UK bank customers will now enjoy increased protection for their money in case a financial institution collapses, with new regulations set to take effect. Starting from December 1, individuals can expect up to £120,000 of their funds to be reimbursed if a UK-authorized bank, building society, or credit union faces insolvency. This new cap surpasses 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 the Prudential Regulation Authority (PRA) has officially confirmed the elevated threshold. This compensation limit is applicable per person, per authorized firm, and typically disbursed automatically within seven days following the firm’s collapse.
In situations where an individual holds accounts with multiple banks under the same banking group sharing a license, the compensation limit applies to the cumulative balance across these accounts. Additionally, the limit for temporarily high balances will also see an increase from £1 million to £1.4 million, catering to significant events like property transactions and insurance payouts.
Temporary high balances are safeguarded by the FSCS for six months from the credit date into an account. The FSCS is sustained by a levy imposed on financial firms authorized by the PRA or the Financial Conduct Authority (FCA).
Sam Woods, the Bank of England’s Deputy Governor for Prudential Regulation and PRA Chief Executive, emphasized that the adjustment aims to uphold public trust in the safety of their finances, ensuring depositors are protected up to £120,000 in case of a financial institution failure, thereby reinforcing the financial system’s stability.
Martyn Beauchamp, FSCS Chief Executive, expressed satisfaction with the PRA’s decision to raise the deposit protection limit, assuring consumers that their funds are secure, starting from the first penny up to £120,000. He emphasized the critical role of trust in financial services for stability and growth, highlighting how the increased protection will bolster consumer confidence in the UK’s financial system.
Various industry stakeholders have also voiced their support for the new regulations, acknowledging the importance of consumer confidence and the need for updated safeguards amid evolving economic landscapes.