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COMP 7.2 How does the assignment of rights work?

COMP 7.2.1R

The FSCS:4

  1. (1)

    must make any payment of compensation to a claimant, in respect of a protected deposit, conditional on the claimant, in so far as able to do so, assigning the whole of his rights; and4

  2. (2)

    may make any payment of compensation to a claimant in respect of any other protected claim conditional on the claimant assigning the whole or any part of his rights;4

against the relevant person, or against any third party, or both, to the FSCS on such terms as the FSCS thinks fit.

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COMP 7.2.2R

If a claimant assigns the whole or any part of his rights against any person to the FSCS as a condition of payment, the effect of this is that any sum payable in relation to the rights so assigned will be payable to the FSCS and not the claimant.

COMP 7.2.3R
  1. (1)

    Before taking assignment of rights from the claimant under COMP 7.2.1 R, the FSCS must inform the claimant that if, after taking assignment of rights, the FSCS decides not to pursue recoveries using those rights it will, if the claimant so requests in writing, reassign the assigned rights to the claimant. The FSCS must comply with such a request in such circumstances.

  2. (2)

    If the FSCS takes assignment of rights from the claimant under COMP 7.2.1 R, it must pursue all and only such recoveries as it considers are likely to be both reasonably possible and cost effective to pursue.

  3. (3)

    [deleted]45

Specific provisions relating to claims for protected deposits

COMP 7.2.3AR

4If the FSCS, in relation to a claim for a protected deposit,makes recoveries from the relevant person or any third party in respect of that protected deposit,6 the FSCS must:

6
  1. (1)

    retain from those recoveries a sum equal to the "FSCS retention sum"; and

  2. (2)

    as soon as reasonably possible after it makes the recoveries, pay to the claimant, or as directed by the claimant, a sum equal to the "top up payment".

COMP 7.2.3BR

4The FSCS must calculate "FSCS retention sum" and the "top up payment" as follows:

  1. (1)

    calculate the "recovery ratio" of;

    1. (a)

      the amount recovered by the FSCS through rights assigned under COMP 7.2.1 R (taking into account any deduction from that amount the FSCS may make to cover part or all of its reasonable costs of recovery and of distribution, if any); to

    2. (b)

      the claimant's overall claim7 for protected deposits against the relevant person in default less any liability of a Home State deposit guarantee scheme;

  2. (2)

    subtract the sum paid by the FSCS as compensation and any amount paid or payable by a Home State compensation scheme to the claimant from the total value of the claimant'soverall claim7 for protected deposits, to give the "compensation shortfall";

  3. (3)

    apply the recovery ratio to the sum paid by the FSCS as compensation to the claimant, to give the "FSCS retention sum"; and

  4. (4)

    apply the recovery ratio to the compensation shortfall, to give the "top up payment".

COMP 7.2.3CG
  1. (1)

    4For example, if the claimant's overall claim7 for protected deposits against a relevant person was for £120,000,9 and the FSCS paid compensation of £85,0009 and took assignment of all the claimant's rights in relation to that claim, and made recoveries through those rights in the sum of £96,0009 (after the costs of recovery and of distribution), then:

    999
    1. (a)

      the recovery ratio would be 80% (£96,000 ÷ £120,000)9;

      9
    2. (b)

      the compensation shortfall would be £35,000 (£120,000 - £85,000)9;

      9
    3. (c)

      the FSCS retention sum would be £68,000 (80% x £85,000)9;

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    4. (d)

      the top up payment would be £28,000 (80% of £35,000)9;

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    5. (e)

      the total payment to the claimant would be £113,000 (£85,0009of compensation plus £28,0009 of top up payment); and

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    6. (f)

      the total outlay by the FSCS, net of the FSCS retention sum, would be £17,000 (20% x £85,000)9.

