FSA introduces deposit guarantee compensation rules

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LONDON - The UK Financial Services Authority (FSA) is introducing new rules for the Financial Services Compensation Scheme (FSCS) aimed at broadening the number of people protected and requiring banks, building societies and credit unions to pay out compensation more quickly if an institution defaults.

Consumers and small businesses will receive compensation within a target of seven days, and within a maximum period of 20 days, in compliance with the European Union's Deposit Guarantee Schemes Directive. The new rules will come into force on December 31, 2010.

The rules also mean that if a depositor has savings and loans with the same firm, an outstanding loan or debt cannot be deducted from the gross payment, which must now be paid in full, up to the maximum £50,000 depositor protection ceiling.

From January 1, 2010 banks and firms will also have to publish information on the FSCS and their compliance with it to customers, as well as having to disclose to customers additional trading names under which the firm operates.

"The FSA, along with HM Treasury and Bank of England, have set the FSCS a challenging target of delivering payout in seven days," said Hector Sants, chief executive of the FSA. "The systems requirements that the rules introduce for banks are crucial to enable the FSCS to deliver fast payout."

Other key requirements include that firms must keep up-to-date information on customers to allow quick processing of claims by the FSCS if needed, described as a "single customer view".

The regulator decided to extend, until December 30, 2010, interim rules to allow separate compensation cover for customers with deposits in two merging building societies, as well as for customers of a building society that merges with a subsidiary of another mutual society, and for customers whose deposits are transferred from a failed firm to another deposit taker with whom they already have an account.