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2016 Changes to Financial Services Compensation Scheme

Written by Jon Cooper

As of 1st January 2016, the level of protected savings in UK Banks and Building Societies under the Financial Services Compensation Scheme has been reduced. The cap has gone down from £85,000.00 to £75,000.00 per financial institution.

Similarly, the protected savings in joint accounts has been cut from £170,000 to £150,000.

The reason for this change is that this is a European Union rule set at maximum compensation of €100,000.00. Therefore, the British level has been reduced to reflect the growing strength of the pound gaining strength against the euro.

Whilst this seems a simple and straight-forward change, there is some complexity that needs to be understood.

The definition of a financial institution is based on the ‘Firm Reference Number’ held at the Bank of England and multiple brands can be under one reference number.

For example, if you hold £75,000 on deposit with HSBC, any additional monies held at First Direct would not be covered.

Similarly, if you £75,000 on deposit with Lloyds Bank, any additional monies held at Cheltenham & Gloucester would not be covered.

The largest multiple brand group is Bank of Scotland plc which, although now owed by Lloyds Bank plc, has a separate Firm Reference Number. This group comprises of The AA, Bank of Scotland, Birmingham Midshires, Capital Bank, Halifax, Intelligent Finance, Saga and St James’s Place Bank.

As a result, for those with large amounts of money on deposit wishing to spread the risk, this is an important consideration.

The List of Bank and Building Society complied by the Bank of England as at 31st December 2015 can be found here.

A further complication arises if funds are held with foreign banks that operate in the UK such as Handelsbanken from Sweden. For these banks, the level of compensation would be €100,000 converted into sterling determined by the exchange rate at the time.

There is some better news for those depositors with ‘temporary high balances’. These will now be protected for up to £1m for six months from the date the account is first credited with the money. For personal injury compensation the amount is unlimited.

Payments in connection with the following could generate ‘temporary high balances’:

◾Real estate transactions (property purchase, sale proceeds, equity release)

◾Benefits payable under an insurance policy

◾Personal injury compensation

◾Disability or incapacity (state benefits)

◾Claim for compensation for wrongful conviction

◾Claim for compensation for unfair dismissal

◾Redundancy (voluntary or compulsory)

◾Marriage or civil partnership

◾Divorce or dissolution of their civil partnership

◾Benefits payable on retirement

◾Benefits payable on death

◾A claim for compensation in respect of a person’s death


◾Proceeds of a deceased’s estate held by their Personal Representative

If you would like to discuss your financial or tax affairs, please email us at welcome@cooperfaure.co.uk for an initial consultation that is free and without obligation.

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