COMP 7.6 Treatment of recoveries
1If the FSCS makes recoveries in relation to a claim3, it may deduct from any recoveries paid over to the claimant under COMP 7.6.2 R part or all of its reasonable costs of recovery and distribution (if any).
Unless compensation was paid under COMP 9.2.3 R3, if a claimant assigns or transfers their 5 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)
to the extent that the amount recovered exceeds the amount of compensation (excluding interest paid under COMP 11.2.7 R) received by the claimant in relation to the protected claim; or
- (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 (see COMP 7.6.4 R); or5
- (3)
5where the FSCS has secured continuity of a funeral plan contract, to the extent that the amount recovered exceeds the cost of securing that continuity as estimated on a reasonable basis by the FSCS.
For the purpose of COMP 7.6.2 R compensation received by eligible claimants in relation to contracts of insurance written at Lloyd’s3 may include payments made from the Central Fund.
The3 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.
As an example of the circumstances which COMP 7.6.4 R is designed to address, take two claimants, A and B.
- (1)
Both A and B have a protected investment business claim of £120,0004 against a relevant person 2(or, where applicable, a successor) 2in default. The FSCS offers both claimants £85,0004 compensation (the maximum amount payable for such claims under COMP 10.2.3 R). A accepts immediately, and assigns his rights against the relevant person 2(or, where applicable, a successor) 2to the FSCS, but B delays accepting the FSCS's offer of compensation.
- (2)
In this example, the liquidator is able to recover assets from the relevant person 2(or, where applicable, a successor) 2 in default and makes a payment of 50p in the pound to all the relevant person's 2or successor’s, as appropriate, 2creditors. If the liquidator made the payment before any offer of compensation from the FSCS had been accepted, A and B would both receive £60,0004 each from the liquidator, leaving both with a loss of £60,0004 to be met by the FSCS. Both claims would be met in full.
- (3)
However, if the payment were made by the liquidator after A had accepted the FSCS's offer of compensation and assigned his rights to the FSCS, but before B accepted the FSCS offer of compensation, A would be disadvantaged relative to B even though he has received £85,0004 compensation from the FSCS. A would be disadvantaged relative to B because he promptly accepted the FSCS's offer and assigned his rights to the FSCS. Because A has assigned his rights to the FSCS, any payment from the liquidator will be made to the FSCS rather than A. In this case the FSCS has paid A more than £60,0004, so the £60,0004 from the liquidator that would have been payable to A will be payable in full to the FSCS and not to A.
- (4)
B is able to exercise his rights against the liquidator because he delayed accepting the FSCS's offer and receives £60,0004 from the liquidator. B can then make a claim for the remaining £60,0004 to the FSCS which the FSCS can pay in full (see COMP 10.2.2 G). B therefore suffers no loss whereas A is left with a loss of £35,0004, being the difference between his claim of £120,0004 and the compensation paid by the FSCS of £85,0004.