FSA announced the FSCS compensation limit for bank deposits would be £50,000 from 7 October. FSA made these changes without normal consultation because of the exceptional circumstances. It is now consulting on increasing the limits for the non-deposit business it covers. It plans:
- for investment and home finance intermediation: to cover 100% of the first £50,000 (so giving a total coverage of £2,000 more than currently); and
- for life and general insurance and general insurance intermediation: to cover 90% of any claim without any upper limit (currently the scheme covers 100% of the first £2,000 and 90% of anything above this).
FSA also discussed several other aspects of FSCS with industry associations. It decided:
- to leave mortgage lending and administration outside the scope of FSCS. Because this business is different from the other businesses FSCS covers, FSA thinks it is not appropriate for FSCS to cover the types of loss that might arise from a failure of a regulated firm within this business area;
- to consider how best to protect temporary high deposit balances. FSA has considered the options raised in the Tripartite consultation in January for protecting deposits that exceed the limit for a limited period for a particular reason. There were no significant responses so FSA has carried out some research. It knows there is no current market solution and trade bodies do not think there would be a large market for any new specialist product. So FSA wants views on various options for protecting depositors. In particular, it asks whether a solution should be rules- or market-based and how the chosen solution should work;
- to clarify the basis on which recoveries from the estate of a failed firm are allocated to people with deposits over the limit. The paper confirms the "rateable" method that it will use for deposits, and explains that FSA will not change the recovery method for the non-deposit sub-schemes.
FSA wants comments by 5 January 2009.