The Deposit Guarantee Schemes Directive 2014/49/EU (DGSD), which EU Member States were required to implement by 3 July 2015, has now been fully implemented in the UK. The changes, amongst them transitional changes, will see protection for those with bank deposits extended to larger companies and small local authorities, although at a lower level of protection than currently offered to individuals and smaller businesses.

From 3 July 2015 protection is available up to a maximum of £75,000 for larger companies and from 1 January 2016 individuals and smaller companies will see their maximum level of protection reduced to £75,000 from the current figure of £85,000.

The key changes at a glance

The DGSD provides that protection for sums deposited with banks by the relevant state guarantee scheme (in the UK the Financial Services Compensation Scheme (FSCS)) should be available up to €100,000. In the UK this means that from 3 July 2015:

  • the level of protection will be £75,000 per depositor per authorised firm, although those previously eligible for protection (being individuals, small, micro and medium sized businesses) will continue to benefit from the previous £85,000 limit until 31 December 2015. From 1 January 2016, protection will be limited to £75,000 or £150,000 for joint accounts. The reason for the reduction is due to the reduction in the exchange rate;
  • large corporates and small local authorities (such as parish councils) are eligible for protection, capped at £75,000;
  • temporary high balances are protected for up to £1 million for up to six months. The policy behind this is to provide protection for those who have unusually and temporarily large deposits, such as following the sale of a house or an inheritance.

What should depositors do now?

Individuals and small, micro and medium sized businesses have a six month transitional period before the level of protection they will receive in the event of their bank’s failure reduces to £75,000. Depositors may wish to make alternative arrangements to spread their deposits across a range of banks to take advantage of the protection limits afforded for each authorised bank or building society.

Depositors should be aware that where a depositor has deposited sums with a number of banks within the same group, compensation will be paid up to the statutory maximum for each authorisation. If the deposits were made with different banking brands operated by the same company under a single authorisation, the maximum sum that an individual depositor could currently recover for example would be £85,000 across all bank accounts under those brands, reducing to £75,000 from 1 January 2016.

Insurance

In addition to the changes to the depositor protection regime, the protections available to those with claims against insurers declared in default by the FSCS on or after 3 July 2015 are amended as follows:

claims in respect of a liability subject to professional indemnity insurance or arising from the death or incapacity of the policyholder due to injury, sickness or infirmity are 100% protected;

 long-term insurance (such as pensions and life assurance) are 100% protected with no upper claim limit (an increase from 90% with no upper limit).

We will be publishing an updated guide to the FSCS compensation limits shortly.