);

Defined in s.417(1) · see it in the full Act
regulated activity

“regulated activity” has the meaning given in section 22;

Defined in s.417(1) · see it in the full Act
authorised person

“authorised person” has the meaning given in section 31(2);

Defined in s.417(1) · see it in the full Act

(2) In this Act “authorised person” means a person who is authorised for the purposes of this Act.

Defined in s.31(2) · see it in the full Act
recognised investment exchange

“recognised CSD”, “recognised clearing house” and “recognised investment exchange” have the meaning given in section 285;

Defined in s.417(1) · see it in the full Act

(a) “recognised investment exchange” means an investment exchange in relation to which a recognition order is in force;

Defined in s.285(1) · see it in the full Act
Specified

(5) “Specified” means specified in an order made by the Treasury.

Defined in s.22(5) · see it in the full Act
appointed representative

“appointed representative” has the meaning given in section 39(2 );

Defined in s.417(1) · see it in the full Act

(2) In this Act “appointed representative” means—

(a)a person who is exempt as a result of subsection (1), or

(b)a person carrying on a regulated activity in circumstances where, as a result of subsection (1D), sections 20(1) and (1A) and 23(1A) do not apply.

Defined in s.39(2) · see it in the full Act
Gibraltar-based person

“Gibraltar-based person” has the meaning given in paragraph 1 of Schedule 2A (read with Part 14 of that Schedule) ;

Defined in s.417(1) · see it in the full Act
Schedule 2A permission

“Schedule 2A permission” has the meaning given in paragraph 12(4) of Schedule 2A;

Defined in s.417(1) · see it in the full Act
a Schedule 2A permission

(4) A permission obtained under this paragraph is referred to in this Act as “a Schedule 2A permission”.

Defined in Sch.2A para.12(4) · see it in the full Act
prescribed

“prescribed” (where not otherwise defined) means prescribed in regulations made by the Treasury;

Defined in s.417(1) · see it in the full Act
body corporate

“body corporate” includes a body corporate constituted under the law of a country or territory outside the United Kingdom;

Defined in s.417(1) · see it in the full Act

Cases considering section 213 (16)

Manchikalapati & Ors, R (on the application of) v The Financial Services Compensation Scheme

[2023] EWCA Civ 1006 · 5 September 2023Limits

Section 213(1) requires the regulators to establish a compensation scheme by rules for cases where relevant persons or successors cannot satisfy specified claims. It defined the statutory foundation within which the PPR had to operate. (see paras [10], [14]) Section 213(1A) requires the Treasury to specify by order the circumstances in which the FCA and PRA may make rules under section 213(1). It formed part of the statutory framework for the PPR. (see para [10]) Section 213(2) provides that the rules establishing the scheme are referred to collectively as the compensation scheme. It assisted in identifying the PPR’s statutory setting. (see para [10]) Section 213(3) requires compensation in respect of claims made in connection with regulated activities. The court held that this broad wording had to be read with section 214’s express power to restrict claims and section 2C’s policyholder-protection objective. (see paras [11], [14], [58]-[59])

Emptage v Financial Services Compensation Scheme Ltd

[2013] EWCA Civ 729 · 18 June 2013

The court treated the provision as establishing the compensation scheme for claims arising from regulated activities and requiring rules governing compensation. The Scheme had power to compensate loss caused by the accepted breach of regulated mortgage-advice duties. (see paras [5]; [9]; [20])

Manchikalapati & Ors., R (on the application of) v Financial Services Compensation Scheme

[2022] EWHC 2228 (Admin) · 2 August 2022Interprets

The court used section 213 to identify the statutory purpose and the requirement that compensation be assessed and paid in accordance with the Scheme. It held that the statutory provision did not answer the separate question of what constitutes a valid claim. (see paras [32]; [113]-[115])

What each judgment says about section 213 is in the case-law panel in the full Act.

Explanatory note

423.This section imposes certain requirements about the Authority’s rules establishing the scheme.  It also makes it clear that customers may be eligible to make a claim against an authorised person even if the claim arises in relation to an activity for which that authorised person did not have permission.  A claim relating to an appointed representative who is an exempt person by virtue of section 39 may also qualify under the scheme.  Claims would not, however, be eligible if they related to regulated activities carried on by a person who should be authorised but is not.

424.Subsection (3)(b) provides for the scheme manager to levy authorised persons to cover both the costs of compensation and its administrative costs.

