UK bank customers will benefit from increased protection for their money in case of a financial institution failure, as new regulations will soon take effect. Starting from December 1, individuals will be eligible to receive up to £120,000 of their funds if a UK-authorised bank, building society, or credit union becomes insolvent. This new limit surpasses the previous cap of £85,000, which had been enforced since 2017.
The enhanced protection falls under the Financial Services Compensation Scheme (FSCS) and was officially approved today by the Prudential Regulation Authority (PRA). The compensation limit is applicable per person, per authorised firm, and is typically disbursed automatically within seven days of the firm’s collapse.
Furthermore, if a depositor holds accounts with multiple banks that share a banking license within the same banking group, the compensation limit applies to the total amount across all accounts. The cap for temporarily high balances will also see an increase from £1 million to £1.4 million, catering to major financial events like property transactions and insurance payouts.
The FSCS safeguards temporary high balances for six months from the date of credit into an account. Funding for the FSCS is derived from a levy imposed on financial firms authorised by either the PRA or the Financial Conduct Authority (FCA).
Commenting on the development, Sam Woods, the deputy governor for prudential regulation at the Bank of England and CEO of the PRA, emphasized the importance of the change in fortifying public trust in the security of their finances. Martyn Beauchamp, FSCS chief executive, echoed this sentiment, assuring consumers that their money, from the smallest to the maximum amount of £120,000, is now better safeguarded.
Various industry figures, including Rocio Concha from Which? and Eric Leenders from UK Finance, have lauded the decision to increase the deposit protection limit, emphasizing its positive impact on consumer confidence in the financial services sector. Leenders highlighted the necessity of adjusting the limit to account for inflation since its last update in 2017.
In conclusion, the move to enhance deposit protection is seen as a significant step towards reinforcing trust in financial services, vital for the stability and growth of the UK’s financial sector.