This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback to responses to CP21/15 ‘Depositor and policyholder protection - technical amendments’. It sets out final rules intended to reduce the adverse effects the failure of firms could be expected to have on the stability of the UK financial system and enhance depositor confidence and therefore advance the PRA’s general objective of promoting the safety and soundness of PRA authorised firms.
In CP21/15 the PRA proposed changes to the Depositor Protection Part in the PRA Rulebook and to the transitional provisions and schedules in the FEES Sourcebook (FEES). The rule changes arise partly as a result of issues identified with the rules consulted on in CP20/14 ‘Depositor protection’, CP4/15 ‘Depositor, dormant account and policyholder protection - amendments’ and CP15/15 ‘Depositor and dormant account protection- further amendments’ (the CPs) published in October 2014, January and April 2015 respectively.
The rule amendments seek to reflect depositor preference and to clarify who the Financial Services Compensation Scheme (FSCS) may treat as being absolutely entitled to deposits, as well as to address minor administrative changes.
The 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;
- the FSCS, as the administrator of the UK’s Deposit Guarantee Scheme (DGS); and
The FEES transitionals and schedules amendment instrument is also relevant to:
- UK insurers (including those that establish a branch or operate on a freedom of services basis in the EEA);
- EEA insurers that establish a UK branch or operate in the United Kingdom on a freedom of services basis;
- Channel Islands insurers or Isle of Man insurers with UK, Channel Island or Isle of man risks or commitments (PRA-authorised insurers);
- firms (where applicable, being any of the foregoing) that have assumed responsibility for liabilities from PRA-authorised insurers (successors);
- the Society of Lloyd’s; and
Summary of the rule changes
Rule changes set out in this PS cover:
- amendments to the recovery rules in the Depositor Protection Part to reflect depositor preference under Article 108 of the Banking Recovery and Resolution Directive. These rules allow the FSCS to pay over to the depositor recoveries it receives insofar as these exceed the amount that the depositor has been paid by the FSCS;
- a new rule which sets out which person(s) the FSCS may treat as being absolutely entitled to an eligible deposit in circumstances where the account holder is not the person who is absolutely entitled to it;
- an amendment to allow a firm to exclude from its class A tariff base calculation the value of any funds which it has confirmed are not covered deposits;
- minor administrative amendments to Single Customer View (SCV) file and exclusions file requirements to clarify information to be included; and
- an amendment to provide that, from 3 July 2015 until 1 June 2016, the FSCS shall ensure that a depositor that is a small local authority shall have access to their covered deposits within fifteen business days of receipt of a request from the depositor which contains sufficient information to enable the FSCS to make a payment.
The PRA considers that there is only one significant change from the rules consulted upon, which is in respect of the Landlord and Tenant Act 1987 category of accounts which the PRA consulted on including in Depositor Protection 6.10 (which sets out the cases in which a person other than the account holder is treated as being absolutely entitled to an eligible deposit). This is because the PRA considers the question of which person(s) are entitled to sums in such accounts as being very difficult to determine at any particular point in time and so, under the final rules, such accounts are treated in the same way as other complex trusts with multiple beneficiaries (which is in accordance with Depositor Protection 6.3-6.9).
Depositor and policyholder protection – technical amendments PS15/15
- Depositor Protection (Amendment No. 2) Instrument 2015 (PRA 2015/56)
- Depositor Protection (Amendment No. 5) Instrument 2015 (PRA 2015/60)
- Handbook (Rulebook Consequentials No.2) Instrument 2015 (PRA 2015/58)
- Statement of Policy – Deposit Guarantee Scheme
For reference, this PS is part of a series of policy developments, details of which can be found in the ‘Depositor, dormant account and policyholder protection – summary’ available in the FSCS section of our website – see Related Links.