The Bank of England has called for a much higher increase to the deposit protection limit. It has the potential to increase from £85,000 to £110,000 per person! This proposal would go a long way towards correcting for inflation and restoring public confidence in the UK’s financial institutions. The Financial Services Compensation Scheme (FSCS) as we know it today was created in 2001. It was grown after the global banking crisis to give even more fundamental protection. This amendment is the first substantial modification since 2008. It’s a sign of the UK’s newfound freedom post-Brexit to make its own financial regulations.
The FSCS was originally created to defend ordinary depositors, including everyday consumers and smaller enterprises, by assuring them that their deposits were secure up to a certain amount. As of 2010, the limit for deposit protection is £85,000. In 2015, EU regulations reduced it for a short time to £75,000. That all changed in 2017, when it jumped back up to £85,000. After Brexit, the UK had the freedom to set its own cap, leading to this proposed increase.
Enter Sam Woods, the chief executive of the PRA—one of the three federal banking agencies—in favor of the increase.
“We want to support confidence in our banks, building societies and credit unions by raising the amount that people can keep in their account which is covered by the deposit guarantee scheme to £110,000 per person, so all that money is safe even if the firm fails.” – Sam Woods
The PRA, as the regulatory arm of the Bank of England, will be consulting on this new limit in due course. Assuming this is approved, the new protection threshold will go into effect on December 1. It will include the savings for all residential customers and small to medium-sized enterprises (SMEs).
The request for this change was made prior to recent upheaval in the banking sector. FSCS intervention was not needed in the failure of Silicon Valley Bank UK Ltd in 2023. At the same time, it underscored the importance of depositor protection in keeping trust and confidence in the financial system.
“The events of 2023 in the banking sector, including the failure of Silicon Valley Bank UK Ltd, while not requiring FSCS involvement, highlighted the importance of depositor protection in supporting confidence in the financial system.” – The Bank of England’s consultation
If passed into law, this increase would help preemptively assure savers of the stability of their deposits. It would give them security of conscience, even in times of economic crisis. The aim is to increase consumer confidence in banks, building societies and credit unions nationwide.