January 2011 Commentary
The deposit limits under the Financial Services Compensation Scheme (FSCS) have been increased with effect from 31st December 2010 from
£50,000 to £85,000 for each person, per authorised firm. This change was announced in CP 10/22, published in October 2010, and
was confirmed by the FSA on 17th December. This brings the UK savings guarantee into line with much of Europe.
These changes comply with the changes to the Deposit Guarantee Schemes Directive which requires member states to implement a limit of
€100,000 from 31st December 2010. The directive allows member states to set a limit in their own currency to provide an equivalent
level of protection and allows the limit in local currency to be reassessed every five years (or earlier in event of currency fluctuation).
As well as the EU states, the new limit also includes the countries in the European Economic Area (EEA) which adds Iceland, Norway and
Liechtenstein to the scheme.
At the same time the FSA has removed the dual protection rules that provided additional protection for consumers holding accounts with
two or more building societies or other mutuals that merge or whose accounts are transferred to another deposit taker with which they already
have an account. Other changes include rules on faster payouts and rules on gross payouts. The faster payout rules have a target of a seven
day payout for the majority of claimants and the remainder within twenty days. The gross payout rules protect customers by ring fencing their
deposits if they have savings and loans with the same firm. Previously, any outstanding loan or debt would be deducted from any compensation.
The FSA previously consulted on additional cover for temporary high balances. The draft directive proposed that member states may provide
cover in respect of deposits resulting from residential property and life events (such as marriage, divorce, disability or death of the depositor).
The FSA will consult on these requirements if the proposals are passed.
These changes should be welcomed by advisers as they provide additional protection for consumers and reduce the likelihood of a run on a bank in the future, leading to greater financial stability.