Speaking at the launch of his white paper on Banking reform today in Parliament, Darling said consumers would get more protection along with greater right of redress and access to compensation if things go wrong.
The role of the FSCS will be expanded to facilitate payment to UK customers if foreign banks default.
He said the Government would also improve arrangements for depositor protection and said that the pre-funded element would only apply to this area.
Due to the economic crisis, Darling said pre-funding would not be introduced until after 2012 and the initial levy will not be set at a level which would compromise financial stability.
The white paper reads: “A better long-term approach to financing the FSCS is pre-funding, which would allow the industry to contribute to the funding of such costs before a major failure occurs.
“The Government believes that, subject to the results of further work, including consultation it will be appropriate to move towards the introduction of a pre-funded element in the FSCS covering the deposit-taking class. This will provide a further protection to the taxpayer.”
Other proposals included strengthening rules to ensure banks hold enough capital as a buffer against losses and introducing a backstop power ensuring banks do not overextend themselves by lending too much when they don’t have the strength to do so.
Darling also said he wanted to see a greater role for mutuals and building societies.
He added that the FSA will have to report every year on how financial firms are complying with the new code of practice on remuneration and how the FSA will deal with firms that do not comply.