Out-Law News 1 min. read
23 Nov 2016, 9:49 am
It has published a short consultation on its proposed change, which closes on 16 December.
The new deposit protection limit would come into force on 30 January 2017, although firms would have an additional five months to make the necessary changes to their systems and promotional materials. The EU Deposit Guarantee Schemes Directive requires EU member states outside of the eurozone to guarantee savings in the event of bank failure to the equivalent of €100,000.
In a statement, the PRA said that restoring the deposit guarantee to the previous level would "provide a measure of memorability and consistency".
"The Bank of England's consultation represents something of a U-turn having only reduced the amount of protection available to customers in July 2015," said financial services regulation expert Michael Ruck [link] of Pinsent Masons, the law firm behind Out-Law.com. "Less than 18 months later recent events, including the falling value of the pound, mean that in order to comply with an EU directive the sterling value of protection available has to be increased to its pre-July 2015 amount."
"It does beg the question of what level of protection will be available when such EU directives no longer apply," he said.
The UK's current deposit protection limit of £75,000 was introduced on 3 July 2015 and came into force for all eligible depositors on 1 January 2016. The figure refers to the maximum that will be repaid per customer, per banking group by the Financial Services Compensation Scheme (FSCS) if a bank, building society, credit union, insurer, fund manager or intermediary becomes insolvent and is unable to pay claims against it. The FSCS is funded by levies paid by participating firms.
The EU Deposit Guarantee Schemes Directive requires non-euro EU member states to adjust their deposit protection limits to the equivalent of €100,000 once every five years. However, member states may readjust the limit outside of this period "following unforeseen events such as currency fluctuations".
"Taking into consideration the developments in financial markets following the UK's referendum vote to leave the European Union on 23 June 2016, including with respect to the GBP/EUR exchange rate, the PRA considers that a structural shift in the exchange rate has occurred," the PRA said in a statement. "These events were unforeseen when the UK limit was reduced in 2015."
The PRA said that it did not intend to make further adjustments to the deposit protection limit "barring unforeseen events".