This is expected to put pressure on UK banks to be more willing to accommodate expatriate savers, who claim British banks are reluctant to have them as customers except through these institutions’ offshore operations.
It is also likely to cause individual depositors to consider the financial health of the banks they entrust their savings to when banking offshore more than they would have done prior to the recent financial crisis.
£85,000 figure based on EU
The new UK protection level of £85,000 – it had stood at £50,000 since 2008, when it was raised from £35,000 – is based on the approximate current sterling equivalent of €100,000. The limits are “per person, per [bank],” according to the Financial Services Compensation Scheme (FSCS), which means that joint accounts in UK banks are covered for amounts up to £170,000.
Gibraltar, which traditionally has been viewed as an “offshore” jurisdiction alongside the crown dependencies of Jersey, Guernsey and the Isle of Man, is hiking its depositors’ compensation scheme to €100,000 on the first of January, along with the rest of Europe, according to James Tipping, director of Gibraltar’s Finance Centre. This is because Gibraltar is effectively an EU member, even though it is technically also an overseas territory of Britain, he said.
The Gibraltar Deposit Guarantee Scheme is a so-called ex-poste scheme, meaning that if one of the scheme’s participants fails, it is funded by the remaining scheme participants.
IoM scheme ‘under review’
The Isle of Man’s depositors’ compensation scheme in its present form was formally approved only in October. At that point, treasury minister Anne Craine acknowledged that “pressures from the EU will invariably, almost constantly promote higher levels of depositor protection”, but stopped short of saying the IoM would boost its maximum coverage beyond £50,000. “We will keep such matters under continuous review and measure our response accordingly,” she said.
Guernsey scheme ‘post-funded’
Guernsey, which did not have a depositors’ compensation scheme in place when its Landsbanki subsdiary collapsed in October 2008 as part of a meltdown of Iceland’s banking industry, last month amended its 23-month-old Banking Deposit Compensation Scheme to make it wholly post-funded, rather than partially pre-funded, as it had been.
In a briefing note issued by its Commerce & Employment department, Guernsey acknowledged the intentions of the EU and Britain to increase the maximum amount of compensation they provided their depositors, but said it had "no plans at the present time to make further amendments to the Deposit Compensation Scheme and the maximum level of compensation will remain at £50,000".
"It is important to note that Guernsey’s banking industry is significantly different to that in the UK and most EU member states, where there are very large retail deposit sectors," the statement went on.
The Commerce & Employment Department will continue to monitor the situation with respect to international compensation levels, the note added.
More information on Guernsey’s depositors’ compensation scheme may be found here.
Other UK scheme changes
In addition to increasing the protection coverage for UK depositors on the first of the year, the FSCS has introduced new so-called fast payout rules, whereby the majority of claimants will be compensated within seven days and the remainder within 20 days.
A new ‘gross payout’ feature has also been added. This ringfences bank customers’ deposits so that outstanding loans or debts are not deducted from their compensation if they happen to have savings and loans with the same institution.