Not an island...
As I write this blog, FSCS has just finished hosting a meeting of European deposit protection schemes.
Twenty seven countries were represented. The focus was on resolving failing banks and, in particular, on stress-testing arrangements to protect depositors. How do we ensure that we can meet our commitment to return savings in seven days? What lessons can we share about stress testing and payout experience?
Now, you may think this worthy, but slightly dry.
In fact, it represents the tip of the iceberg of FSCS’ international engagement – an engagement which brings big benefits for the UK and in which FSCS is a recognised world leader.
The prominent role which FSCS plays internationally reflects in part our uniqueness.
No other protection scheme has the same breadth of coverage as FSCS.
Some of our sister schemes – the FDIC in Washington, for example – also have regulatory powers, but only protect bank deposits. Other schemes do cast their protection wider, but none as wide as FSCS. We are, for example, almost the only organisation internationally to protect consumers from financial losses arising from mis-selling of investments.
And, although we certainly cannot claim the same distinguished heritage as the FDIC, which was created as part of FDR’s New Deal legislation in his first term, FSCS has often been a pioneer.
We have, for example, been able to return deposits in a failing bank, building society or credit union within seven days since 2011. That has since been adopted as the European standard. We have also lead in Europe measures to raise awareness of depositor protection.
It means that our experience is of great interest and value to our partners.
That leadership and experience also explains why my colleagues are in great demand in leadership positions in the international bodies representing protection schemes. Alex Kuczynski, for example, doubles as a member (and vice chairperson) of the Board of the European Forum of Deposit Insurers (EFDI) and a member of the Executive Council of the International Association of Deposit Insurers (IADI).
This is very far, however, from being a one-way street. Our international relationships are also important to FSCS.
So what benefits do we derive from this engagement?
Well, first of all, these international bodies set standards – standards to which FSCS must adhere. FSCS is an influential voice in setting those standards, working with both other guarantee schemes, but also international bodies such as the Financial Stability Board, International Monetary Fund, World Bank and European Union institutions – contained in core principles or directives and regulations.
The seven-day standard for returning depositors’ savings in a failing bank is a good example – a standard which affects almost every adult in the UK. Others include early detection of problem firms, recoveries and access to funding, and the wider role in the safety net. These relationships matter in the event of the failure of financial services firms operating across international boundaries. Some of us will recall the role of FSCS responding to the failure of Icelandic banks in the crisis. In these circumstances, FSCS must be able to work harmoniously with our international partners to protect UK customers of overseas firms or the overseas customers of UK firms.
In the last 12 months, FSCS has, for example, worked closely with our counterparts in the Danish Insurance Guarantee Fund to ensure that the UK customers of the failed Alpha insurance company are compensated. Both FSCS and the Danish fund are members of the International Forum of Insurance Guarantee Schemes – whose management committee and supporting members are meeting at FSCS this week.
For Alpha, much, though not all, of the financial costs have fallen on the Danish scheme, but FSCS has been able to support the resolution by facilitating the transfer of some categories of policy to other providers.
The relationships and trust forged by joint participation in international organisations make a big difference here.
And, finally, just as many overseas schemes look to FSCS for useful lessons. There is much that we can learn from others’ experience. International organisations are the ideal fora for sharing experience.
So we look at the experience of overseas counterparts in raising awareness of deposit protection.
A role model here has been the FDIC. US banks have displayed information about FDIC protection since the 1930s. Now UK banks, building societies and credit unions display FSCS’ badge in branches, marketing material and websites. That has contributed to raising awareness of FSCS protection to around 80% of adults – a powerful force for financial stability.
We also look keenly at the methods overseas schemes adopt to return funds. We are very conscious that the speed with which we are able to return funds is not matched by the convenience. We still rely on cheques or letters that can be cashed at a Post Office branch.
So do some of the approaches pioneered by our overseas partners – payments cards, for example – offer new options? We are looking closely to see.
And we share operational experiences such as social media usage, the role of call centres, investment policy, and cross-border information sharing and cooperation to name a few.
In short, FSCS is far from an island.
Many overseas protection schemes look to us for lessons because of the breadth of our coverage and the depth of our experience. We help shape international standards.
But we can also learn ourselves. And the relationships we form help to protect UK consumers when cross-border failures occur.