At a time when your corporate clients may be concerned about safeguarding their cash reserves, maximising their FSCS deposit protection can provide assurance and peace of mind.
What is the FSCS?
The FSCS is the UK’s statutory compensation scheme that protects customers of regulated financial services firms. It was set up by the Government in 2001 in respect of bank deposits. If an authorised financial services provider fails and is unable to repay customers’ deposits, the FSCS will provide compensation up to a certain limit per depositor depending on qualifying criteria.
FSCS limits and how they have changed over time
Since its inception, there have been a number of changes to the limit of protection provided by the FSCS, which can potentially be a cause confusion for clients.
In 2007, only the first £2,000 of a consumer’s savings and 90% of their next £33,000 were protected. The FSCS deposit limit was subsequently raised to £35,000 in October 2007 and then £50,000 a year later, to raise consumer confidence in the banks amid economic uncertainty. Then, in 2011, a European-wide directive mandated that all national compensation schemes protect a limit of £85,000 (€100,000 in the Eurozone) to prevent savers moving their money across borders to seek out higher limits of protection.
Since then, the limit has changed twice due to currency fluctuations changing the value of the €100,000 limit in its sterling equivalent. It reduced to £75,000 in December 2015 to reflect the strength of the pound, before increasing to £85,000 again on January 1st 2017 following the drop in the value of the pound after the Brexit vote.
FSCS protection and business cash deposits
For businesses, FSCS protection has been somewhat more complicated. Until 2015, there were restrictions to the provision of FSCS deposit protection for companies (designed to exclude large corporates). To qualify for protection a company had to employ fewer than 250 staff, have a turnover of no more than £44m and a balance sheet of no more than £39m. These restrictions no longer apply and all companies are now protected by the scheme irrespective of their size.
What is the current FSCS limit for business deposits?
Currently, businesses’ cash deposits are protected by the FSCS up to the value of £85,000 if held by an authorised bank or building society.
It’s important to note that whilst two individuals opening a joint account can benefit from £170,000 FSCS protection (effectively double the FSCS protection provided to an individual depositor) the same does not apply to a business where the company is a partnership of two people. The business, as an entity, will only benefit from up to £85,000 FSCS protection per authorised bank or building society.
All FCA and PRA authorised banks provide FSCS protection
FSCS deposit protection is provided by all banks and building societies authorised by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA). To check if a bank is authorised, their authorisation number (also known as their Firm Reference Number (FRN)) will be published on their website or can be checked using the Financial Services Register or the FSCS checker tool.
It’s important to note that some banks and building societies share an FRN with one or more financial institutions that are part of the same banking group. In these circumstances the FSCS treats the providers sharing the FRN as a single bank and therefore only protects deposits of up to £85,000 in total across those institutions.
For example, if bank A and bank B share an FRN, and a business deposited £80,000 with bank A, and £80,000 with bank B, and both banks were to default, the depositor would only receive £85,000 in compensation for the £160,000 deposited and would suffer a £75,000 loss.
Not all entities are covered
It’s important to note that there are a number of entity types that do not qualify for FSCS protection as depositors:
credit institutions and financial institutions
investment firms
insurance undertaking
reinsurance undertaking
collective investment undertaking
pension or retirement funds [1]
public authority, other than a small local authority
Similarly, not all banks are covered by the FSCS. Some financial institutions offer banking “type” services, but without a full UK banking licence. These include money remittance services and e-money institutions, which are authorised and regulated by the FCA for their respective services, but do not provide FSCS protection.
Maximising protection of a company’s cash reserves
Owner managers, Finance Directors and Chief Financial Officers have the challenge of navigating the FSCS protection criteria to ensure their company’s cash is safeguarded.
If your corporate client has deposits in excess of £85,000 and wants to have the peace of mind that every penny is 100% protected, they can diversify their cash across additional authorised banks and building societies (that are not part of the same banking group sharing an FRN) to benefit from the incremental FSCS protection that each provides.
To simplify this process, enabling your client to compare and research hundreds of deposit rates from more than 40 authorised banks, and open as many accounts as they require in a matter of clicks, the Flagstone platform could be the ideal solution.
Not only will your client have the peace of mind that their cash deposits are FSCS protected, but they can also benefit from market-leading interest rates and 24/7 visibility of their cash portfolio.
To learn more about how businesses can protect their cash deposits click here to download our Guide to FSCS Protection for Businesses or contact our Business Development Team at BusinessDevelopment@FlagstoneIM.com
1 Deposits by personal pension schemes, stakeholder pension schemes and occupational pension schemes of micro, small and medium sized enterprises are not excluded.