PS10/22 – Depositor Protection

1. Overview

1.1 This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to the response to the Consultation Paper (CP) 9/22 ‘Depositor Protection’. It also contains the PRA’s final rules as follows:

• amendments to the Depositor Protection Part of the PRA Rulebook (Appendix 1: Annex A);
• the deletion of the Dormant Account Scheme Part of the PRA Rulebook (Appendix 1: Annex B); and
• the deletion of the Dormant Account Scheme Statement of Policy.

1.2 This PS is relevant to different types of firms as follows:

• The Continuity of Access (CoA) Rules section is relevant to all PRA-authorised UK banks and building societies, but not credit unions. It is also relevant to overseas firms with permission to accept deposits where the deposits are held by a UK branch or subsidiary of the firm.
• The Dormant Account Scheme (DAS) section is relevant to all PRA-authorised credit institutions and credit unions. It is also relevant to overseas firms with permission to accept deposits where the deposits are held by a UK branch or subsidiary of the firm.

Background

1.3 In CP9/22, the PRA proposed to:

• delete the rules in DP 13.4–13.8 and amend the rules in DP 15.2–15.4 and 15.7, together the ‘CoA Rules’; and
• delete the DAS Rules from the PRA Rulebook and make other necessary consequential amendments.

1.4 CP9/22 contained a number of other proposals, including consequential amendments to PRA Supervisory Statement (SS) 18/15 ‘Depositor and dormant account protection’ which are subject to a longer consultation period ending Friday 16 December 2022. The PRA will reflect all the changes to SS18/15 resulting from the CP9/22 consultation process, (including those to reflect changes to the CoA and DAS Rules that are set out in this PS), after the whole CP9/22 process has concluded.

Summary of responses

1.5 The PRA received one response to the CP. The responder agreed with the proposals to revoke the CoA Rules and deletion of the DAS Rules but requested that the PRA provide 18 months’ notice should the CoA Rules be reintroduced in the future.

Changes to draft policy

1.6 In chapter 3 of CP9/22, the PRA proposed to delete the DAS Rules. The proposal mistakenly omitted the intent of the PRA to delete the Dormant Account Scheme Statement of Policy (DAS SoP) aimed at the Financial Services Compensation Scheme (FSCS). There is little impact from this error as the DAS SoP will be obsolete once the DAS Rules are deleted; therefore, it will also be deleted.

1.7 Appendix 1 of CP9/22 contained some minor typographical errors. These errors do not impact or change the substance or outcomes of the proposal outlined in chapter 2 of the CP. The final rules have been updated to remove these errors.

PRA’s statutory obligations

1.8 When making rules, the PRA is required to comply with several legal obligations, including publishing an explanation of the PRA’s reasons for believing that making the proposed rules is compatible with its objectives and with its duty to have regard to the regulatory principles.^{footnote [1]} In CP9/22, the PRA set out this explanation for the CoA and DAS proposals in chapters 2 and 3, under the headings ‘PRA Objectives Analysis’ and ‘Have Regards Analysis’. The PRA only received one response to the consultation which supported the proposals. The analysis, as presented in the CP, therefore remains unchanged.

Implementation and next steps

1.9 The changes to the COA Rules and DAS Rules will come into effect on 30 November 2022. The DAS SoP will also be deleted on the 30 November 2022. The consequential changes to SS18/15 to reflect the changes introduced by these rules will come into effect during 2023.

1.10 CP9/22 contained a number of additional proposals to:

• amend the rules in:
  • DP 10 – to confirm that a trust can hold monies that fall within the scope of the temporary high balance (THB) regime and set out when a joint account holder is entitled to THB protection (Temporary high balances section);
  • DP 6.2 – to protect eligible customers of e-money institutions, authorised payment institutions, small payment institutions, and credit unions (in respect of e-money), if a credit institution holding such firms’ safeguarded funds were to fail (Protection for deposits that are safeguarded funds section);
  • DP 3.2 – to set out that depositors of overseas firms that have their Part 4A permission removed and exit the UK market do not continue to benefit from FSCS protection (FSCS protection for firms in default section);
  • DP 19.1(2) – to provide that depositors only have a right of withdrawal, without penalty, when a deposit taker merges with or transfers their deposits to another deposit taker, if the operation results in a reduction in FSCS protection (Withdrawal rights on deposit transfer section);
  • DP 17.1(3) – so that the annual FSCS notification requirement for depositors does not apply to depositors that are not entitled to FSCS protection by virtue of their legal personality (FSCS notification requirements section); and
• delete PRA Rules and amend and update existing policy documents:
  • update SoP – Risk Based Levies (RBL) to account for changes made to reporting requirements and the leverage ratio (Risk based levies section);
  • delete PRA Rules in DP 17.3 and 20.3 as given the period of time since IP Completion Day, these Rules are now spent; and
  • amend and update SS18/15, SoP – DGS SoP, and SoP – RBL to reflect the UK’s withdrawal from the EU, expired transition periods, and rules that may be removed pending the outcome of this CP (Consequential amendments to PRA rules, Supervisory Statements, and Statements of Policy section).

1.11 These proposals are subject to a 12-week consultation period which closes on Friday 16 December. The PRA will consider the responses to these proposals and will publish a further PS in due course.

2. Feedback to responses

2.1 Before making any proposed rules, the PRA is required by FSMA to have regard to any representations made to it, and to publish an account, in general terms, of those representations and its feedback to them.^{footnote [2]}

2.2 The PRA has considered the response received to the CP. This chapter sets out the PRA’s feedback to that response, and its final decision.

2.3 In CP9/22, the PRA proposed that:

• the CoA Rules would be revoked before the expiry of the current waiver by consent on Thursday 1 December 2022, and firms that have already developed CoA systems should consider maintaining or archiving those systems; and
• the DAS Rules would be deleted.

2.4 The respondent supported the proposal to revoke the CoA Rules and agreed that the PRA should carry out further work to develop alternative solutions to reduce disruption to depositors’ accounts in the event of an insolvency procedure. The respondent requested that 18 months’ notice is given should the PRA re-implement any of the CoA Rules. The respondent also supported the proposal to delete the DAS Rules.

2.5 Having considered the response, the PRA has decided to implement the CoA and DAS proposals as set out in CP9/22 and delete the DAS SoP. If the PRA decides to re-implement any of the CoA Rules, it will ensure that it provides firms with adequate notice.