The fast payment rules will see compensation paid within a target of seven days and all payments will be made within 20 days, as required under the Deposit Guarantee Schemes Directive.
Payouts will also be made on a gross basis, which will effectively ring fence the deposits if a depositor has savings and loans with the same firm.
Currently, any outstanding loan or debt held with a firm would have been deducted from the amount of an individual’s or small business’ savings before compensation was paid out.
The new rules will apply to banks, building societies and credit unions from December 31, 2010.
The FSA has also introduced changes to the calculation of payment of compensation on term accounts, which will mean that compensation is calculated as at the date of default.
The regulator has extended its interim rules which allow separate compensation cover for customers with deposits in two merging building societies until December 30, 2010.
The same extension has been made for customers of a building society which merges with a subsidiary of another mutual society and for customers whose deposits are transferred from a failed firm to another deposit taker where they already have an account.
From January 1, 2010 firms will also have to provide consumers with information on the FSCS and level of protection it offers to depositors, as well as proactively informing customers of any additional trading names under which the firm operates.
In addition, they will have to keep up-to-date information on customers to allow quick processing of claims by the FSCS if needed.
FSA chief executive Hector Sants says: “To help underpin confidence in our banking system, individuals and small businesses must feel confident that their money is well protected. The new rules announced today will help deliver that confidence, build on the successful role of the FSCS to date, and aim to further minimise the potential hardship faced by depositors if an institution defaults.
“The FSA, along with HM Treasury and Bank of England, have set the FSCS a challenging target of delivering payout in seven days. The systems requirements that the rules introduce for banks are crucial to enable the FSCS to deliver fast payout.”
Deloitte’s information and technology risk practice partner Tom Scampion says the cost to deposit taking firms of keeping up-to-date customer information, or a single customer view, has been estimated at reach £900m over a five-year period.
But he says: “Based on our recent experience of performing a number of single customer view projects in the financial services industry, there is every reason to believe that this is a conservative estimate.
“The challenge for many in the industry will be in realising the benefits associated with creating a single customer view so that a regulatory requirement can be transformed into a competitive advantage.”