Financial Services Compensation Scheme - Changes in Protection Limits
Financial Services Compensation Scheme - changes in protection limits
As a result of a European Directive, from 1st January 2016 the FSCS deposit protection scheme given by banks is to be reduced from £85,000 to £75,000.
Firms therefore should consider the following:
1. The increased risk to a "small" firm's own bank accounts if all the "eggs are in one banking chain's basket".
2. The wording in their Terms of Business/Client Care Letters which typically looks something like the wording set out below.
3. Advising existing clients of the changes.
"Deposit Protection scheme - the Financial Services Compensation Scheme (FSCS) in the event of Bank failure
• We are unlikely to be held liable for losses resulting from a banking failure.
• The name of our bank in which you money will be held is XXX.
• The £85,000 (£75,000 from 1st Jan 2016) FSCS protection limit applies to you as an individual client, and so if you hold other personal monies yourself in the same deposit-taking institution (e.g. bank) as our client account, the limit remains £85,000 (£75,000) in total.
• If you are a corporate body client and are not considered a small company by FSCS, then you will not be eligible for compensation.
• Deposit-taking institutions (like banks) have several brands, i.e. where the same institution is trading under different names. You should check either with your deposit-taking institution, the FCA or a financial adviser for more information.
• We will assume by your acceptance of these terms of business that we have your consent for the disclosure to the FSCS of your details in the event of a deposit-taking institution (bank) failure."
COLPs and COFAs should take the appropriate action before the 1st January.
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