Fears over EU plan to raise payout limit
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Advisers may be forced to pay higher Financial Services Compensation Scheme levies following a bank collapse if the European Commission’s proposals for higher depositor compensation limits are approved, according to Zurich.
This week, the EC formally proposed to increase the guarantee for all bank depositors in the EU to €100,000 by the end of this year. The current limit in the UK is £50,000. If a bank fails and the cost to the deposit-taking sub-class exceeds £1.84bn, the whole industry, including IFAs and brokers, becomes partially liable for the excess cost.
Zurich Financial Services principal of Government and industry affairs Matthew Connell says he is concerned that intermediaries and insurers may be hit hard by the increase.
He says: “Zurich is concerned about the way the FSCS is constructed. There can be cross-subsidy from the insurance or the intermediary sub-sectors to cover any shortfalls in the banking sub-class. These new proposals mean that if a bank goes down, consumers will be owed more money and other sectors might be more likely to have to cover the excess costs.”
Informed Choice managing director Martin Bamford says the £1.84bn limit for the deposit sub-class should be doubled to ensure that IFAs are not negatively affected. He says: “The FSCS needs to be restructured so that if the compensation limit for bank depositors is raised, the deposit sub-class is made liable for more costs. The EC is prop-osing effectively doubling the limit, so the threshold for depo-sit-takers should be doubled.”
An FSCS spokeswoman says: “Around 97 per cent of all UK retail depositors hold less than £50,000 with UK-authorised banks. Therefore, an increase in the limit is likely to have a minimal impact on the levy.”
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Readers' comments (1)
Mike Fenwick | 16 Jul 2010 8:45 am
Re - Martin Bamford's comments - it should be borne in mind that the EU level was only raised last year to 50,000 from its pre-existing level of 20,000
- so if, as he seems to be suggesting, simple mathematics are to be the arbiter in any adjustment should not the multiplier that is used be 5 not 2.
Otherwise the risk of spillover and cross subsidy from Banks to Insurers and IFAs has increased quite dramatically.
It should also be noted that the EU propose to extend the protection to go beyond the collapse of Banks, and to now include inter alia fraud - think Madoff and Goldman Sachs.
Perhaps time that Insurers, Building Societies, and IFAs - no matter their differences in other areas - sat round a table together and addressed what is a common, and increasingly disproportionate risk?
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