BSA responds to financial stability and depositor protection consultation

In its response to the tripartite authorities’ consultation on financial stability and depositor protection, the BSA cautions against hurried changes, especially those of an extensive nature or dealing with complicated matters. 

The consultation raises such a large number of complicated questions, and touches upon so many potential courses of action that could have unforeseen consequences, that the BSA regards it as extremely important that further, detailed work is undertaken - where appropriate - before proceeding to legislation.

Compensation limit

The Association is open-minded on the question of an increased limit in relation to deposit-takers.  The key point is that very careful consideration be given on issues - such as the impact of recent changes to the funding of the FSCS, consumer benefit of higher levels of compensation and potential moral hazard - before making a decision on this matter.

Pre-funding

We strongly oppose any pre-funding of the compensation scheme - which we believe would be counter-productive - for the following reasons:

• it would deprive firms of, possibly significant, funds (this would be particularly unwelcome at a time of likely downturn in the economy)
• estimating an appropriate level of pre-funding would be impossible; until losses had crystallised, the likelihood would be that far too much or far too little would have been pre-paid – this could amount to a very costly, but wasted, exercise.
• any fund would be insufficient to cover deposits in the largest institutions. The high level of concentration in the UK market means that the majority of deposits would not be adequately covered by a fund. 

Faster compensation payments

The BSA is fully supportive of all proportionate endeavours to reduce the current period for payments from the FSCS in the consumer interest and we are very keen to participate in ongoing discussions.

The obvious way of facilitating fast payments is for the FSCS, backed by the Government, to provide the initial funding.  This could, if necessary, be up to the overall FSCS limit, which would be significantly less than the funding provided by the taxpayer in relation to Northern Rock

The BSA’s full response can be viewed here