Boost for deposit protection in the UK

The Prudential Regulation Authority (PRA) has announced a proposal to increase the protection limit of the Financial Services Compensation Scheme (FSCS). A significant move aimed at bolstering consumer confidence and aligning with economic realities.

The PRA revealed on 31st March 2025, its plan to raise the FSCS deposit protection limit from the current £85,000 to £110,000 per eligible person, per PRA-authorised firm. If approved, this change will apply to firm failures occurring on or after 1st December 2025.

In addition to this, the PRA is proposing an increase in the limit for Temporary High Balance (THB) claims, specifically those related to major life events such as house purchases or insurance payouts, from £1 million to £1.4 million, also effective from 1st December 2025.

The proposal also includes requirements for firms to update their disclosure materials to reflect these new protection limits, with a transitional period extending until 31st May 2026, to ensure compliance.

This announcement is coupled with a consultation on updating PRA rules to facilitate the implementation of the Bank Resolution (Recapitalisation) Bill. This bill introduces a new resolution tool that could see FSCS funds used to recapitalise a failing firm to support its sale or transfer. The consultation period for these related proposals is shorter, ending on 30th April 2025.

Rationale behind the proposed changes

The PRA has cited several reasons for this proposed increase. A primary driver is to counteract the impact of consumer price inflation since the last limit adjustment in 2017, ensuring that the real value of protected deposits is maintained. Furthermore, the PRA aims to boost consumer confidence in the UK’s financial system by providing a safety net for a more significant portion of their savings. The regulator believes that this enhanced confidence is crucial for fostering economic growth.

What’s next?

The PRA is currently seeking feedback on these proposals, with the consultation period for the FSCS protection limits open until 30th June 2025. Following this, the PRA will review the feedback and expects to publish the final rules, including implementation dates, in a policy statement in November 2025. It is important to note that any changes to the deposit protection limit will require approval from HM Treasury.

About the FSCS

The Financial Services Compensation Scheme (FSCS) is the UK’s statutory fund of last resort, providing protection to customers of authorised financial services firms. It safeguards deposits held in UK-authorised banks, building societies, and credit unions. The current protection limit stands at £85,000 per eligible person, per authorised firm. For joint accounts, each account holder is protected up to this limit, allowing for a total of £170,000 protection.

Funded by levies on firms authorised by the PRA and the Financial Conduct Authority (FCA), the FSCS has played a crucial role in the UK’s financial safety net. Since its inception in 2001, the FSCS has assisted over 4.5 million people and paid out more than £26 billion in compensation. With a significant portion related to deposit failures during the 2008 financial crisis.

This proposed increase by the PRA represents a vital development in the UK’s financial landscape. It aims at enhancing depositor security and reinforcing confidence in the stability of financial institutions.