Depositor protection: UK PRA consults on changes to FSCS protection limits and amendments required for Bank Resolution (Recapitalisation) Bill

What does this mean for deposit taking firms?

FSCS deposit protection and THB limit increases and changes to related disclosure requirements

• Implementation costs: The proposals relating to the deposit protection and THB limits and related information requirements would entail costs for deposit takers in terms of system and information materials changes, including associated expenditure such as the cost of staff training on the changes. The extent of the costs is likely to depend on factors such as whether a firm’s systems are sufficiently flexible to accommodate limit changes - an expectation that the PRA had included in a former version of its supervisory statement (SS) 18/15 and that it is proposing to reintroduce in a slightly amended form as part of the current consultation (see the proposed amendments to SS18/15 in Appendix 2).
• Compensation costs: An increase in the protection limits would increase the costs that could fall to Deposit Guarantee Scheme members (ie certain deposit takers) to the extent that depositors of a failed deposit taker have eligible deposits above the current deposit protection limits. The PRA also points out that the allocation of the levy could also change for different firms, to the extent that the increase in the limit alters the proportion of total covered deposits that they account for. However, the FSCS has confirmed that it paid a total of £10.1 million in deposit claims over 2021/22, 2022/23 and 2023/24. Most claims related to credit union failures and all deposit balances were within the current £85,000 limit. This means that, had the proposed new limit of £110,000 applied to these claims, no additional compensation would have been payable, and the levies on firms would have been the same. According to the PRA, the impact on compensation costs from the proposed increase in the THB limit is not expected to be material (although it hasn’t been able to estimate these given the unpredictable – and rare - nature of THB claims). The PRA has confirmed that the maximum aggregate amount of Deposit Guarantee Scheme compensation costs, legacy costs and specific costs for which the FSCS can levy Deposit Guarantee Scheme members in any one financial year will remain at the current limit of £1.5 billion.

New and amended FSCS rules for implementation of Bank Resolution (Recapitalisation) Bill

HM Treasury’s (HMT) cost-benefit analysis in relation to the Bank Resolution (Recapitalisation) Bill (on which the PRA relies) found that, in general, expected lifetime costs for levy payers would be lower under the new resolution mechanism than under an insolvency with depositor payout due to:

• the lower nominal level of funding needed to achieve recapitalisation relative to paying out compensation for FSCS covered deposits; and
• a shortened timeline for repayment of FSCS borrowing, resulting in a lower interest cost.

However, HMT’s analysis made it clear that this would not necessarily be the case in all circumstances and any decision to use resolution powers would require the Bank of England (BoE), in consultation with the PRA, FCA and HMT, to determine that the use of stabilisation powers is in the public interest, and that a bank insolvency would not achieve the resolution objectives to the same extent.

FSCS deposit protection and THB limit increases and changes to related disclosure requirements

The PRA has published a consultation paper (CP4/25) and Appendices on proposals relating to the protection for deposits available from the Financial Services Compensation Scheme (FSCS).

The consultation contains two sets of proposals.

Firstly, the PRA is proposing to increase the limits on the protection available to a firm’s depositors from the FSCS if the firm fails. This is the first review since the UK’s withdrawal from the EU. The proposals include:

