UK bank customers will benefit from increased protection for their money in case a financial institution fails, as new regulations are set to take effect. Starting from December 1, individuals will be eligible to receive up to £120,000 of their funds back if a UK-authorised bank, building society, or credit union goes into insolvency. This marks an increase from the previous limit of £85,000 that had been in effect since 2017.
The enhanced protection falls under the Financial Services Compensation Scheme (FSCS) and was officially raised to the new level by the Prudential Regulation Authority (PRA). The compensation cap is applicable per person, per authorised firm, and is typically reimbursed automatically within seven days following the firm’s collapse.
In cases where an individual holds funds across multiple accounts with different banks under the same banking license, the compensation limit applies to the total sum held in those accounts. Additionally, the limit for temporarily high balances will see an increase from £1 million to £1.4 million. This particular threshold is relevant for significant financial events like property transactions and insurance payouts.
The FSCS safeguards temporary high balances for a period of six months from the date the money is deposited into an account. Funding for the FSCS is derived from a levy imposed on financial institutions authorized by either the PRA or the Financial Conduct Authority (FCA).
Sam Woods, the deputy governor for prudential regulation at the Bank of England and PRA’s chief executive, emphasized the importance of the revised limit in bolstering public trust in the security of their finances. Martyn Beauchamp, the CEO of FSCS, expressed satisfaction with the increased protection level, highlighting that consumers can now feel assured that their funds are secure.
Various stakeholders in the financial industry, including Rocio Concha from Which?, Eric Leenders from UK Finance, and other experts, have welcomed the adjustment in the deposit protection limit. They view it as a necessary step to instill confidence among consumers and ensure the stability and growth of the UK’s financial sector.