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Updates to the Financial Services Compensation Scheme – CII R01, CF1, CF8 and J03

Updates to the Financial Services Compensation Scheme – CII R01, CF1, CF8 and J03

Changes to the Financial Services Compensation Scheme (FSCS) were introduced recently. Those who are studying for any of CII CF1, CF8, ER1, J03, J10, J11, R01, IF1 and IF5 will want to become aware of these changes in preparation for their exams.

The Financial Services Compensation Scheme (FSCS) was set up to compensate eligible claimants where authorised firms or individuals are unable to satisfy claims against them in connection with regulated activities.

If the FSCS judges that a firm is in default, the firm must pay compensation to all claimants affected by the default. The limits of compensation for each claimant depend on whether the claim is for a protected deposit, a protected insurance contract or protected investment business. In recent months, changes have been announced to some of these limits.

Deposit Limits for Bank Accounts

Protected deposits include deposits at UK banks, building societies and credit unions. With effect from 1 January 2016 the deposit limit for bank accounts will reduce from £85,000 and £170,000 for joint accounts to £75,000, and £150,000 respectively. This is due to the European Union Deposit Guarantee Schemes Directive which sets the limit at €100,000 (or its equivalent) across Europe. £75,000 is, currently, the sterling equivalent of €100,000.

The CII will be testing this new limit from 1 January 2016.

Temporary High Balance Limits

Since 3 July 2015, a new £1 million protection limit has applied to customers with temporary high balances. For the protection to apply, the temporary high balance must have come about due to a specified life event taking place. Specified life events include:

  • selling a house;
  • receiving benefits under an insurance policy or on retirement; and
  • being left an inheritance.

The protection applies for a period of six months from the date of the money being placed into the customer’s account or the date on which they are entitled to draw on the money, whichever is the later.

For a full list of specified life events and further details you can go to:
https://www.fscs.org.uk/what-we-cover/questions-and-answers/qas-about-temporary-high-balances/#question0

The CII will be testing this new limit from 1 January 2016.

Long-Term Insurance Limit

3 July 2015 also saw a change to the protection offered to long-term insurance policyholders. Long-term insurance includes life assurance, pension and annuities. The protection is now 100% of the policyholder’s claim with no upper limit. Prior to 3 July the protection was 90% of the claim with no upper limit.

The CII will be testing this new limit with immediate effect.

Other Limits

The other limits are:

  • 100% for all compulsory insurances (third party motor and employers’ liability) policies and professional indemnity insurance;
  • 90% with no limit for all other insurance policies;
  • 100% of the first £50,000 for investments; and
  • 100% of the first £50,000 for mortgage advice and arranging.

The move to fully protect annuities and pension funds has been warmly welcomed by commentators, particularly in light of the pension freedoms’ legislation. However, the media coverage of the reduction in protection for savers has been predominantly negative and is being regarded as yet another blow for savers who are already suffering due to the low interest rates available.

Grab the resources you need!

If you’re studying for your CII CF8 exam, and you’re a little nervous about how you’ll do, grab our free taster to try out one of Brand Financial Training’s mock exam papers for yourself.  Click the link to download the CF8 mock exam taster now!

Click here to download our free taster mock paper for CII CF8

Alternatively, you can download taster resources for CF1, ER1, J03, J10, J11, R01, IF1 or IF5 if one of those exams is the cause of your worry.

Over to You…

What do you think of these new limits? Let us know in the comments. We’d love to hear from you!