Building society mergers and compensation
At the end of 2008 and in early 2009, we introduced temporary rules about deposits (for example savings and current accounts) that are involved in mutual society mergers and transfers of deposits described below. This was so that consumers would continue to benefit from their previous protection by the Financial Services Compensation Scheme (FSCS). We have now extended these rules until 30 December 2010 – originally they were to end on 30 September 2009.
What does this mean for customers?
If a merged building society or other type of mutual society, or a firm that has accepted a transfer of deposits from another firm, continues to operate the business under separate names, existing customers will be entitled to the same level of FSCS coverage they had before. This will apply when:
- two building societies with which they have accounts merge;
- a building society merges with the subsidiary of another mutual society; or
- a bank or building society gets into difficulties, and in order to resolve this the regulatory authorities decide to transfer consumers’ deposits with one firm to another firm with which they may already have an account.
So if a customer had accounts with each of the two firms involved in the merger or transfer, they will now have a total potential coverage of up to £100,000 (up to £50,000 for the accounts with each firm).
What is a mutual society?
A mutual society is an organisation that is run in the interests of its members who are its customers. As members, customers own the organisation and have a say in how the business is run through voting at public meetings. Some examples of mutual societies are building societies and co-operative societies.
Why has there been an extension?
By December 2010 we will know if countries of the European Union have agreed to change the standards for compensation limits applying to all member countries. We will then be able to make a permanent decision on our compensation rules.
Does the rule on mergers apply to banks?
The rule on mergers only applies to mergers between buildings societies, or between a building society and the subsidiary of another mutual. This is because the laws that affect building societies and banks are different. If two banks merge, they can, if they choose, keep separate authorisations and coverage under the FSCS. Building societies can only have a single authorisation when they merge.
Does the rule on transfers apply to banks?
The rule on transfers applies to all banks as well as building societies. Unlike mergers, deposit transfers tend to be arranged at short notice, sometimes within a few days, in order to quickly deal with a firm that is in difficulties. So even if a bank receives a transfer of deposits, there wouldn’t be enough time to get a separate authorisation to cover the transferred deposits.
What about new accounts?
Customers who open new accounts after the merger or transfer will only be entitled to total FSCS protection of up to £50,000.
This is because customers who had accounts with the two firms before the merger or transfer may not have known it would happen, and might have a lower overall level of FSCS coverage on their savings. They may also have accounts where they would have to pay a penalty to withdraw their savings.
Customers who make deposits after the merger or transfer will be aware it has happened and can take this into account when deciding where to put their money.
Which firms does this affect?
It is up to the firms involved to decide whether they will use the rules when they merge or accept transfers of deposits. When a merger or transfer takes place we will update our list of UK banking and savings groups to show which firms are affected. This will include the date the merger or transfer took effect and the names under which the separate limits apply.