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Raising awareness about financial compensation
The Financial Services Authority (FSA) is working to raise customers’ awareness and understanding of deposit protection. Research undertaken by the Financial Services Compensation Scheme (FSCS) found that UK consumers’ knowledge of the compensation scheme was not only “extremely poor” but has also actually dropped since the financial crisis began.
The FSA wants customers to understand the compensation scheme on which they are relying, the country in which it is based and how long it would take to recoup any money. The regulator plans to ensure that every UK-based and FSA-authorised bank, building society and credit union prominently displays information about the amount of compensation savers can claim if their provider fails and the body that will pay compensation. The information has to be displayed in every branch and on all websites, and will read: “Your deposits are protected up to £85,000 by the Financial Services Compensation Scheme, the UK deposit protection scheme. Any deposits you hold above this amount are not covered.”
Meanwhile, branches in the UK that are headquartered and authorised in the European Economic Area (EEA) will not only have to state that deposits with them “are not protected by the UK Financial Services Compensation Scheme” but will also have to confirm the alternative national scheme that is providing the protection. The EEA comprises the member countries of the European Union (EU), as well as Norway, Iceland and Liechtenstein.
The maximum amount of compensation payable was increased to €100,000 (£85,000) across the EEA from the end of 2010. Moreover, from the beginning of 2011, faster payout rules were established in the UK – most claimants should receive their compensation within seven days, while the remainder should receive their money within 20 working days. Gross payout rules were also introduced, whereby consumers’ deposits are ring-fenced if they have savings accounts and loans with the same firm. Previously, any outstanding debts would have been deducted from the compensation.
Ultimately, the new measures are intended to make clear the proportion of the customer’s savings that is protected, the proportion that is unprotected and whether they are eligible for the UK compensation scheme. FSA chief executive Hector Sants commented: “It is vitally important that customers have confidence in the banking system – customers must understand how their money is protected and be clear about the limits – any money over £85,000 in a deposit account is not protected by the scheme and is at risk.”
Paul Dixon FPFS
Chartered Financial Planner