On 18 April 2023, the Bank of England (BoE) published a statement on improving depositor outcomes in bank or building society insolvency.

The statement sets out how financial authorities and industry are working together to deliver better outcomes for depositors in the event of a bank or building society insolvency. The changes are intended not only to improve the BoE’s ability to protect depositors following a bank or building society failure, but also to support a diverse and competitive banking sector in the UK.

The BoE, along with other authorities, industry and other stakeholders, has been exploring opportunities to minimise the disruption caused by insolvency to those depositors who are protected by the Financial Services Compensation Scheme (FSCS) but are reliant on their accounts with the failed firm for day-to-day banking and access to money.

As part of this work, UK authorities have identified the following three initial areas that could better support timely pay out of eligible depositors’ covered balances and improve continuity of payments and other banking services:

  • An online portal, enabling depositors to provide alternative account details so that the FSCS can electronically transfer the covered balance of their deposit at the failed firm to another bank or building society. Electronic transfer would therefore replace cheques as the primary means of pay-out.
  • Improved continuity of banking services potentially utilising the infrastructure used to support the sharing of payment information and redirection of payments made to/from the insolvent institution when a customer moves banks, enabling the transfer of certain payment information such as direct debits and standing orders.
  • For those depositors who need to open a new bank account to achieve continuity, exploring better operational support and capacity at receiving banks, especially where there are challenges to opening a current account for the depositor.

This work remains at an early stage and the authorities and other stakeholders continue to explore the feasibility, costs and timelines needed for these three components. UK authorities are agreed on the need to make meaningful progress towards a solution in 2023.

While the UK authorities work to develop a solution that will reduce payout times and operational risk, the BoE plans to continue to set resolution strategies in line with the existing framework, to help ensure resolution arrangements remain fit and ready. Further progress updates will be published in due course. The BoE is inviting input from anyone who may be able to support innovative, cost-effective and efficient solutions.