UK bank customers will now have increased protection for their money in case a financial institution collapses due to new regulations that have been implemented. Effective from December 1, individuals will be entitled to a refund of up to £120,000 if a UK-authorized bank, building society, or credit union faces insolvency. This new amount marks a significant rise from the previous limit of £85,000, which had been in effect since 2017.
The enhanced protection falls under the Financial Services Compensation Scheme (FSCS) and has been officially approved by the Prudential Regulation Authority (PRA). The compensation cap is applicable per person, per authorized firm, and is typically reimbursed automatically within seven days of the firm’s collapse.
In cases where an individual holds funds across multiple accounts within the same banking group sharing a banking license, the compensation limit will apply to the total sum deposited across these accounts.
Additionally, the cap for temporarily high balances will be raised from £1 million to £1.4 million. These higher limits are designed for significant events such as property transactions and insurance payouts.
The FSCS safeguards temporary high balances for up to six months from when the funds are credited to an account. Funding for the FSCS is generated through a levy imposed on financial firms authorized by the PRA or the Financial Conduct Authority (FCA).
Sam Woods, the Deputy Governor for Prudential Regulation at the Bank of England and the CEO of the PRA, emphasized that this adjustment aims to uphold public confidence in the security of their funds. Martyn Beauchamp, CEO of the FSCS, echoed this sentiment, stressing that the increased protection ensures consumers can have peace of mind knowing their money is secure.
Various industry figures, including Rocio Concha from Which?, Eric Leenders from UK Finance, among others, have lauded the decision to raise the deposit protection limit, emphasizing its importance in bolstering consumer trust in the financial sector and ensuring economic growth is supported by strong consumer safeguards.