• An increase in the deposit protection limit from £85,000 to £110,000: A review of the current limit was due this year in accordance with the Deposit Guarantee Scheme Regulations 2015 (DGSR). The increase would take effect from 1 December 2025 (for firm failures occurring on or after this date). Firms would be required to update their single customer view (SCV) systems to reflect the new limit by this date. The PRA explains that the proposed increase considers consumer price inflation since the limit was last changed in 2017 and is judged to help maintain consumer confidence by ensuring that the limit has not been eroded in real terms. As required under the DGSR, HM Treasury would have to approve any change to the deposit protection limit before the making of final rules. The limit would be due for review again in five years’ time, as per the DGSR.
• An increase in the limit applicable to certain temporary high balance (THB) claims (eg due to a residential property transaction) from £1 million to £1.4 million: The new THB limit would also apply from 1 December 2025 (for firm failures occurring on or after this date).
• Changes to disclosure requirements, with a transitional period for firms to update disclosure materials: The following disclosure materials would be revised:
• Information sheet: The PRA is proposing to amend the information sheet that firms are required to provide to depositors in certain circumstances to reflect the new deposit protection limit and THB limit and to generally ensure it remains clear and up to date. The proposed changes would reduce the length of the information sheet, which the PRA says may reduce the associated cost to firms.
• Compensation sticker and compensation poster: Firms are required to display a compensation sticker or compensation poster in certain circumstances. Consequential changes would be required to ensure that they refer to the proposed new deposit protection limit.
• Exclusions list: Firms are required to provide depositors with an exclusions list in certain circumstances. The PRA is proposing to amend the exclusions list to ensure that it remains clear and up to date. Proposed changes include amendments to simplify the exclusion in relation to credit institutions and clarify references to small companies, although they do not change the eligibility requirement in Chapter 2 of the Depositor Protection Part.
• Banking hubs: The PRA proposes to clarify the information that firms should ensure is displayed in third-party premises such as banking hubs. In addition, it would work with the FSCS to ensure that appropriate materials are available for firms to use.

The proposed clarificatory changes mentioned above reflect the UK’s post-Brexit freedom to move away from the harmonised requirements and prescribed language under the EU Deposit Guarantee Scheme Directive (DGSD).

The PRA proposes a six-month transitional period until 31 May 2026 for firms to update their disclosure materials to allow them time to implement the proposed changes. Working with the PRA, the FSCS would also take steps to raise awareness of the revised protection limit, including through awareness campaigns, refreshed disclosure materials and industry engagement.

These proposals would result in changes to:

• the Depositor Protection Part of the PRA Rulebook (Appendix 1 to the consultation);
• supervisory statement (SS) 18/15 (Appendix 2); and
• the Deposit Guarantee Scheme statement of policy (Appendix 3).

The PRA points out that the consultation proposals would complement recent work progressed by the FSCS as part of the BoE’s ‘Improving Depositor Outcomes in Bank Insolvency’ initiative which includes a new online portal allowing the FSCS to quickly make compensation payments to an alternative account held by the depositor, rather than making payment by cheque. However, the PRA emphasises the importance of firms preparing themselves now for a potential change to the deposit protection limit on 1 December 2025, including by ensuring that they can quickly adjust their SCV systems to account for a change to the limit and by ensuring that contact details held within the SCV are kept up to date, including email addresses. This is because the new portal is reliant on the quality of data maintained by firms in their SCV, including up-to-date email addresses, to support faster payments to depositors.

New and amended FSCS rules for implementation of Bank Resolution (Recapitalisation) Bill

The second set of proposals relates to new and amended rules that would be needed to enable the FSCS to fulfil its new functions under the Bank Resolution (Recapitalisation) Bill which is currently before Parliament.

The Bill was introduced in recognition of the lessons learnt from the resolution of Silicon Valley Bank UK Limited and proposes an enhancement of the existing resolution regime to provide increased flexibility for the effective management of the failure of smaller banks.  Where its use is judged to be in the public interest, the proposal would allow industry funds, provided via the FSCS, to be used to meet the costs of recapitalising a failing firm (which would support an on-sale to a third party purchaser), of  operating a bridge bank where needed and to meet associated costs to HMT and the BoE. HMT consulted on these proposals in January 2024. The Bill has completed its passage through the House of Lords and is currently awaiting a date for the commencement of the Report stage in the House of Commons.

The proposals in the Bill would expand the FSCS’s functions to include making recapitalisation payments, where required to do so by the BoE acting as resolution authority, and levying firms (except credit unions) to recoup those payments. To enable the FSCS to fulfil these proposed new functions, the PRA, as required by FSMA, must make consequential changes to the rules governing the operation of the FSCS.

