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help for businesses and consumer advice agencies

The law requires us to decide each case on the basis of our existing powers and what is fair in the circumstances of that particular case.
We take into account the law, regulators’ rules and guidance, relevant codes and good industry practice at the relevant time.
We do not have power to make rules for financial businesses.
Our current approach may develop in the light of circumstances disclosed by further cases we receive.
We may decide that fairness requires a different approach in a particular case.

online technical resource

compensation for being "deprived" of money and for investment loss

This section of the website describes our approach to telling businesses how to compensate consumers for financial loss.

We do this when consumers have lost out through being "deprived" of money that they should have had – or when consumers have lost money because the business's mistake led them to take out an investment or account that wasn't suitable for them.

overview

If we uphold a consumer’s complaint, our aim generally is to put the consumer into the position they would now be in if the original problem that led to the complaint hadn’t happened.

When we tell a business to compensate a consumer for investment loss or for being "deprived" of money, we also consider whether there was any additional loss to the consumer. We may tell the business to pay compensation for this further loss – sometimes by paying interest and sometimes in other ways.

The following sections provide more detailed information about our approach when we tell businesses to pay compensation in these circumstances.

compensation for being "deprived" of money
compensation for investment loss
other related information we have published

compensation for being "deprived" of money

If we uphold a complaint, we may in some cases tell the business to compensate the consumer for being “deprived” of money that they should have had.

The compensation we tell businesses to pay in these circumstances is usually in the form of interest payable up until the date the money is paid to the consumer.

Our power to tell a business to pay a consumer interest comes from s229(8) of the Financial Services and Markets Act 2000, which says:

A money award may provide for the amount payable under the award to bear interest at a rate and as from a date specified in the award

If we uphold a complaint, and the business fails to pay compensation as directed within 28 days, we may then tell the business to pay the consumer further compensation for the delay in paying the original amount.

There are more examples of where we tell businesses to pay compensation to consumers for being "deprived" of money in our technical note, is compensation taxable?

the interest rate we use

We usually tell businesses to pay interest at the statutory rate, which is currently 8% simple. When this relates to a period before 1 April 1993, we take into account the fact that the statutory rate was 15% simple at that time.

We use the statutory rate to reflect the fact that:

the rate is gross before tax is deducted;
it applies to historic losses at times when different base rates applied;
it takes account of current interest rates being charged on overdrafts and loans – which have not reduced in line with the base rate.

The courts have not changed the equivalent interest rates that they apply. So there does not appear to be a case for changing this rate at present.

There are some situations where we may tell businesses to pay interest at a different rate – for example:

if the consumer had to borrow money, compensation may be based on the interest they had to pay on that borrowing;
if the consumer had to use money from another account or investment, compensation may be based on the interest or income lost in relation to that other account or investment.

where the compensation relates to an unpaid insurance claim

The date interest runs from depends on the type of policy:

"Indemnity" policies are designed to put consumers back in the position they were in before the "insured event". For example, a motor policy will pay the value of a stolen car. The payment will return the consumer to the position they were in before their car was stolen – because they can replace the car. In these cases, the interest we tell businesses to pay begins from the date of the "insured event".

"Non-indemnity" (or defined benefit) policies are designed to pay a benefit if the "insured event" happens. For example, a personal accident policy will pay compensation for an injury. But the payment will not return the consumer to the position they were in before they were injured. In these cases, the interest we tell businesses to pay begins from the date the claim should have been paid.

We are unlikely to tell a business to pay a consumer compensation for being "deprived" of money if we agree, in the circumstances of a particular case, that an insurer was entitled to “avoid” a policy and refund the premiums.

compensation for investment loss

We typically tell a business to pay compensation for an investment loss when we decide that the business’s mistake led a consumer to take out an investment or account that wasn’t suitable for them. Compensation of this type is usually based on what would otherwise have happened to the consumer’s money.

In assessing compensation, we take into account what the consequences would have been if:

The consumer had left their money where it was.
In these situations we would usually base compensation on what the consumer’s money would have been worth if it hadn’t been moved.
The consumer had put their money into a specific investment.
In these situations we would usually base compensation on what that other investment would have been worth.
The consumer would otherwise have invested their money – but we do not know where.
In these situations, even if we can’t identify exactly what suitable investments the consumer would otherwise have taken out, we may be able to identify some qualities those investments would have had. In such cases, we will tell the financial business to compare what the consumer actually got with a benchmark that would broadly reflect those qualities – for example, a particular stockmarket index, an average deposit rate or a combination of those. However, the identification of an appropriate benchmark must take account of the particular circumstances involved and there may be situations that require us to take a different approach – for example, using Bank of England base rate.

There are examples of where we tell a business to pay compensation for the consumer being put in the wrong investment or account in our technical note, is compensation taxable?

where the consumer no longer has the investment or account

In these cases, we usually tell the business to pay compensation for the consumer’s investment loss up to the date of the encashment, sale or maturity of the investment – together with compensation for being "deprived" of that amount from that date until the date of payment.

The loss crystallises at the date the investment matured or was surrendered or cashed. Interest is then added to that sum until the date of payment. There is more information about the rate we use in the section above.

other related information we have published

ombudsman news features on:

calculating redress when a pension mortgage has been mis-sold -
issue 56, September/October 2006
calculating redress for "loss of investment opportunity"
issue 37, May/June 2004
how we use "interest" to calculate financial awards
issue 33, November 2003

quick guides to:

other technical notes:

This is part of our online technical resource which sets out our general approach to complaints about a wide range of financial products and issues. We would like your feedback on how helpful you found it. Please also use the feedback form below to tell us about anything you think we could clarify or explain better.