On 15 August 2018, HM Treasury published a draft of the Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018, together with an explanatory memorandum.
The draft Regulations are not intended to make policy changes but rather amend legislative provisions concerning deposit guarantee schemes and the Financial Ombudsman Service (FOS) to reflect the UK’s future position outside the EU.
Part 2 of the draft Regulations concern the FOS and amends the references to EU legislation (the Alternative Dispute Resolution Directive) in schedule 17 of the Financial Services and Markets Act 2000 (FSMA) to ensure they function post Brexit.
Part 3 of the draft Regulations covers deposit guarantee schemes. The Deposit Guarantee Schemes Directive is an EU Directive which harmonises the scope, eligibility, financing and repayment times of deposit coverage in the EU. The Financial Services Compensation Scheme (FSCS) is the UK’s deposit guarantee scheme and pays compensation to depositors when an authorised UK credit institution fails. The FSCS also provides compensation to customers of certain other types of firm, for example insurers and investment firms. Brexit related changes to the FSCS membership and rules are being made in the EEA Passport Rights (Amendment etc, and Transitional Provisions) (EU Exit) Regulations 2018 and the UK regulator’s rulebooks.
However, further changes to the UK’s regime for deposit guarantee schemes are needed and Part 3 of the draft Regulations:
- transfer coverage level setting power from EU institutions to UK institutions. The PRA will have the power to review, adjust and set the deposit coverage level with approval from HM Treasury;
- removes the arrangement whereby the FSCS administers compensation payments to depositors at UK branches of EEA credit institutions on behalf of an EEA deposit guarantee scheme. However, the draft Regulations include a transitional provision allowing the FSCS to continue after Brexit to accept instructions and funds from an EEA deposit guarantee scheme in the event that an EEA firm operating in the UK fails immediately before Brexit;
- removes the requirement for the PRA to notify the European Banking Authority each year of the amount of deposits in the UK which are covered by the FSCS and the funding available to the FSCS; and
- amends EU references and removes arrangements which will no longer be appropriate after Brexit.
HM Treasury plans to lay the draft Regulations before Parliament in the autumn.