What is the primary function of the Financial Services Compensation Scheme (FSCS)?

What is the primary function of the Financial Services Compensation Scheme (FSCS)?

• A. To regulate stockbroker practices
• B. To provide insurance against fraud in trading
• C. To compensate consumers when a financial services firm fails
• D. To facilitate interbank lending

Answer: (C)

The Financial Services Compensation Scheme (FSCS) primarily aims to protect consumers by compensating them if a financial services firm fails. For instance, if a bank goes bankrupt, the FSCS steps in to ensure that customers can recover some of their lost funds, up to a certain limit. This safety net helps to maintain confidence in the financial system, ensuring that individuals do not suffer catastrophic losses due to the insolvency of institutions that they trust with their money. The other functions listed, while relevant to the broader financial services landscape, do not align with the primary purpose of the FSCS. Regulation of stockbroker practices is handled by entities like the Financial Conduct Authority, while insurance against fraud in trading falls under different protective measures, such as those established by specific trading platforms and regulations. Facilitating interbank lending concerns liquidity and borrowing among banks, which is distinct from the consumer protection role of the FSCS.

The Financial Services Compensation Scheme (FSCS) primarily aims to protect consumers by compensating them if a financial services firm fails. For instance, if a bank goes bankrupt, the FSCS steps in to ensure that customers can recover some of their lost funds, up to a certain limit. This safety net helps to maintain confidence in the financial system, ensuring that individuals do not suffer catastrophic losses due to the insolvency of institutions that they trust with their money.

The other functions listed, while relevant to the broader financial services landscape, do not align with the primary purpose of the FSCS. Regulation of stockbroker practices is handled by entities like the Financial Conduct Authority, while insurance against fraud in trading falls under different protective measures, such as those established by specific trading platforms and regulations. Facilitating interbank lending concerns liquidity and borrowing among banks, which is distinct from the consumer protection role of the FSCS.