Cascade Commentary

The Financial Conduct Authority's (FCA) Head of Strategy and Competition, Christopher Woolard, raised concerns over consumer protections in the aftermath of Brexit at a hearing on Tuesday 10 October.

At present, Directive 2014/49/EU requires countries within the EU to introduce laws to establish at least one depositor guarantee scheme that all banks must join. In the UK, this is the Financial Services Compensation Scheme (FSCS). EU member states must ensure a harmonised level of protection for depositors (currently set at 100,000 euros or an equivalent value in the member state's domestic currency) while also producing a list of the types of deposits that are protected. Domestic depositor guarantee schemes that are officially recognised in one country must also cover the depositors at branches of their members in other EU countries.

As an example, the French bank RCI is protected under the French depositor guarantee scheme, the FGDR (Fonds de Garantie des Dépôts et de Résolution), and not under the FSCS. While the UK remains a member state of the EU, a depositor in the UK with RCI Bank will be protected to the equivalent sterling value of 100,000 euros (currently £85,000) per person should the bank fail. If RCI were to fail, then depositors would currently not be required to take any action. The FGDR would automatically compensate the client to the equivalent sterling value of 100,000 euros per person. However, as the UK has served notice to leave the EU, these protections now need to be negotiated and the Bank of England has raised the alarm over the risks should this not remain in place. 

Mr Woolard stated the following:

"We need to make sure these contracts are effective and work outside beyond the exit date. The issue of consumer contracts still having a mechanism to work cross-border is going to be critical… Currently if you have a product purchased from a firm regulated elsewhere in the EU you as a UK citizen have a right of access to the compensation scheme within that country if the product fails. Clearly, in the wider conversation over how consumer contracts would work in the future, that’s one of the things that would need to be considered."

The FCA have indicated their preference for continued access between the City of London and the single market, with negotiated mechanisms to allow for co-operation with EU regulators post-Brexit. Mr Woolard indicated that while the FCA recognises the magnitude of the challenge now facing the UK in exiting the single market, depositors can be reassured that the regulator is "in a reasonably good place to make sure that the protections for consumers that exist (today) continue to exist post-Brexit".