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Merged mutuals to keep independent compensation limits

Monies in merged building societies will continue to be seen as separate entities by the FSCS.

The FSA has revealed that a building society, which merges with another society, will keep its separate compensation limit.

This means if a person has money in both institutions, it will continue to be seen as separate monies, and their combined investment in the successor society can exceed £50,000 and still benefit from full FSCS coverage.

The rule will only apply if a successor society decides to continue to operate the business of the dissolved society under the name of that society, and also notifies the FSA. Unlike banks, when two building societies merge they are legally required – if the depositors of the transferor society are to continue to have membership rights in the merged society – to operate as a single entity with a single FSA authorisation.

FSA retail markets managing director Jon Pain says: “The exception we are introducing today to our compensation rules will allow a society which merges with another, and which continues to operate under its former name, to continue to have separate FSCS deposit limits for the pre-merger account holders of the business.

“Following mergers this will help existing savers with the societies who want to keep below the deposit protection limit and also reduce withdrawals from the successor society driven purely by compensation considerations on the part of savers.”

The new rules will only operate until September 2009 until all mutual merger problems have been resolved. The regulator plans to consult in the New Year on wider reforms to the FSCS including the rules surrounding whether deposits are covered on a legal entity, a ‘brand’ or an ‘account’ basis, and put the appropriate permanent solution in place during next year.

Building Society Association director general Adrian Coles says: “This means that where a saver has accounts with two merging societies they will be protected at £50,000 per brand. For joint accounts this will be
£100,000 per brand. This is a very welcome, sensible move.

“It would not be appropriate that moves designed to reassure and
protect members, such as the mergers currently underway, ultimately
result in a reduction in the levels of FSCS protection for members with
savings in both societies. This change to the FSCS allows those members
to enjoy the same levels of protection as they would have if the merger
had not taken place.”


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