Prudential Regulation Authority Rulebook

25.

Chapter 10 sets out the PRA rules applicable to the protection of certain deposits categorised as ‘temporary high balances’ (THBs).

26.

The PRA considers that the THB protection limit in Depositor Protection 4.3 applies to each depositor on a ‘per event per authorised entity’ basis and is intended to apply to natural persons only (ie individuals) and not all eligible depositors (eg not companies). Where the depositor is a trust, the PRA considers that it is the underlying beneficiary that is required to be an individual. This includes a beneficiary who is absolutely entitled to the deposit (under a bare trust). Trustees of a trust where individual beneficiaries have less than an absolute beneficial interest may make a THB claim on behalf of the trust as a whole. This includes where the trust involves the exercise of discretion (under a discretionary trust). If an individual or a trustee has eligible deposits in excess of £85,000 as a result of more than one of the life events set out in Depositor Protection 10.2, a claim may be made for compensation in respect of both of those events and the limit in Depositor Protection 4.3 would apply separately to each event. For example, if an individual had a deposit of £750,000 from an inheritance and a deposit of £750,000 from a house sale, then they would be able to claim up to £750,000 in each case.

27.

Where an individual has spread a THB across more than one deposit-taker, then they would be able to make a separate claim for each deposit-taker that defaults. However, the depositor would still need to demonstrate a sufficient link between the amount in their account at the point of default and the THB event. The depositor should never be able to claim more than the value of the original amount from the event that gave rise to the THB.

28.

Individual depositors in a joint account will each benefit from THB coverage separately, although they will only benefit from this if they are able to demonstrate that the THB arises from a relevant life event and provide verification. Each joint account holder will also only be able to claim for the proportion of the THB deposit to which they are entitled (in accordance with the terms of the account or equally, where the terms of the account do not specify the split). For example, where £2 million (which is the proceeds of sale from the depositor’s house) is deposited in a joint account which is owned equally by a couple, each will be entitled to claim up to £1 million. If only £1 million is deposited, each can claim up to £500,000. For the avoidance of doubt, as noted above, each depositor can claim on a ‘per event per authorised entity’ basis meaning that a couple is entitled to a claim of up to £1 million each for the same life event (eg wedding or redundancy) per authorised entity. 

29.

Under Depositor Protection 10.7, the protection for THBs runs for a period of six^[2] months from the later of the first date on which a THB is credited to a depositor’s account and the first date on which the THB becomes legally transferable to the depositor, or in the case of a trust, the depositor or the beneficiary. The PRA considers that a deposit becomes legally transferable to a person at the point in time when that person becomes entitled to receive the money. This is likely to include the date of grant of probate, the date of completion of a residential property sale or the date on which a judgement is made awarding damages.

30.

Depositor Protection 10.2 sets out the list of categories of eligible deposits that may benefit from THB protection. We have set out further detail below on the PRA’s expectations in relation to these categories:

31.

The protection under Depositor Protection 10.2(1) should enable a person to claim THB protection in relation to amounts deposited in their own account or in a solicitor’s client account on their behalf.

32.

The PRA considers references to ‘private residential property’ in Depositor Protection 10.2 (1) to refer to a specific residential property (ie the property is identifiable) in which the individual resides, intends to reside or has resided as their main or only residence (as that term is understood in connection with capital tax gains purposes). The PRA does not consider that general savings for a property should fall under this category. 

33.

The PRA considers that land purchased with a view to constructing a dwelling would fall within this category. The claimant should provide evidence that the land has been purchased (or is about to be purchased) with a view to constructing the purchaser’s only or main dwelling.

34.

The PRA considers that proceeds from the sale of a property that the individual owned as a buy-to-let property, or that was the individual’s investment property, should not benefit from THB protection. Similarly, the PRA considers that funds held by or on behalf of an individual in preparation for the purchase of second home, a holiday home, or any other investment property (which will not be the individual’s only or main residence) should not be protected.

35.

