After recommendations from the Independent Commission on Banking, the government introduced ring-fencing legislation of core UK banking services in the UK.
These changes are intended to ensure that any problems arising from ring-fenced banks, and groups containing ring-fenced banks, can be resolved in an orderly fashion without disrupting core services.
From 1 January 2019, all banks with core deposits larger than £25bn will be forced to ring-fence their core activities.
In preparation, the Prudential Regulation Authority (PRA) is consulting on three areas: the legal structure of banking groups; governance; and continuity of services and facilities.
All banks that expect to reach the threshold for being subject to ring-fencing requirements by 2019 must submit a preliminary plan of their anticipated legal and operating structures to the PRA by 31 December 2014.
The PRA is also consulting on changes to enhance depositor and insurance policyholder protection in line with Europe and will offer continuous access to any deposits covered by the Financial Services Compensation Scheme.
The proposals also aim to provide a mechanism to transfer accounts to another financial institution in the event of a deposit-taker’s failure or enable faster pay-out of compensation.
The proposals also introduce extra coverage for temporarily higher deposits like house purchase or personal injury compensation.
For insurance customers, the PRA proposes changes to increase protection for policyholders in the event of an insurer failing. This would increase the limit to 100% of cover for annuities, pure protection, claims arising from death or incapacity and professional indemnity insurance.
The limits for all other types of insurance remain the same.
The last discussion paper from the PRA will ensure deposit-taker critical functions operate effectively at all times, even if the institution fails.
Andrew Bailey, deputy governor of the Bank of England and chief executive of the Prudential Regulation Authority said: “These proposals will allow customers to have continuous access to the money in their bank account – or receive payment from the FSCS if this is not possible. Additionally, the increase in FSCS limits for certain types of insurance will mean policyholders who may find it difficult to obtain alternative cover, or who are locked into a product, have greater protection if their insurer fails.”
For more on the consultations, click HERE.
