Response to Prudential Regulation Authority consultation on depositor protection

Consumer Scotland is the statutory body for consumers in Scotland. Established by the Consumer Scotland Act 2020, we are accountable to the Scottish Parliament. The Act defines consumers as individuals and small businesses that purchase, use or receive in Scotland goods or services supplied by a business, profession, not for profit enterprise, or public body.

Our purpose is to improve outcomes for current and future consumers, and our strategic objectives are:

• to enhance understanding and awareness of consumer issues by strengthening the evidence base
• to serve the needs and aspirations of current and future consumers by inspiring and influencing the public, private and third sectors
• to enable the active participation of consumers in a fairer economy by improving access to information and support

Consumer Scotland uses data, research and analysis to inform our work on the key issues facing consumers in Scotland. In conjunction with that evidence base we seek a consumer perspective through the application of the consumer principles of access, choice, safety, information, fairness, representation and redress.

The Consumer Principles are a set of principles developed by consumer organisations in the UK and overseas.

Consumer Scotland uses the Consumer Principles as a framework through which to analyse the evidence on markets and related issues from a consumer perspective.

The Consumer Principles are:

• Access: Can people get the goods or services they need or want?
• Choice: Is there any?
• Safety: Are the goods or services dangerous to health or welfare?
• Information: Is it available, accurate and useful?
• Fairness: Are some or all consumers unfairly discriminated against?
• Representation: Do consumers have a say in how goods or services are provided?
• Redress: If things go wrong, is there a system for making things right?

We welcome the opportunity to respond to this consultation, and have identified information and redress as being particularly relevant to the consultation proposal that we are responding to. As Consumer Scotland represents the interests of consumers, our response addresses the proposals relating to the deposit protection limit, the limit on temporary high balance claims, and associated information requirements (part 2 of the consultation).  

Proposed increase in the deposit protection limit

Consumers have to make a range of decisions about financial services and ensuring consumer confidence, including through robust redress measures, is vital for supporting economic growth. The most recent Financial Lives survey highlights that there remains room for improvement in the levels of consumer confidence in the UK financial services industry. The survey found that consumer confidence in the sector has remained largely unchanged since 2017, with 39% of adults agreeing that they have confidence in the UK financial services industry, compared to 28% disagreeing and 33% neither agreeing nor disagreeing.[i]  Certain demographic groups were less likely to have confidence in the financial services industry, including people with low financial capability, those in financial difficulty, and those in low‑income households.

The Financial Services Compensation Scheme (FSCS) provides a vital form of redress to many consumers. In 2023/24, the FSCS paid out £423 million in compensation to 19,008 customers of failed firms across the UK.[ii] At present, when a building society or credit union fails, the FCSC automatically compensates consumers up to £85,000 per eligible person, per bank, building society or credit union.

In line with the consumer principle of redress, we welcome the proposals to raise the deposit protection limit from £85,000 to £110,000, and to increase the limit applicable to certain temporary high balance claims from £1 million to £1.4 million. We welcome the aim to ensure that an appropriate level of depositor protection is maintained that gives sufficient recognition to the needs of depositors, alongside the costs to the deposit takers that fund the FSCS.

We note that the proposed increase considers consumer price inflation since the limit was last changed in 2017, taking into account the resulting real-terms reduction in the current limit. We agree with the proposed revised deposit protection limit of £110,000 based on the fact that £85,000 in January 2017 has increased to £113,669 in December 2024 in real terms. We consider that the proposed increased limit is required to meet the needs of consumers who need to rely on the scheme.

FSCS data shows that a limit of £110,000 would mean that around 99% of depositors would have been fully protected in 2024, compared to 97% of depositors with the current £85,000 limit. This highlights the greater number of consumers who would be protected as a result of the proposed increase to the deposit limit.

In line with the consumer principle of information, we welcome the consideration of depositor awareness as a key factor in maintaining confidence in the deposit protection framework and the benefits of having a round figure that is likely to be easier for depositors to remember. In order to facilitate consumer understanding and enable consumers to have the confidence to understand the protection available to them, we agree that while the deposit protection limit should not be changed frequently,  it should continue to be reviewed periodically to ensure it is maintaining pace with inflation. We agree with the decision to have a round number for the limit to aid consumer clarity and confidence.

Proposed increase in the limit applicable to certain Temporary High Balance (THB) claims

We welcome acknowledgement of the importance of consumer confidence in the market. Raising the deposit protection limit could have a role in supporting increased consumer confidence in the financial services industry, encouraging consumer engagement with the industry and supporting economic growth while ensuring that robust consumer protections are in place.

Given the above, we welcome the proposed increase in the limit applicable to certain THB claims - used for qualifying life events such as buying or selling a house and payouts from insurance policies - from £1 million to £1.4 million. Ensuring robust consumer protection is important at all times, however there are certain life events when consumers are at greater risk of detriment and require even more robust protections to be in place. We agree with this proposal which would ensure that this limit will not be eroded in real terms since it was last changed.

Proposed changes to disclosure obligations and deposit compensation information

We note the importance of information being provided to consumers in a clear and accessible way to facilitate understanding and clarity. In line with the consumer principle of information, we welcome the proposed changes to the disclosure materials available for depositors. We welcome the changes proposed to the information sheet, compensation sticker and poster and exclusion list to ensure that these remain clear and up to date, reflecting the new deposit protection and temporary high balance changes. We welcome the proposals to simplify text, making it easier for both depositors and deposit-taking firms to understand and for that new depositor information to be displayed in third-party premises such as banking hubs. It is important that information is available in locations that are accessible to consumers. Banks and building societies have closed over 6,000 branches across the UK since January 2015,[iii] as a result of this we recommend that consideration is given to using a wider range of third-party premises such as post offices and libraries to alert consumers to the changes.

In line with the consumer principle of information we welcome the additional steps to raise awareness of the revised limit through awareness campaigns, refreshed disclosure materials and industry engagement. We note that, where there are variations in levels of protections and forms of investment such as emoney and cryptocurrency that are covered, it will be key for consumers to have the information required to facilitate awareness of what is protected.

We welcome the monitoring of the ongoing effectiveness of the changes though considering both the proportion of depositors protected by deposit protection limits to ensure that protection remains at an appropriate level and public awareness of protection available for deposits to ensure awareness remains at an appropriate level.