Update: On 31 July 2015, the PRA published PS18/15 ‘Depositor and dormant account protection – consequential amendments’ which provides feedback to responses to CP23/15, final rules and an updated SS18/15 ‘Depositor and dormant account protection’. See Related Links for further information.
This Prudential Regulation Authority (PRA) policy statement (PS) sets out changes to the Depositor Protection rules that arise as a result of a requirement in the recast Deposit Guarantee Schemes Directive (DGSD) to review the deposit protection limit on 3 July 2015 and a corresponding change to the Dormant Account Scheme rules.
Under the recast Deposit Guarentee Schemes Directive, Member States are required to set the deposit protection limit at €100,000. For those Member States that convert the limit into their national currency, the exchange rate prevailing on 3 July 2015 must be used (up to €5,000 rounding is permitted). The PRA has therefore reviewed the existing limit (£85,000) and amended it to £75,000. The PRA has made a corresponding change to the limit under the Dormant Account Scheme rules.
The PRA issued a statement on 3 July 2015 announcing this change. The statement also referred to HM Treasury (HMT) transitional legislation. The effect of the HMT transitional legislation is that most depositors remain protected up to £85,000 up to and including 31 December 2015. Eligible deposits of large companies and small local authorities have become eligible for protection from 3 July 2015 onwards. The £75,000 deposit protection limit will apply to such deposits from 3 July 2015 since these deposits have not previously been protected.
As a result of the change to the deposit protection limit, a number of rule changes are necessary to ensure that firms’ disclosure materials and systems accurately reflect the new limit and the new limit is clearly communicated to depositors. This PS sets out these changes, together with CP23/15 ‘Depositor and dormant account protection- consequential amendments’ published alongside this PS (see Related Links), which addresses issues around disclosure and arrangements to help manage the impact on depositors with aggregate balances above £75,000. PS15/15 ‘Depositor and policyholder protection- technical amendments’ which sets out further technical amendments to the Depositors Protection rules following consultation is also published alongside this PS (see Related Links).
The changes made in this PS affect rules in the Depositor Protection Part and the Dormant Account Scheme Part made by the PRA in PS6/15 ‘Depositor and Dormant Account Protection’ and PS9/15 ‘Depositor Protection- further amendments’. In these PSs, the PRA noted the recast DGSD requirement for the deposit protection limit to be reviewed on 3 July 2015 and that, given this requirement, the consultation remained open on the rules subject to the limit and related provisions, including disclosure. The rules in this PS are intended to advance the PRA’s general objective of promoting the safety and soundness of PRA authorised firms by reducing the adverse effects the failure of firms could be expected to have on the stability of the UK financial system.
This PS is relevant to:
- UK banks, building societies and credit unions as well as to overseas firms with PRA deposit-taking permission and UK branches of European Economic Area (EEA) credit institutions;
- dormant account fund operators;
- the Financial Services Compensation Scheme (FSCS), as the administrator of the UK’s Deposit Guarantee Scheme (DGS) and Dormant Account Scheme (DAS); and
Summary of the rule changes
The key rule changes set out in this PS are to:
- amend the deposit protection limit to £75,000 from 3 July 2015;
- set the protection limit for the DAS at £85,000 for those claimants who would be eligible for £85,000 compensation if their protected dormant accounts were eligible deposits held by a DGS member, and £75,000 for all other eligible claimants, up to and including 31 December 2015; and to set the protection limit for the DAS at £75,000 on and from 1 January 2016 for all eligible claimants;
- amend the posters and stickers that firms are required to display in branches and on websites to reflect the new limit. This must be done by firms as soon as practicable and in any event by 1 September 2015 latest (requirements for UK branches of euro firms are not affected);
- amend the information sheet that firms are required to give out to depositors to refer to the new limit. This rule will not apply until 1 January 2016 and must be sent to depositors as soon as practicable after this date and by 1 July 2016 latest; and
- require firms to inform depositors of the change in the deposit protection limit using prescribed wording as soon as practicable and in any event by 1 September 2015.
The PS appendices include:
- Appendix 1 and 2 - amendments to the Depositor Protection rules and Dormant Account Scheme rules found in the Depositor Protection Part and Dormant Account Scheme Part of the PRA Rulebook; and
- Appendix 3 - an updated Supervisory Statement 18/15 ‘Depositor and dormant account protection’ which provides further information around the PRA’s expectations in respect of the rule changes.
Depositor and dormant account protection – the protection limit PS14/15
Depositor Protection (Amendment No. 3) Instrument 2015 (PRA 2015/57)
Depositor Protection and Dormant Account Scheme (Amendment No. 4) Instrument 2015 (PRA 2015/59)
Supervisory Statement - Depositor and dormant account protection (SS18/15)
What this means for depositors, including lists of banking brands and building society brands that are covered by the FSCS are available on the ‘FSCS – Banking’ webpage (see Related Links).
For reference, this PS is part of a series of policy developments, details of which can be found in the 2015 updates page available in the FSCS section of our website (see Related Links).