425.Subsection (5) requires the scheme manager when setting the levy to seek, so far as is practicable, to avoid cross-subsidy between sectors.

426.Subsection (10) allows the Treasury to prescribe categories of persons authorised to carry on regulated activities in the United Kingdom under passporting arrangements that will only participate in the scheme if they elect to do so.  This allows the Treasury to ensure that, while membership of the scheme is generally compulsory for authorised persons carrying on relevant activities, it remains compatible with UK obligations under EC directives which make rules about the extent to which EEA firms can be required to join compensation schemes other than their home State scheme.

All the explanatory notes for the Act

Amendments and notes

25 notes from legislation.gov.uk

Amendments

  1. F1622Word in s. 213 substituted (24.1.2013 for specified purposes, 1.4.2013 in so far as not already in force) by Financial Services Act 2012 (c. 21), s. 122(3), Sch. 10 para. 3(2) (with Sch. 20); S.I. 2013/113, art. 2(1)(b)(c), Sch. Pts. 2, 3; S.I. 2013/423, art. 3, Sch.
  2. F1623Words in s. 213(1) inserted (24.1.2013 for specified purposes, 1.4.2013 in so far as not already in force) by Financial Services Act 2012 (c. 21), s. 122(3), Sch. 10 para. 3(3)(a) (with Sch. 20); S.I. 2013/113, art. 2(1)(b)(c), Sch. Pts. 2, 3; S.I. 2013/423, art. 3, Sch.
  3. F1624Words in s. 213(1) substituted (24.1.2013 for specified purposes, 1.4.2013 in so far as not already in force) by Financial Services Act 2012 (c. 21), s. 122(3), Sch. 10 para. 3(3)(b) (with Sch. 20); S.I. 2013/113, art. 2(1)(b)(c), Sch. Pts. 2, 3; S.I. 2013/423, art. 3, Sch.
  4. F1625Word in s. 213(1)(a) omitted (29.6.2017 for specified purposes, 3.7.2017 for specified purposes, 31.7.2017 for specified purposes, 3.1.2018 in so far as not already in force) by virtue of The Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (S.I. 2017/701), reg. 1(2)(3)(4)(6), Sch. 2 para. 23(2)(a) (with reg. 7)
  5. F1626S. 213(1)(aa) inserted (29.6.2017 for specified purposes, 3.7.2017 for specified purposes, 31.7.2017 for specified purposes, 3.1.2018 in so far as not already in force) by The Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (S.I. 2017/701), reg. 1(2)(3)(4)(6), Sch. 2 para. 23(2)(b) (with reg. 7)
  6. F1627Words in s. 213(1)(b) inserted (29.6.2017 for specified purposes, 3.7.2017 for specified purposes, 31.7.2017 for specified purposes, 3.1.2018 in so far as not already in force) by The Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (S.I. 2017/701), reg. 1(2)(3)(4)(6), Sch. 2 para. 23(2)(c) (with reg. 7)
  7. F1628S. 213(1A) inserted (24.1.2013 for specified purposes, 1.4.2013 in so far as not already in force) by Financial Services Act 2012 (c. 21), s. 122(3), Sch. 10 para. 3(4) (with Sch. 20); S.I. 2013/113, art. 2(1)(b)(c), Sch. Pts. 2, 3; S.I. 2013/423, art. 3, Sch.
  8. F1629Words in s. 213(2) inserted (24.1.2013 for specified purposes, 1.4.2013 in so far as not already in force) by Financial Services Act 2012 (c. 21), s. 122(3), Sch. 10 para. 3(5) (with Sch. 20); S.I. 2013/113, art. 2(1)(b)(c), Sch. Pts. 2, 3; S.I. 2013/423, art. 3, Sch.
  9. F1630S. 213(3)(a)(b) substituted (29.6.2017 for specified purposes, 3.7.2017 for specified purposes, 31.7.2017 for specified purposes, 3.1.2018 in so far as not already in force) by The Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (S.I. 2017/701), reg. 1(2)(3)(4)(6), Sch. 2 para. 23(3)(a) (with reg. 7)
  10. F1631S. 213(4) substituted (29.6.2017 for specified purposes, 3.7.2017 for specified purposes, 31.7.2017 for specified purposes, 3.1.2018 in so far as not already in force) by The Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (S.I. 2017/701), reg. 1(2)(3)(4)(6), Sch. 2 para. 23(4) (with reg. 7)
  11. F1632S. 213(5) substituted (29.6.2017 for specified purposes, 3.7.2017 for specified purposes, 31.7.2017 for specified purposes, 3.1.2018 in so far as not already in force) by The Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (S.I. 2017/701), reg. 1(2)(3)(4)(6), Sch. 2 para. 23(5) (with reg. 7)
  12. F1633Words in s. 213(5) inserted (16.7.2025) by Bank Resolution (Recapitalisation) Act 2025 (c. 15), ss. 6(2)(a), 8(2); S.I. 2025/872, reg. 2(f)
  13. F1634S. 213(5A)(5B) inserted (16.7.2025) by Bank Resolution (Recapitalisation) Act 2025 (c. 15), ss. 6(2)(b), 8(2); S.I. 2025/872, reg. 2(f)
  14. F1635Words in s. 213(9)(a) inserted (24.1.2013 for specified purposes, 1.4.2013 in so far as not already in force) by Financial Services Act 2012 (c. 21), s. 122(3), Sch. 10 para. 3(6) (with Sch. 20); S.I. 2013/113, art. 2(1)(b)(c), Sch. Pts. 2, 3; S.I. 2013/423, art. 3, Sch.
  15. F1636S. 213(10A)(10B) inserted (1.9.2023) by Financial Services Act 2021 (c. 22), s. 49(5), Sch. 8 para. 7; S.I. 2023/934, reg. 2(b)(iii)
  16. F1637S. 213(10)(11) omitted (31.12.2020) by virtue of The EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 (S.I. 2018/1149), reg. 1(3), Sch. para. 14 (with savings in reg. 4 and S.I. 2019/680, regs. 1(2), 11 (with reg. 11(8)-(10) (as amended by S.I. 2020/1301, regs. 1, 3, Sch. para. 40(f))); 2020 c. 1, Sch. 5 para. 1(1) this amendment is subject to savings and/or transitional provisions, see the commentary.
  17. F1638S. 213(12)(13) inserted (29.6.2017 for specified purposes, 3.7.2017 for specified purposes, 31.7.2017 for specified purposes, 3.1.2018 in so far as not already in force) by The Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (S.I. 2017/701), reg. 1(2)(3)(4)(6), Sch. 2 para. 23(6) (with reg. 7)
  18. F1639S. 213(14) inserted (16.5.2022 for specified purposes, 29.7.2022 in so far as not already in force) by The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2022 (S.I. 2022/466), arts. 1(3), 6(4)

