Temporary High Balance protection extended

In 2015, the Bank of England introduced enhanced FSCS (Financial Services Compensation Scheme) protection for certain types of deposit with UK authorised banks & building societies.

This saw the introduction of ‘temporary high balance protection’ (THB) for sums from specific sources, such as sale of a property, a pension fund or a divorce settlement. For most classes of deposit, the usual £85,000 per institution limit under the Deposit Guarantee Scheme of the FSCS was extended to a maximum of £1 million for a period of six months from the first deposit following receipt of funds.

However, of specific relevance to our clients, unlimited THB protection applied to deposits made with a UK authorised bank or building society, for six months, from monies received in respect of a claim for personal injury or a statutory award under the Criminal Injuries Compensation Scheme.

This has now changed. In order to ‘mitigate the consumer protection issues caused by the impact of Covid-19 on residential property and investment markets, and access to banking services for some depositors’ (Bank of England PS19/20, August 2020), the Bank of England has extended temporarily the high balance protection period.

Effective from 6^th August 2020, up to and including Sunday 31^st January 2021, temporary high balance protection will be for a period of twelve months. Coverage for temporary high balances will revert to six months from Monday 1^st February 2021.

It should be noted that, as previously, caution is required when making deposits with international banks providing deposit facilities in the UK via a branch.Depositors in some overseas firms are protected under the UK deposit guarantee scheme for:

• UK-incorporated subsidiaries of European Economic Area (EEA) deposit-takers
• UK-incorporated subsidiaries of non-EEA deposit-takers
• UK branches of non-EEA deposit-takers authorised by the PRA to accept deposits in the UK.

Eligible depositors in UK branches of EEA banks are protected by the deposit guarantee scheme in the bank’s home state, usually up to a limit of €100,000. They are not covered by the FSCS. Some EEA home state statutory protection schemes only cover residents of that state, and some only cover non-residents who are EU citizens.