FSA Raising Consumer Awareness of Deposit Protection
The Financial Services Authority (FSA) is planning to make it compulsory for all banks, building societies and credit unions in the UK to display how much compensation savers could claim in the event of an institution failing and where from.
This information would be shown in every branch and all websites. These proposals are part of a continuing effort by the FSA and the Financial Services Compensation Scheme (FSCS) to improve confidence around compensation by increasing awareness of deposit protection.
The FSCS is the UK’s statutory fund of last resort for customers of authorised financial services firms. The primary aim of the Scheme is to provide protection for private individuals and small businesses. The FSCS can pay compensation if an authorised firm is unable or likely to be unable to pay claims against it, usually because it has gone out of business or is insolvent. The Scheme covers investments, deposits, home finance advice and arranging, and insurance.
The proposals will require each FSA-authorised bank or building society based in the UK to state that: ‘Your deposits are protected up to £85,000 by the Financial Services Compensation Scheme, the UK deposit protection scheme. Any deposits you hold above this amount are not covered.’
Banks with branches in the UK, but headquartered and authorised in the European Economic Area (EEA), will have to state that deposits held with them ‘are not protected by the UK Financial Services Compensation Scheme.’ They will also have to state which other national scheme is providing the protection.
The proposed changes are designed significantly to reinforce existing deposit protection measures and will ensure that every customer can clearly see how much of their money is protected, how much is not and whether they are covered by the UK compensation scheme.
Hector Sants, CEO of the FSA, said: “It is vitally important that customers have confidence in the banking system and that is why we are taking this step of making it obligatory for firms to prominently display compensation information. Consumers must understand how their money is protected and be clear about the limits – any money over £85,000 in a deposit account is not protected by the scheme and is at risk.
“Customers should also know which compensation scheme they are relying on, which country it is based in and understand how it would work – for example how long it would take to get your money back.
“The posters and website notices we are going to be mandating will help to prompt consumers to get more information and to make informed decisions about how much money to deposit with one bank.”
Recent research conducted by the FSCS to measure consumer awareness of the scheme, found customer knowledge continues to be extremely poor, and has in fact dipped since the crisis.
These proposals are the latest step in improving the deposit protection arrangements for consumers. A year ago all national compensation schemes across the entire European Economic Area were harmonised to offer cover at €100,000 or the local currency equivalent and ensure eligible consumers are paid within 20 working days.
In addition, at the start of this year the UK introduced faster payout rules, with a target of a seven day payout for the majority of claimants and the remainder within 20 working days; and gross payout, which protects customers by ring fencing their deposits if they have savings and loans with the same firm.