For the avoidance of doubt, the PRA does not consider that THB claims falling under this category should be restricted to the purchase price of the property. For example, the PRA expects that amounts falling under category 10.2(1)(a) could include deposits for anticipated stamp duty and associated fees.

36.

The PRA considers that the following deposit types would benefit from THB protection:

1. (a) sums paid in respect of benefits payable under an insurance policy. These may include proceeds of pure protection contracts as well as sums paid in respect of lump sums payable under an endowment or life insurance policy;
2. (b) a claim for compensation for personal (including criminal) injury. This may include personal injury compensation payments or damages for incapacity or invalidity (made in court (by HM Courts and Tribunal Services or by an equivalent non-UK court or out of court, or from a statutory body);
3. (c) state benefits paid in respect of a disability or incapacity. This may include backdated payment for care, disability living allowance, severe disablement allowance, vaccine damage payment;
4. (d) a claim for wrongful conviction. This may include compensation for wrongful conviction resulting from decisions made by HM Courts and Tribunal Services or by an equivalent non-UK court;
5. (e) sums paid in respect of a divorce or dissolution of a civil partnership. These may include divorce settlement lump sums (including out of court settlements) or lump-sum settlements resulting from civil partnership dissolution;
6. (f) sums paid in respect of sums payable on retirement. These may include lump sums payable under pension schemes; and
7. (g) sums deposited in preparation for the purchase of, or arising from the sale of house boats and other mobile homes which are or, if the purchase not yet happened, are intended to become, the depositor’s only or main dwelling.

37.

The PRA considers that sums paid to, or for the benefit of, an individual in respect of benefits payable on death may include death in service payments paid under occupational pension schemes or otherwise.

38.

The PRA also considers that ISAs passed on to a spouse at death would also fall under this category.

39.

Following the default of a firm (ie where a determination has been made that deposits are unavailable), the PRA expects that the FSCS will review the SCV file and exclusions view file of the firm and write to depositors with aggregated deposits at the firm in excess of £85,000 to inform them that they, or where the depositor is a trustee, the beneficiary, may be entitled to additional compensation if they hold any deposits that qualify as temporary high balances and can provide evidence verifying this.

40.

The PRA expects the FSCS to provide information to the depositor on what constitutes sufficiently robust evidence and refer the depositor to where they may find further information, including information on any prescribed format for the evidence, the address to which the evidence should be submitted, any relevant timeframes for submission and an overview of the process the FSCS will follow in assessing the evidence. The PRA expects that the FSCS may ask to review evidence including (but not limited to) the following: a property sale receipt or agreement; a court judgement; a will; a letter from an insurer regarding an insurance payout; a letter from a lawyer, conveyancer, mortgage provider, former employer or pension trustees; court orders; social security statements; probate/letters of administration; death/marriage certificate; land register records and HMRC records. This list is not exhaustive.

41.

Regarding claims made in respect of Depositor Protection 10.2 (2)(g), the PRA expects that the FSCS should require suitable evidence that a marriage or civil partnership between two specified individuals has been arranged, for example, confirmation of the booking of the marriage or civil partnership ceremony.

42.

The PRA expects the FSCS to assess the validity of a THB claim in accordance with PRA rules and to determine if a sufficient link has been established between an eligible deposit and the relevant THB category on the basis of the nature of and quality of evidence provided by the depositor.

43.

The PRA expects the FSCS to determine (i) that the evidence provided by the depositor is sufficiently robust; and (ii) that the deposits fall under one of the THB categories.

44.

The PRA acknowledges that because depositors may have payments flowing in and out of their accounts, it may be difficult to establish what portion of their money has retained THB protection since the THB was paid in. The PRA considers that, once the THB has been credited to a depositor’s account, the depositor will benefit from the extra THB protection for the coverage period to the value of the original THB credit, no matter what pattern of payment follows.

45.

