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Customers of failed UK banks could get their money back within a week under proposals outlined today.
The Financial Services Authority (FSA) has set out plans for speeding up the payment of compensation in a bid to help boost confidence in the banking system and make people feel their money is protected.
The critical importance of the Financial Services Compensation Scheme (FSCS) - the official safety net for customers of financial firms that have gone bust - in paying out redress to savers has been emphasised by the events of recent months, which have seen several banks including Icesave, the UK arm of Icelandic bank Landsbanki, go under.
Icesave collapsed in early October and the first customers started getting their money back after six weeks. However, the FSA said it was proposing to change the rules "to make it possible for customers to get back their money within seven days if a bank fails".
When one credit union collapsed last year, the compensation scheme succeeded in getting payments to some people just one day after it was declared "in default", which was eight days after the organisation closed.
Hector Sants, chief executive of the FSA, said: "Experience in the last year has highlighted how essential compensation is, and that it is imperative consumers understand and trust that they will be reimbursed if a bank, building society or credit union fails."
He said the current scheme had worked well "in these unprecedented times", but that the regulator was keen to "learn the lessons from those events to produce an even better system".
"We recognise that to help underpin confidence in our banking system consumers must feel confident that their money is well protected, regardless of whether they ever have to claim compensation," he said.
The set-up and maintenance costs of installing new IT systems for quick claims processing are estimated at £892m over five years.
Today's consultation paper also recommends that banks and building societies should proactively tell consumers which trading names are covered by a particular "authorisation".
The FSCS covers the first £50,000 a saver holds with an individual bank, but if one bank is running two savings providers under the same banking licence, only one set of protection applies. Savers holding money with both Abbey and Bradford & Bingley, for example, only qualify for up to £50,000 protection across both institutions.
Currently, it can be difficult for consumers to know if separate parts of a bank share a licence.
Find out which providers are considered part of the same bank for compensation purposes with our interactive tool.
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