The PRA explains that it is consulting on the proposals in relation to the Bill now on the assumption that the Bill remains in substantively the same form. This is necessary to ensure that the proposed PRA rule changes outlined in the consultation can be made to implement the new mechanism as soon as possible. If the proposed legislative changes are not ultimately made, the PRA would not introduce the associated changes to the PRA rules or the Deposit Guarantee Scheme statement of policy set out in the consultation.

The proposals would result in changes to:

• the Depositor Protection Part of the PRA Rulebook (Appendix 4); and
• the Deposit Guarantee Scheme statement of policy (Appendix 3).

Key proposed amendments to the Depositor Protection Part to facilitate the Bill include:

• Adding the concepts of a recapitalisation payment and levy;
• Introducing a new class of levy payer, class A1, defined as Deposit Guarantee Scheme members that are not credit unions;
• Amending the process for the management of recoveries to specify that any recoveries made by the FSCS in relation to DGS compensation costs or recapitalisation payments should be held to the credit of class A or A1 (as appropriate) levy payers;
• General amendments to ensure the whole package works together, including: amendments to ensure that existing constructs, such as the management expenses levy and limits on the maximum amount that can be levied on firms annually, include costs related to recapitalisation payments and levies; and amendments to replicate the calculation method for levy contributions across firms for recapitalisation payment levies (with credit unions excluded) and ensure rules relating to overpayment, deferral, the payment process and timelines, and arrangements in the case of assumptions of liability, apply to recapitalisation levies.

Miscellaneous other proposed amendments

As a result of its review of the Depositor Protection Part, the PRA has identified certain provisions that are now spent and references that are no longer required. The PRA therefore proposes the modification or deletion of certain chapters of the Rulebook containing spent provisions or unnecessary references. This includes the removal of historic references to the DGSD.

What about the FSCS protection for which the FCA is responsible?

The PRA points out that the FCA is responsible for FSCS protection in relation to certain regulated activities, including investment provision and distribution, home finance, debt management, funeral plan provision and insurance distribution. It confirms that the FCA has no immediate plans to make similar changes to the compensation limits it is responsible for. However, it will keep this under review while continuing to focus on preventing firms from failing without paying their redress liabilities.

When does the consultation close?

The consultation closes:

• On 30 June 2025 for proposals related to the FSCS protection limits; and
• On 30 April 2025 for proposals related to the Bank Resolution (Recapitalisation) Bill. The PRA explains that this shorter consultation period is to ensure that the necessary rule changes can be made in time to allow the FSCS to fulfil its new functions should the Bill receive royal assent.

Feedback on the proposals should be addressed to: CP4_25@bankofengland.co.uk.

What’s next?

FSCS deposit protection limit increases and changes to disclosure requirements

The PRA expects to confirm the final rules with a policy statement in November 2025, in light of consultation feedback received, including the final implementation dates. As mentioned above, the PRA emphasises the importance of firms preparing themselves now for a potential change to the deposit protection limit on 1 December 2025, including by ensuring that they can quickly adjust their single customer view (SCV) systems to account for a change to the limit and by ensuring that contact details held within the SCV are kept up to date, including email addresses, to support faster payments to depositors. For the disclosure requirement changes, firms would have until 31 May 2026 to update their disclosure materials to allow them time to implement the proposed changes.

New and amended FSCS rules for implementation of Bank Resolution (Recapitalisation) Bill

Subject to consultation responses, the PRA proposes to make the rules and Deposit Guarantee Scheme statement of policy changes in relation to the Banking Resolution (Recapitalisation) Bill once the relevant provisions have received royal assent and are in force. Timings for a policy statement in relation to these proposals would therefore depend on when the Bill receives royal assent.

Authored by Virginia Montgomery and Margaret Kemp.