Modifications

  1. C932S. 213 modified (31.12.2020) by The EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 (S.I. 2018/1149), regs. 1(3), 24(2) (as amended by S.I. 2020/1301, regs. 1, 3, Sch. para. 2(a) and (1.1.2024) by S.I. 2023/1410, regs. 1(2), 14)
  2. C933S. 213 modified (31.12.2020) by The EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 (S.I. 2018/1149), regs. 1(3), 70(2) (as inserted by S.I. 2019/105, regs. 1(2), 5(1) and as amended by S.I. 2019/1010, regs. 1(3), 5 and S.I. 2020/1301, regs. 1, 3, Sch. para. 2(b))
  3. C934S. 213(3)(a) excluded (31.10.2004) by The Financial Services and Markets Act 2000 (Transitional Provisions) (Mortgages) Order 2004 (S.I. 2004/2615), arts. 1(2), 5, Sch. para. 8
  4. C935S. 213(3)(a) excluded (14.1.2005) by The Financial Services and Markets Act 2000 (Transitional Provisions) (General Insurance Intermediaries) Order 2004 (S.I. 2004/3351), arts. 1(2), 6
  5. C936S. 213(3)(a) excluded (26.7.2013 for specified purposes, 2.9.2013 in so far as not already in force) by The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2013 (S.I. 2013/1881), arts. 1(2)(5), 59(8)
  6. C937S. 213(9) excluded (2.7.2002) by The Financial Services and Markets Act 2000 (Consequential Amendments and Transitional Provisions) (Credit Unions) Order 2002 (S.I. 2002/1501), art. 5(1)

Commencement

  1. I28S. 213 wholly in force at 18.6.2001; s. 213 not in force at Royal Assent see s. 431(2); s. 213(10) in force for certain purposes at 25.2.2001 by S.I. 2001/516, art. 2(b), Sch. Pt. 2; s. 213 in force in so far as not already in force at 18.6.2001 by S.I. 2001/1820, art. 2, Sch.