FSCS Protection -- Ethics


(Muyiwa Olu) #1

Just wanted to start a potential discussion about Monzo – once they become a bank – potentially letting the user know when they’ve accumulated more than £85k that any more deposits above that amount would not be protected under FSCS, and they should look for another Bank to make sure the remaining cash is covered.

Or maybe even automatically block all incoming amounts after £85k unless the user specifically turns a button on to allow it – after being warned of the risks, of course.


(Rika Raybould) #2

Strongly against this one part. Incoming payments should not be rejected unless there are legal reasons (court orders, etc.).

The rest of it sounds excellent. I’m not entirely sure what Monzo could specifically do but warning users of the protection limit and offering some options to resolve it is a good thing to do. Especially since if a user has £85,000+ in Monzo for an extended period of time, they’re likely the kind of person who might be interested in having multiple accounts over different banks or investing that money elsewhere.


#3

I am aware that across Europe the €100,000 protection is increased in certain circumstances so I thought I check that the UK complies with this Regulation. They do.

So it actually depends on circumstances as sometimes there is more than £85,000 protection, for a limited time period.

The Financial Services Compensation Scheme (FSCS) provides a £1 million protection limit for temporary high balances held with your bank if it fails.

‘Temporary high balances’ are the result of specified major life events that lead to a large amount of money being held in a person’s account for up to 6 months.

A depositor with a temporary high balance may be entitled to receive additional compensation from FSCS of up to £1 million per life event.

Proceeds resulting from the following life events are categorised as temporary high balances:
Sums paid to the depositor in respect of:
*Real estate transactions (property purchase, sale proceeds, equity release)
*Benefits payable under an insurance policy
*Personal injury compensation (unlimited amount)
*Disability or incapacity (state benefits)
*Claim for compensation for wrongful conviction
*Claim for compensation for unfair dismissal
*Redundancy (voluntary or compulsory)
*Marriage or civil partnership
*Divorce or dissolution of their civil partnership
*Benefits payable on retirement
*Benefits payable on death
*A claim for compensation in respect of a person’s death
*Inheritance
*Proceeds of a deceased’s estate held by their Personal Representative

The usual FSCS limit of £85,000 still applies to all other deposits held with your bank.

To verify a temporary high balance, FSCS may ask to review evidence such as court documents, legal correspondence or death or marriage certificates. The evidence required will depend on the life event that has resulted in the temporary high balance.

Sources: Handelsbanken employee and corroborated by the FCSC freephone helpline


How much does Monzo differ from traditional banks in terms of going bankrupt
(Hugo Cornejo) #4

Thanks @muyiwa! That’s a great idea and something that we definitely have on our roadmap.

We actually designed it and shared with the regulators almost a year ago (when we were still Mondo and the limit was £75k :smile_cat:).


Bank going bust
Maximum balance
#5

With regard to moving money to another bank when exceeding the limit (currently 85K) it should be noted that while some banks have their own separate license (e.g. RBS and NatWest) some have a license for their group so even if you deposited say £50K in one bank in their group and £50K in another that would result in £100K in that group with only the first £85K being covered despite having well below £85K in each. Therefore as well as advising to move some to another bank, perhaps some warning along these linea (if it can read clearly and not look legalese) or advice to consult an independent financial advisor (a list of them could perhaps be in any Monzo marketplace)


(Hugo Cornejo) #6

Of course. Should we build this we’ll do it properly :slight_smile:


#7

Would you be able to have multiple Monzo current accounts (like you can with legacy banks) that you could then move that extra money across to and be protected on? Or would it have to be another provider e.g. Barclays/HSBC?


(Andrew Schofield) #8

Protection is on a per institution basis, so you’d need another account with a different provider (institution).


#9

it is on a per license basis and Not per institution.

In some cases multiple institutions are covered by a single license so the total money on deposit at ALL the banks covered by that one license are covered to 85K and there is Not 85K cover per institution.

In other cases there is 85K cover per institution in a group as instead of one license for the group they may have more than one license


#10

it would need to be moved from Monzo to another bank.

Of course if Monzo introduce Joint accounts there is a higher limit than 85K applicable to those (£170,000).


(Alex Sherwood) #11

It doesn’t look like that’s going to happen -


(Naji Esiri) #12

I must actually correct myself here! Joint accounts have come up in conversation since, and whilst nothing is confirmed it is something we’ll be looking at once we launch current accounts :raised_hands:


Joint Accounts 9
(Andrew Schofield) #13

Sorry, incorrect choice of words on my part. This is what I meant :slight_smile:


(Muyiwa Olu) #14

Hugo, this is exactly what I had in mind. Just a way to let users who may otherwise not know avoid potential future issues.

Excellent design, too!


(system) #15

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