FSCS to pay compensation within 7 days of savings account providers' collapse

09 January 2009 / by Rachael Stiles
The FSA is currently making proposals which would see victims of collapsed savings accounts providers receive compensation for their cash from the Financial Services Compensation Scheme (FSCS) within seven days.

The "critical importance" of the FSCS has been highlighted recently, as a number of financial institutions have gone into default, freezing their customers' assets.

Customers of online savings account provider Icesave, for example, have been offered full compensation from the UK Government through the FSCS.

Today, the FSA will publish a consultation paper which will set out proposals for speeding up the process of compensating savings accounts customers who are affected when a bank fails.

Iceland customers could apply online for their money, by filling in a form and designating an account for the money to be transferred to. It took several weeks for this process to reach every customer awaiting compensation because the FSCS sent out information and processed the claims in batches to allow for system restrictions.

"Experience in the last year has highlighted how essential compensation is and that it is imperative consumers understand and trust that they will be reimbursed if a bank, building society or credit union fails." said Hector Sants, chief executive at the FSA.

"Our current scheme has worked well in these unprecedented times, compensating hundreds of thousands of savers in a matter of weeks." he continued. "But today's consultation paper seeks to learn the lessons from those events to produce an even better system. 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 paper will make a number of recommendations to expedite the compensation process, such as simplifying the elegibility for deposit compensation to include all private individuals and small entities, implementing gross payout, which would disregard any debts which the depositor has with the same company, and ensuring that the firms hold current information to allow the fast processing of claims.

Consumer watchdog Which? has said that the FSA needs to focus on consumer concern regarding the safety and security of their money, and does not think that this report has gone far enough to provide sufficient protection.

Payouts should be done on a 'per brand' not 'per institution' basis, and protection arrangements are needed for temporary high balances, with stronger compensation arrangements for EEA banks, it said.

"It's been over 15 months since the collapse of Northern Rock but instead of answers, the FSA has come back with yet more questions." said Which? personal finance campaigner, Tori Watson. "Instead of stalling, the FSA needs to find a way to tackle the problems caused by temporary high balances and per-institution payouts. It is difficult to justify the instances in which consumers' deposits are not protected."

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