Compensation Scheme Limit Increases Due to Financial Uncertainty

Posted by Kevin Pearce in Banking on 23 November 2016 - Kevin is a Senior Credit Analyst at checkmyfile

The compensation limit for consumers who would lose out financially in the event of their bank collapsing has been increased back up to £85,000, which is where it was in July 2015.

The increased strength of sterling against the Euro was the cause for the reduction to £75,000 previously, which is where it will sit until the new limit is applied in January 2017. It’s unlikely that this will affect the majority of people in the UK currently eating bread and beans for their dinner each day, but it’s reassuring to know that, should we stumble across £75,001 we would be spared the hassle of spreading it between several different banks.

Thanks to Donald Trump and Brexit, financial uncertainty in all major financial markets have resulted in sterling’s strength decreasing by over 10%. The Financial Services Compensation Scheme (FSCS) is assessed every 5 years when everything is going swimmingly but can be reviewed more frequently, if desired, in the event of any (significant) unexpected currency changes.

The protections offered by FSCS is applicable to cash ISAs, current accounts and savings but is dictated by a European directive. Brexit is going to help reclaim control, apparently (we will see) but the Chairman of the Treasury Committee, Andrew Tyrie comments that, "The announcement today of another change to the deposit protection…is a recipe for yet more uncertainty. These recent changes have not been the fault of the PRA. They are an EU requirement, imposed by the European Commission. The current EU rules have always been unacceptable to a country such as the UK, in the EU but outside the Eurozone.

”The absurd situation, in which the UK is left vulnerable, at the discretion of the European Commission, to frequent changes in our deposit scheme, must be brought to an end. Brexit should give the UK the opportunity to set its own level of protection. We should take it."

The Prudential Regulation Authority (PRA), part of the Bank of England, will now consult on the plan, although the idea has already been approved by the Treasury and the European Commission.

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