BoE updates on improvements to depositor outcomes

Following its December 2021 policy statement on the approach to setting a minimum requirement for own funds and eligible liabilities (MREL), BoE considered whether recent innovations in technology in the banking system might afford opportunities to mitigate disruptions that may occur in the event of a bank insolvency. It aims to improve outcomes for depositors who are protected by the FSCS, but are reliant on accounts with the failed firm for day-to-day banking and access to money.

BoE has now published a policy statement updating on the work undertaken since, identifying three initial areas that could better support timely payout of eligible depositors’ covered balances and improve continuity of banking services. BoE proposes these three component parts as a potential solution:

• An online portal for 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 payout. Such mechanisms have been successfully used in a number of other jurisdictions following the failure of small banks.
• Improved continuity of banking services, potentially utilising infrastructure used to support the sharing of payment information and redirection of payments during the Current Account Switch Service (CASS) process. This would enable the transfer of  information such as direct debits and standing orders.
• For depositors who need to open a new bank account to achieve continuity, better operational support and capacity at receiving banks, especially where there are challenges to opening a current account for the depositor.

The work is still in its early stages, with authorities and other stakeholders continuing to explore the feasibility, costs and timelines for these parts. UK authorities are agreed on the need for progress towards a solution in 2023.

In the meantime, BoE will continue to set resolution strategies in line with the existing framework, to ensure resolution arrangements remain fit and ready. The work pre-dates, but aims to incorporate lessons learn from, the resolution of Silicon Valley Bank UK.