Cyprus bailout: Savers in UK banks 'well protected'
- 18 March 2013
- From the section Business
The head of the UK's deposit safety net has said he is "emphatic" that savings in the UK are well protected, despite the problems in Cyprus.
Mark Neale, of the Financial Services Compensation Scheme, agreed that the bailout plans in Cyprus underlined the risk of undermining savers' confidence.
But he said the UK's position was entirely different from that of Cyprus.
The first £85,000 of deposits per person, per UK-regulated institution are protected by the FSCS.
If a UK-regulated bank, building society or credit union goes bust, then each depositor will be paid compensation, up to this limit, quickly - usually within seven days.
A 10bn-euro ($13bn; £8.6bn) bailout for Cyprus has been agreed by the EU and IMF, but all bank customers in the country must pay a one-off levy.
Under the currently agreed terms, depositors with less than 100,000 euros in Cyprus accounts would have to pay a one-time tax of 6.75%. Those with sums over that threshold would pay 9.9%.
Cyprus' parliament will vote on the plan on Tuesday.
UK savers who live in and have bank accounts in Cyprus will be hit by the levy, but deposits with the UK arms of Bank of Cyprus and Laiki Bank will not.
Under the plan, people are being taxed on savings, but they would have been compensated for these savings had the banking system in Cyprus collapsed. Cyprus has a deposit protection scheme, similar to the FSCS, that would have protected the first 100,000 euros (£86,000) of people's savings if banks in Cyprus had gone bust.
Mr Neale, chief executive of the FSCS - the UK's deposit protection scheme - said the situation in Cyprus was "unique" and it was "inconceivable" that the same could happen in the UK. That meant UK savers should be confident that their funds were safe in UK banks.
"The UK government is not in anything like the same position as Cyprus. I am emphatic that people [in the UK] will not lose a penny of their savings in this way," he said.
He said that the situation in Cyprus would not affect the way the FSCS was run. but he said that more needed to be done to ensure people knew of the protection that was in place.
The scheme's own surveys have suggested that 50% of savers were unaware of the protection for their funds that the FSCS provided. However, this figure had dropped significantly since the Northern Rock crisis and subsequent advertising campaigns.
Banks and building societies regulated in the UK must make it clear at their branch counters that the FSCS cover is in place for their savers, even if they are not UK residents. Their website and the FSCS website also explain the cover.
That includes European banks that are registered and regulated in the UK, as they are covered by the same rules.
However, some European banks - such as Laiki - only have branches in the UK, rather than being regulated by the UK authorities.
That means savers' deposits are covered by protected schemes set up in the countries where these banks are based and regulated. UK customers of these banks must receive a letter twice a year explaining which deposit protection scheme affects them.
EU rules mean savers in EU banks are generally covered for up to 100,000 euros (£86,000) if a bank goes bust.