Chartered Institute of Stockbrokers (CISI) Professional Practice Exam

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When can a claim be made from the Financial Services Compensation Scheme (FSCS)?

When the firm is in bankruptcy
Once the firm is in default
When a regulatory body requests
After all other claim options have been exhausted

The correct answer is: Once the firm is in default

A claim can be made from the Financial Services Compensation Scheme (FSCS) once a firm is in default. This situation occurs when a financial firm is unable to pay claims against it, typically due to insolvency or failure to meet its financial obligations. The FSCS is designed to protect consumers by providing compensation in situations where firms are unable to fulfill their commitments, thus offering a safety net for clients who have lost money as a result of the firm’s inability to continue operations. The concept of 'default' is crucial here, as it indicates that the firm is no longer able to meet its liabilities, thereby allowing the FSCS to step in and provide the necessary compensation to affected individuals. This is an essential aspect of the scheme’s function, which aims to maintain consumer confidence in the financial services industry.