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  2. (2)

    In the example above, the amount recovered exceeds the amount of compensation. However, COMP 7.2.1 R also applies where the amount recovered is less than the amount of compensation. Therefore, for example, if the claimant's overall claim7 for protected deposits against a relevant person was for £120,000,9 and the FSCS paid compensation of £85,0009 and took assignment of all the claimant's rights in relation to that claim, and made recoveries through those rights in the sum of £24,0009 (after the costs of recovery and of distribution), then:

    999
    1. (a)

      the recovery ratio would be 20% (£24,000 ÷ £120,000)9;

      9
    2. (b)

      the compensation shortfall would be £35,000 (£120,000 - £85,000);9

      9
    3. (c)

      the FSCS retention sum would be £17,0009 (20% x £85,000);9

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    4. (d)

      the top up payment would be £7,0009 (20% of £35,000);9

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    5. (e)

      the total payment to the claimant would be £92,000 (£85,0009 of compensation plus £7,0009 of top up payment); and

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    6. (f)

      the total outlay by the FSCS, net of the FSCS retention sum, would be £68,0009 (80% x £85,000).9

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COMP 7.2.3DG

4In order to prevent a claimant suffering disadvantage arising solely from his prompt acceptance of the FSCS's offer of compensation compared with what might have been the position had he delayed his acceptance, the FSCS shall apply the rule in COMP 12.2.7 R(2).

Provisions relating to other classes of protected claim

COMP 7.2.3ER

4If the FSCS makes recoveries through rights assigned under COMP 7.2.1 R in relation to a claim that is not for a protected deposit, it may deduct from any recoveries paid over to the claimant under COMP 7.2.4 R part or all of its reasonable costs of recovery and of distribution (if any).

COMP 7.2.4R

Unless compensation was paid under COMP 9.2.3 R or the claim was for a protected deposit,4 if a claimant agrees to assign his rights to the FSCS and the FSCS subsequently makes recoveries through those rights, those recoveries must be paid to the claimant:

  1. (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. (2)

    in circumstances where the amount recovered does not exceed the amount of compensation paid, to the extent that a failure to pay any sums recovered to the claimant would leave a claimant who had promptly accepted an offer of compensation at a disadvantage relative to a claimant who had delayed accepting an offer of compensation (see COMP 7.2.5 R).

COMP 7.2.4AR

For the purpose of COMP 7.2.4 R compensation received by eligible claimants in relation to Lloyd's policies may include payments made from the Central Fund.

COMP 7.2.5R

Except for a claim for a protected deposit, the FSCS4 must endeavour to ensure that a claimant will not suffer disadvantage arising solely from his prompt acceptance of the FSCS's offer of compensation compared with what might have been the position had he delayed his acceptance.

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COMP 7.2.6G

As an example of the circumstances which COMP 7.2.5 R is designed to address, take two claimants, A and B.

  1. (1)

    Both A and B have a protected investment business claim of £60,000 against a relevant personin default. The FSCS offers both claimants £50,0008 compensation (the maximum amount payable for such claims COMP 10.2.3 R). A accepts immediately, and assigns his rights against the relevant person to the FSCS, but B delays accepting the FSCS's offer of compensation.

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  2. (2)

    In this example, the liquidator is able to recover assets from the relevant personin default and makes a payment of 50p in the pound to all the relevant person's creditors. If the liquidator made the payment before any offer of compensation from the FSCS had been accepted, A and B would both receive £30,000 each from the liquidator, leaving both with a loss of £30,000 to be met by the FSCS. Both claims would be met in full.

  3. (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 £50,0008 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 £30,000, so the £30,000 from the liquidator that would have been payable to A will be payable in full to the FSCS and not to A.

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  4. (4)

    B is able to exercise his rights against the liquidator because he delayed accepting the FSCS's offer and receives £30,000 from the liquidator. B can then make a claim for the remaining £30,000 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 £10,0008, being the difference between his claim of £60,000 and the compensation paid by the FSCS of £50,000.8

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COMP 7.2.7R
  1. (1)

    2For the purposes of compensation paid under COMP 3.2.4 R, FSCS may require any firm (including, but not limited to, the claimant firm) to assign to FSCS any rights the firm may have to claim against the relevant person in relation to the amount of the shortfall in client money arising out of the failure of the relevant person.

  2. (2)

    A firm required by FSCS to assign its rights in (1), must assign those rights as requested, unless it has a reasonable excuse for not doing so.