Understanding compensation
Information for claims management companies (CMCs) about how we award compensation.
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Interest calculator
To calculate interest on a sum at base rate plus one percentage point, use our interest calculator.
If your business has got it wrong and a consumer has lost out as a result, we can tell you to put things right.
Usually, we’ll tell you to put your customer back in the position they’d be in if things hadn’t gone wrong.
That can mean awarding money to your customer– for example, refunding a charge. Or we may also tell you to do something that doesn’t involve money, such as keeping your customer updated on an ongoing claim.
And in some cases, we’ll award compensation for the distress or inconvenience an issue has caused your customer.
Types of compensation
The Financial Conduct Authority (FCA) rulesOpens in new window say we can make any or all of the following types of awards:
- money awards
- interest awards
- costs awards
- directions.
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If your customer has lost out financially, we can tell your business to compensate them for the loss you caused.
Where it’s clear how much your customer lost, we’ll specify the amount of money you need to pay.
Where it’s not clear, we’ll usually set out the basis on which your business should compensate a customer, rather than a specific amount.
In cases where we think your customer is due more than our award limit Understanding compensation we’ll recommend the additional amount we think you should pay. But we’ll talk to you both about what this means at the time.
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It’s important to address the emotional and practical impact of a business’s mistake. So we might also make an award for any of the following:
- distress
- inconvenience
- pain and suffering
- damage to reputation
We might award these if we feel your customer faced obstacles or difficulties that could have been avoided if you’d handled things differently.
Find out more about our approach to paying compensation for distress or inconvenience.
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Interest on an award is usually calculated from the date your customer should have had the money until the date it was actually paid.
We can award interest in three ways:
- As part of the award itself. For example, where we tell you to pay back interest you’ve already charged.
- On top of a financial award. For example, if someone was ‘deprived’ of money – meaning they didn’t have it available to use – we can tell your business to pay interest on top of the money award at an appropriate rate.
- After the financial award has been calculated. For example, if there’s an unreasonable delay in settling a complaint following an ombudsman’s decision, we can decide that a different interest rate should start to accrue until the award is paid.
For interest awarded to reflect the cost of being deprived of money we will use the following rates:
- simple interest at the time-weighted Bank of England average base rate plus one percentage point, for complaints referred to us since 1 January 2026 – use our interest calculatoruse our interest calculator to get an idea of how much this might be
- simple interest at 8% per year, for complaints referred to us before 1 January 2026.
Typically, the interest should be calculated from the date the loss crystallised to the date compensation is paid. If your customer has lost money at more than one point in time, you should calculate interest from the date of each crystallisation to the date of settlement.
If your customer has recovered any loss in the intervening period, you should take that into account in the interest calculation.
Where an ombudsman makes a money award – and your customer accepts their decision – you may also have to pay interest if you don't make the payment by the set deadline. The typical deadline we set is 28 calendar days from the date you're told your customer has accepted the final decision. The default interest rate applied for late payment is 8% simple per year.
There are some situations where we may tell you to pay interest at a different rate, for example, if the customer:
- had to borrow money, we may base compensation on the interest they had to pay on that loan
- had to use money from another account or investment, we may base compensation on the interest or income lost in relation to that other account or investment.
Most customers will have to pay basic rate income tax on this interest, which the law may require your business to deduct.
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Occasionally, we might tell a business to reimburse some or all of the costs a customer reasonably incurred. Costs awards aren’t common, but we need to think about what’s fair in each individual case.
Costs awards can also include interest.
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We might decide your business needs to put things right in a way that doesn’t involve paying money.
For example, your customer complains to us that you haven’t kept them updated on an ongoing claim. If we agree, we may direct you to provide regular updates from now on.
For more detailed guidance on calculating interest payments, see Guidance on our interest awards (PDF 221KB) for financial businesses.
Calculating compensation
Sometimes we’ll recommend that you follow a formula to work out the right amount of money to pay your customer.
We wouldn’t usually check the individual calculations unless your customer has a specific concern about them.
How compensation is paid
In most cases, you should pay the compensation amount we tell you directly to your customer. But if we don’t think that’s appropriate, we’ll explain why.
Consumer redress schemes
In some cases a business may be required by the FCA to enter a consumer redress scheme. This will include a set of rules that the business has to follow when compensating its customers for a specific issue.
If there’s a redress scheme in place, we’ll usually be bound by the rules for that particular issue. However, this only affects complaints about the specific issue, so we’ll deal with any other complaints about your business as normal.