The FSA has confirmed the new deposit compensation limit will increase from £50,000 to £85,000 for each person in each authorised firm.
The change will come into effect from December 31 and is the equivalent of the €100,000 deposit compensation limit which comes into force in all European Economic Area member states at the same time.
Another change coming into effect the same time are rules surrounding fast payouts, with a target of a seven day payout for most claims and the remainder being 20 days.
The FSA is also looking to protect customers by ring fencing their deposits if they have savings and loans with one firm. Currently, any outstanding loan or debt would be deducted from any compensation.
This new pan European requirement replaces the existing UK arrangement which has been in place since 2009, and which allowed for separate compensation cover for customers with deposits in two merging building societies.
FSA director of conduct policy Sheila Nicoll says: “The need to maintain customer confidence in the banking system is one of the key lessons from the financial crisis.
“Today’s announcement completes a radical overhaul of depositor compensation. In future, all the still-separate national compensation schemes across the entire European Economic Area will offer cover at €100,000 or the local currency equivalent – a limit which will protect the vast majority of depositors.”