The PRA's recent release of Depositor Protection Consultation Paper CP20/14 (CP) sets out proposed changes to the PRA's rules and is designed to promote consumer confidence and financial stability by improving the speed of compensation payouts in the event of a failure. In this article we provide banks and building societies, regardless of size, with a summary of the key changes being proposed in relation to the next stage of the Single Customer View (SCV) journey.
Specifically, the CP implements the revised European Union Deposit Guarantee Schemes Directive (DGSD) and proposes new rules to further enhance protection offered to consumers in payout and transfer scenarios. As the PRA's proposals will now require small deposit takers with less than 5,000 accounts to submit electronic SCV files, it is applicable to all deposit takers regardless of size.
'2. Implementing the recast Deposit Guarantee Scheme Directive': Impact Assessment
PRA proposals: The DGSD broadens the eligibility criteria that now makes large companies eligible for compensation (assuming they hold protected deposits).
Implications: All deposit takers will need to include large companies in their SCV files, as well as incorporating deposits from previously out of scope systems that only support large companies. It will also mean 'wholesale only' deposit takers (i.e. firms accepting deposits only from previously ineligible large companies) will need to develop a SCV capability. These deposit takers would be required to adhere to the disclosure rules and also Financial Services Compensation Scheme (FSCS) levy obligations. All deposit takers would now be required to provide the Company Registration Number in the SCV file.
Proposed implementation date for new eligibility rule: 3 July 2015
For 'wholesale only' deposit takers, the new rules on SCV systems and continuity of access will not come into force until 18 months following the publication of the Depositor Protection Policy Statement. However, they are still required to 'mark' eligible in the meantime.
Temporary High Balances (THBs)
PRA proposals: THBs are designed to protect customers who have unusually high balances as a result of 'significant life events' (such as inheritance or an insurance payment). Importantly, the PRA proposes that deposit takers are not required to identify THBs. Instead, FSCS would use the SCV file to pay the initial £85,000, and then contact customers with unprotected balances to explain what constitutes a THB and what evidence is required to support an additional payment from FSCS. The PRA is proposing to introduce a THB compensation limit of £1M that would be in place for 6 months (for each 'life event'), no matter what 'in' and 'out' transactions have taken place, and regardless of whether customers switch banks/building societies.
Implications: Whilst existing SCV capabilities will support the FSCS execution of THB payments, under the PRA proposals, deposit takers will be required to amend the prescribed wording used on FSCS promotional materials used in branches/online as follows '[....] Any deposits you hold...