Banks to display deposit compensation information
The Financial Services Authority (FSA) has ruled that all banks, building societies and credit unions must declare the deposit compensation scheme that a customer's savings are covered by.
Financial institutions must 'prominently display' posters and stickers, both in branch and online explaining whether deposits are covered by the Financial Services Compensation Scheme (FSCS) or another European scheme.
The FSA requires UK branches of foreign banks within the European Economic Area (EEA) to give information that deposits are not covered by the FSCS. The bank or building society would instead have to specify which national scheme savings are covered by.
The rules will come into effect from 31 August this year.
Andrew Bailey, director of UK banks and building societies at the FSA, says customers need to know what compensation scheme they are covered by in the event of a default.
"Too many people assume that because their branch is located on a local high street in the UK, they are covered by the FSCS," he says. "This is not true for UK branches of EEA banks where the home country's deposit guarantee scheme applies."
As an example, deposits in Dutch bank ING Direct are covered by the Dutch Central Bank Deposit Guarantee Scheme, despite the bank having a UK presence.
This article was written for our sister website Money Observer
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
The Financial Services Compensation Scheme is the compensation fund of last resort for customers of authorised financial services firms. If a firm becomes insolvent or ceases trading, the FSCS may be able to pay compensation to its customers. Limits apply to how much compensation the FSCS is able to pay, and those limits vary between different types of financial products. However, to qualify for compensation, the firm you were dealing with must be authorised by the Financial Services Authority (FSA).
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.