This consultation paper (CP) sets out proposed changes to the Prudential Regulation Authority’s (PRA’s) rules in order to implement the recast Deposit Guarantee Schemes Directive (2014/49/EU) (DGSD). It also proposes new rules to ensure that depositors protected by the Financial Services Compensation Scheme (FSCS) can have continuity of access to their accounts during the course of a resolution, as well as changes to the single customer view (SCV) requirements on firms. This supports orderly resolution and timely pay out of FSCS-covered deposits to depositors.
This CP is relevant to UK banks, building societies and credit unions, as well as to overseas firms with a deposit-taking permission and UK branches of EEA credit institutions. It is also relevant to the FSCS, as the UK’s Deposit Guarantee Scheme (DGS), and depositors, as beneficiaries of deposit protection.
PRA-authorised insurers and the Society of Lloyd’s are referred to proposed rules set out in the Management Expenses Levy Limit and Base Costs Part and the Management Expenses in respect of Relevant Schemes Part.
Summary of the main proposals
- Funding: The FSCS will be funded by ex-post levies, with access to funds collected from the UK bank levy with PRA approval. Any funds used from the bank levy would be recouped from deposit-taking firms over time.
- Eligibility: Most large corporate depositors will now be eligible for deposit protection. This brings wholesale-only deposit-takers into the scope of PRA requirements (eg SCV) for firms holding FSCS-eligible deposits.
- Temporary high balances (THBs): There will be temporary deposit protection for up to 6 months above the £85,000 limit for certain types of deposits classified as THBs, such as the proceeds from private property sales. Protection will be up to £1million in most cases.
- Disclosure: There are new disclosure requirements for firms to inform depositors about the compensation arrangements, including use of a prescribed information sheet. FSCS posters and stickers will be amended to take into account THB coverage.
- Speed of FSCS payout: This is reduced from 20 to 7 working days for most depositors, with full compliance by 2023. The UK currently has a seven calendar day target for most depositors.
Single customer view (SCV)
- Removing the opt-out: Firms with fewer than 5,000 eligible accounts can no longer opt out from electronic SCV requirements.
- Standardisation of SCV: All data fields must be standardised to aid efficiency of payout.
- Time to produce the SCV file: This will be reduced from 72 to 24 hours.
- In-flight transactions: Compensation will be based on the customer’s balance at a fixed point in time.
Continuity of access
- Separation of accounts: Firms will have to create and maintain systems that can separate eligible covered and uncovered balances and place the uncovered balances into a separate account.
- Prioritisation of accounts: Where customers have more than £85,000 across multiple accounts, amounts held in more accessible accounts will be prioritised when separating covered and uncovered balances.
Appendices to the CP include proposed changes to the PRA Rulebook, two draft supervisory statements and one new statement of policy for the FSCS.
Readers may also wish to refer to The implementation of ring-fencing: consultation on legal structure, governance and the continuity of services and facilities - CP19/14, Ensuring operational continuity in resolution – DP1/14, and Policyholder protection – CP21/14 also published on Monday 6 October 2014.
The consultation closed on Tuesday 6 January 2015.