If a THB is transferred to another DGS member, then the PRA considers that the THB cover would be retained (although the coverage period will not begin again, ie the depositor will not be able to receive consecutive periods of cover for the same THB). Where there are a number of payments flowing in and out of accounts, it may be difficult to establish whether a THB has been transferred and the PRA expects that the FSCS, in determining if a sufficient link has been established between an eligible deposit and a THB category, should have regard to a number of considerations including:

1. (a) the written evidence provided by the depositor;
2. (b) the value of the amount or amounts transferred and whether they constitute a de minimis proportion of the original THB;
3. (c) the length of time that has elapsed between the life event specified and the date on which the relevant sum was credited to an individual depositor’s account; and
4. (d) any other relevant factors.

46.

By way of illustration, the examples below set out where the PRA expects that a depositor would be eligible for THB protection and where protection would not apply.

Examples: In the examples below it is assumed that an individual’s £100,000 inheritance has been credited to bank A. Where the deposit is held on trust for individual beneficiaries who are entitled to claim for a THB, references to the individual being able to claim compensation should be read as references to the beneficiary.

1. (a) If the individual transfers £50,000 to bank B, the PRA considers that the depositor should be able to claim up to £50,000 from the FSCS for each amount (in addition to the standard £85,000 compensation per bank) should both banks fail within six months from the date at which the £100,000 was credited to bank A.
2. (b) If the individual withdraws £100,000 from bank A, and A fails within six months of the date at which the original £100,000 inheritance was credited to A, and the depositor still has aggregate deposits of £100,000 remaining in the account, then the PRA expects that the depositor should be able to claim £15,000 THB compensation.
3. (c) If the individual transfers £50,000 to bank B, giving the depositor a balance with bank B in excess of £85,000, and bank B fails one month after the amount was credited to B but thirteen months after the original amount was credited to A, then the PRA considers that THB protection should not apply.
4. (d) If the individual withdrew £100,000 from bank A, but there was no corresponding transfer to bank B, should bank B fail and the depositor had an aggregate balance of £185,000 at bank B (and there had been no payments in during the coverage period), the PRA considers that the depositor should not be able to claim £100,000 THB protection from bank B.

47.

Depositor Protection 4.3 sets out that, for THB claims for sums paid in respect of personal injury or incapacity claims, there is no limit to the compensation payable for THBs. The PRA expects that deposits falling under this category would include sums paid in respect of:

1. (a) claims for compensation for personal (including criminal) injury under Depositor Protection 10.2(2)(b) which may include personal injury compensation payments or damages for incapacity or invalidity (made in court (by HM Courts and Tribunal Services or by an equivalent non-UK court) or out of court, or from a statutory body);
2. (b) state benefits paid in respect of a disability or incapacity under Depositor Protection 10.2(2)(c) which may include backdated payment for care, disability living allowance, severe disablement allowance and vaccine damage payment; and
3. (c) benefits payable under insurance contracts for personal injury or incapacity claims.

48.

For the avoidance of doubt, the PRA considers that the THB limit may apply to a number of deposits for the same life event. For example, where a depositor has three deposits of £5,000 as separate gifts for the same wedding, the depositor is entitled to claim up to an additional £15,000 over and above their normal £85,000 protection. Total claims for the same life event may not exceed £1 million (unless for a personal injury or incapacity claim).

49.

Depositor Protection 10.8 sets out the timeframe for the FSCS to pay compensation.

50.

In addition to the payment of compensation in respect of funds held on trust, the FSCS may also pay compensation in accordance with Depositor Protection 10.6 in respect of a temporary high balance to a person who makes a claim on behalf of another person in certain circumstances. Examples of circumstances in which the FSCS may decide to pay compensation in respect of a THB to a person who makes a claim on behalf of another person include:

1. (a) where a personal representative makes a claim on behalf of the deceased;
2. (b) deleted;
3. (c) deleted;
4. (d) where the donee of an enduring power of attorney or a lasting power of attorney makes a claim on behalf of the donor of the power;
5. (e) where the Court of Protection makes a claim on behalf of a person incapable by reason of mental disorder of managing and administering their property and affairs; and
6. (f) where an eligible claimant makes a claim for compensation but dies before their claim is determined.