The massive financial firms that failed in 2018

The end of the year is drawing near and what a year it has been for big firms going bust. Cataclysmic changes have seen household names go under and new brands rise up to take their place.

With any big firm going under, there are obvious people it affects. Employees, suppliers, outsourced workers and shareholders. But these failures also massively impact customers that have money tied up in these companies.

So which big financial names did we lose this year and, more importantly, what happened to their customers?

Wonga

Probably the biggest financial failure of the year was Wonga, which collapsed in August amid expensive compensation claims over mis-sold loans. The payday loan firm charged interest rates that ran as high as 5,853% per annum.

It had already been forced to write off loans worth £220m back in 2014, when new affordability checks came into force that made them unviable.

Borrowers have been told to keep paying off their loans.

Loads of credit unions

More savers and borrowers than ever are turning to credit unions for their banking and borrowing – official figures released at the end of October show more than 2m people are now members.

So far, this year nine credit unions have gone under in including Harp Credit Union ltd, Dial-A-Cab Credit Union Ltd and Polish Credit Union Ltd.

In October, London-based credit union Your Credit Union went bust, reportedly as a result of bad debts. The union had encouraged local wealthy people to save into its accounts so it could lend the money out within the poorer community.

Fortunately, credit union savers had up to £85,000 protected by compensation through the Financial Services Compensation Scheme (FSCS).

Fast Pensions

Between 2012 and 2013, people were encouraged to transfer their existing pensions to Fast Pensions Ltd, but there were a number of complaints made about how they were being managed. Back in May, the High Court formally wound up Fast Pensions Ltd and five other related firms.

Investigations revealed cold calling tactics and some investors who had initially been looking to borrow money, only to be told they had to transfer their pension savings if they wanted a loan.

David Hope, Chief Investigator for the Insolvency Service, said: “People work long and hard to put money away for their retirements but the six companies that have been shut down paid scant regard to their members. They used unsavoury tactics to attract members and failed to paint the full picture as to what would really happen with their savings.

“By shutting the companies down, the courts have put a stop to their unscrupulous activities and we hope this sends a strong message that we will robustly investigate and take action where people’s funds and savings are at risk.”

Now people can take out money from their pensions, it’s incredibly important to check that you’re protected against bad advice (mis-selling) or your broker/fund going bust. Always check your financial products related to pensions are FSCS protected.

Beaufort Securities Ltd

The stockbroker Beaufort Securities Ltd was placed in Special Administration by the High Court back in March, after the UK regulator raised alarms.

Its action followed news from the America that the US Department of Justice was bringing criminal charges against the firm amid suggestions of money laundering and securities fraud.

Thankfully, FSCS helped ensure more than 15,000 of the firm’s clients were transferred to a new broker, The Share Centre. That means that those clients can now access their cash and assets and get back on track.

Alpha Insurance

In May, Alpha Insurance failed, leaving customers who had bought indemnity insurance, motor insurance, gap insurance and latent defects insurance potentially out of pocket.

Affected individuals were covered by the Danish Guarantee Fund and received a refund on the remainder of their policies, while business policyholders were compensated 90% of their claim. If you had an Alpha Insurance policy (for example, a taxi driver), you should check into whether you are entitled to compensation from FSCS.

Coast, Poundworld, Toys R Us…

Of course, retail giants are not financial companies, but they did have a financial element that affected customers: gift cards and vouchers.

The high street took a lot of hits this year, with many major brands going into administration, including Coast, Evans Cycles, House of Fraser, Poundworld and Toys R Us.

When administrators take over a business, they can choose not to accept gift vouchers and cards, even if the business is still trading and its shops are still open. If you hold a gift card then you’re treated as a creditor and will have to hope you receive some of your cash back once the business has been liquidated. Many people never get their money back.

What can you do to protect your money from failures?

If you’re saving money or buying a financial product or investing money then it’s really important to be very clear about how safe your money is.

The Financial Services Compensation Scheme (FSCS) protects you when financial firms fail. When you make any sort of financial decision – your bank, your mortgage, your pension, your savings or even investments – you should always check the firm you are using is FSCS protected.

FSCS can pay compensation if a financial services firm is unable, or likely to be unable, to pay claims against it. Funded by levies on authorised financial services firms in the UK, FSCS is independent, impartial and a free service you can trust.

That means carefully checking all the small print of a financial product before signing up and checking that a firm is legitimate, FCA registered and hasn’t had any recent difficulties. Always check for FSCS protection on both the product and provider, so you know you have access to FSCS protection if you need it.

You should also take the time to check how much FSCS protection you would have for different kinds of financial product. You can see a breakdown via the website but a quick rough guide is that FSCS will normally protect 100% of up to £85,000 (£170,000 for joint accounts) saved with banks, building societies and credit unions.

Customers who have money being held by debt management firms have up to £50,000 protected, as long as the firm failed after April 1 this year.

You should have up to £50,000 of endowments protected and the same again for home finance, like mortgage advice. If you’ve received bad investment advice, poor investment management or mis-selling of pensions then you could potentially claim up to £50,000 per person per firm. And if you have a temporary high balance, you’ll be covered for up to six months for up to £1 million.

Finally, pension deposits held in a bank have the full £85,000 compensation but there could be up to 100% protection for other pension firm failures.

What does the future look like?

There’s a lot of uncertainty just now because no one is entirely sure what the outcome of Brexit might be or how it could affect financial firms.

The good news is that FSCS limits will increase from 1 April 2019 for investments, intermediation for investment, pensions and home finance from £50,000 to £85,000. Long term care insurance increases from £50,000 to 100% of the claim.

Bank failures happened in 2008/09, but these days those kinds of institutions are regularly stress-tested to make sure they are viable and could handle most ups and downs. However, there are many other financial services providers and it’s worth considering how it might affect your pocket if they failed.

FSCS says it is seeing claims ranging from credit union failures to pension mis-selling or failures, as well as insurance companies and investment mis-selling claims.

So even if you feel very confident about your bank or building society, it’s important to keep an eye on the protections you have from other firms you do business with.

What can you do if it all goes pear-shaped?

If you are affected by a financial firm going under then you should make a claim as soon as possible.

Visit the FSCS website to begin making your claim. It’s commission and charge free, as long as you make the claim directly with FSCS. Don’t worry if you don’t have all the information you need immediately to hand, you can always save your claim and come back later. Just remember that the quicker you make it, the quicker the cash can be back in your pocket.

But keep calm, because FSCS is there as a last-measure safeguard for savers. Mark Neale, FSCS chief executive says: “Public trust in the banking system is essential for the economy to function. FSCS will continue to make improvements to our systems so we are ready to respond if another major failure should occur.”