UK bank customers will see an increase in the protection of their funds if a financial institution collapses, thanks to new regulations taking effect. Starting December 1, individuals can expect up to £120,000 of their money to be reimbursed in the event of a UK-authorised bank, building society, or credit union failure, a rise from the previous limit of £85,000 established in 2017.
Under the Financial Services Compensation Scheme (FSCS), the enhanced compensation cap was announced by the Prudential Regulation Authority (PRA). This limit is applicable per person, per authorised firm, and is typically automatically disbursed within seven days of the firm’s insolvency.
In cases where an individual has funds spread across multiple accounts within the same banking group with a shared banking license, the compensation limit is applied to the total amount held across all accounts.
Additionally, the cap for temporarily high balances will be raised from £1 million to £1.4 million. This threshold is utilized for significant transactions like property purchases, insurance payouts, and other notable events.
Temporary high balances are safeguarded by the FSCS for a duration of six months from the date of funds being credited to an account. The FSCS is funded 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 PRA’s chief executive, expressed that the adjustment aims to bolster public confidence in the security of their finances. Martyn Beauchamp, the FSCS chief executive, welcomed the change, emphasizing that it ensures consumers’ peace of mind regarding the safety of their funds.
Various industry stakeholders, including Rocio Concha from Which?, Eric Leenders from UK Finance, and others, voiced their support for the increased deposit protection limit, highlighting its significance in fostering consumer trust and reinforcing confidence in the UK’s financial system.