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HMRC internal manual

Bank Levy Manual

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HM Revenue & Customs
Updated
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Chargeable equity and liabilities: excluded equity and liabilities: protected deposits: FSCS and comparable schemes

The Financial Services Compensation Scheme (FSCS)

The FSCS performs the function of a deposit insurance scheme in the United Kingdom. The aim of having a deposit insurance scheme is to insure depositors’ savings against the failure of the bank or other financial institution.

Paragraph 29 of Schedule 19 states that a deposit (see BKLM331105) is protected to the extent it is covered by the FSCS or a comparable scheme operating outside of the UK (see BKLM331115).

The key features of the FSCS are:

  • It is the statutory fund of last resort for customers of financial services firms - the FSCS can pay compensation to consumers if a firm is unable, or likely to be unable, to pay claims against it. In general this is when a firm has stopped trading, and has insufficient assets to meet claims, or is in insolvency.
  • The FSCS is funded by the financial services industry. Every firm authorised by the FSA is obliged to pay an annual levy, which goes towards compensation payments.
  • Consumers are not charged for the cover.
  • The deposit compensation limit per person per institution is £85,000 (for claims against firms declared in default from 31 December 2010).
  • If the account is a joint account, the monies are assumed to be split equally and attributed to the individuals.
  • The scheme covers deposits in any currency.
  • Private individuals, small businesses and small companies are protected by the scheme.
  • Fee calculation: “The amount levied for compensation payments is the amount of compensation paid plus an estimate of the compensation costs we expect to pay in the 12 months following the levy date, assumed to be 1 July each year, allowing for any retained fund balances. The management expenses levy is subject to an annual limit but is based on our budget requirements for each year.”

More details can be found on the FSCS website (http://www.fscs.org.uk/).