Financial Services Compensation Scheme

Monday 6th July 2015 Written Statements

[The Economic Secretary to the Treasury (Harriett Baldwin)]

The level of protection offered by the Financial Services Compensation Scheme (FSCS) is changing. The statutory level of deposit protection is set by the European deposit guarantee schemes directive (DGSD), which was updated last year. It requires that all European member states provide for a deposit protection limit of €100,000. The FSCS limit must be set at the prevailing exchange rate on 3 July 2015.

Given the strength of sterling in relation to the euro, this means that the current level of protection provided by the FSCS under the statutory scheme will reduce. The Government have taken action to ensure that depositors are not exposed to a sudden reduction in the level of protection they receive from the FSCS.

HM Treasury has laid a statutory instrument to ensure that depositors who are currently entitled to up to £85,000 of protection from the FSCS will continue to be so until 31 December 2015. This is to ensure that depositors can have clarity and certainty about the protection they are entitled to, and time to react accordingly. These depositors will continue to be protected up to the maximum level of £85,000, by the FSCS until 31 December 2015, after which the new rate of £75,000 announced by the Prudential Regulation Authority (PRA) will come into effect. The PRA must review the coverage level at least every five years.

Individuals and small businesses that are depositors of banks, building societies or credit unions authorised by the PRA will qualify for the protection. The protection is not dependent on the time when the deposit was made—eligible deposits made after 3 July 2015 will also be protected.

These actions ensure that depositors who are currently entitled to protection of up to £85,000 are not subjected to a sudden reduction in this protection. It will ensure that there is sufficient time available for depositors to be made aware of the changes, and to take such steps as they feel necessary to manage their financial affairs appropriately in light of this change.

Implementing the new DGSD has resulted in a number of changes to deposit protection in the UK including expanding the coverage provided by the FSCS to cover large corporates and small local authorities; and provision of a new “temporary high balance” cover of up to £1 million for six months for certain deposits, such as the proceeds from the sale of your home. The extended coverage will not apply to deposits which only became entitled to protection under the new DGSD, which came into effect on 3 July 2015.

[HCWS86]