Guide

Deposit guarantee scheme - making the final changes

If you were eligible for a Deposit Guarantee Scheme Directive (DGSD) extension under the Continuity of Access clause, you should implement your compliance programme plans as soon as possible, to meet the December 2019 deadline.

To achieve this, you must conduct a gap analysis, undertake Continuity of Access scoping and fully integrate your compliance processes within your wider risk management framework. Don't underestimate the resources needed to establish an effective control and assurance framework within the short time-frame.

The EU Deposit Guarantee Scheme Directive was introduced in 2014 to promote the integrity of the banking sector and improve consumer confidence. The directive, later embedded as local regulation, gave customers the same degree of protection over their deposits across each EU member state.

What about Brexit?

The directive was transposed into UK law via the Depositor Protection Instrument of 2015, which applies to all banks, building societies and credit unions. It also applies to overseas firms with permission to take deposits and UK branches of EEA credit institutions.

Despite the directive being EU led, Brexit will not have an immediate impact on how the Deposit Protection Scheme Directive applies to UK based firms. Due to the uncertainty around Brexit planning, many firms are moving deposits to EU legal entities to minimise the risk of business disruption. If your firm has done this, you must check the local implementation of the directive in order to remain compliant with regulation in the relevant EU member state.

Getting to grips with the Single Customer View

The images of customers queuing outside Northern Rock and the nationalisation of Bradford & Bingley still cast a long shadow, and the directive aims to protect depositors in the event of a bank failure. To achieve this, each EU member state was required to establish a Deposit Guarantee Scheme (DGS) to repay eligible deposits. In the UK, this is the Financial Services Compensation Scheme (FSCS).

A key element of the regulation is the Single Customer View (SCV). The SCV provides an aggregate picture of a customer’s deposits with a bank, which may be across several different accounts or business activities.

Essentially, the SCV allows the FSCS to pay customers in a timely fashion and a good deal of the related requirements support prompt identification of what is, or isn’t, eligible for repayment.

What should you do now?

As a bare minimum, you should have an effective control and assurance framework to establish and monitor ongoing compliance with the Depositor Protection rules. To achieve this, you should:

  • create and maintain SCV and Marking Effectiveness reports
  • ensure your SCV data is complete, correct and accurate
  • check your DSGD implementation against your current Brexit plans
  • undertake Continuity of Access scoping and programme implementation
  • gain assurance over SCV and marking systems in preparation for compulsory stress testing
  • engage in external audit reviews, as required by the PRA.

It can be easy to underestimate the resources required to complete these activities and time is never on your side when implementing a new regulatory regime. Careful planning is the key to developing a strong compliance framework – and one which can be updated in the future as the regulatory landscape continues to evolve.

For further information on the Deposit Guarantee Scheme Directive and how we can help your business, please contact Rebecca Deane.

Read our guide to the Deposit Guarantee Scheme Directive (DGSD)