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Get your money back faster when banks fail

Financial compensation may take just seven days

Friday 9 January 2009

Writes Seamour Rathore
seamour.rathore@consumerchoices.co.uk

You could get your money back within seven days when a bank collapses, under new FSA proposals.

The Financial Services Authority (FSA) (www.fsa.gov.uk) is proposing to speed up the return of savings and deposits to investors when a financial institution collapses.

Savers were hit by the failure of Icesave and Kaupthing Edge in 2008 and many have had to go through a lengthy process to get their money back.

Hector Sants, FSA chief executive, said the proposals were based on lessons learned in the last few weeks: “We recognise that to help underpin confidence in our banking system consumers must feel confident that their money is well-protected – regardless of whether they ever have to claim compensation.

The main FSA compensation proposals are:

• Money to be returned within seven days. This will need new IT systems at a cost of almost £900 million
• Gross payout. Savers would get all their money back regardless of whether they had debts (ie credit card debts) with the same institution
• Clear information provided to investors about which financial institutions own which others. Payouts are limited to £50,000 per financial institution rather than per high street brand.
• Banks will have to keep up-to-date information on customers to ensure quick processing of claims.

Which? personal finance campaigner Tori Watson felt that proposals didn’t go far enough, however.

She said: “The FSA needs to find a way to tackle the problems caused by temporary high balances [for instance, when people have sold a house and are waiting to transfer the funds to buy another] and per-institution payouts.

Chris Eagle, commercial manager at CreditChoices.co.uk said:"If these changes go ahead it will be very good news for anyone who was hit by the failure of Icesave and is feeling nervous about where they will re-invest their money."

“Some of the best savings rates are offered by UK subsidiaries of foreign firms such as ICICI. It would certainly provide a greater level of comfort to know that if any of these companies, covered by the UK compensation scheme collapse, there will be a swift, orderly return of investors’ money.”

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