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Law360, London (July 9, 2020, 3:21 PM BST ) The Bank of England on Thursday proposed extending by six months a measure that safeguards high sums of money deposited into bank accounts in order to protect residential property and investment markets during the COVID-19 crisis.
The central bank floated increasing the so-called temporary high balances protection scheme from six months to a year from the date that a customer deposits up to £1 billion ($1.3 billion). The safeguard protects customers from losing their savings if their bank, building society or credit union fails.
The BoE plans to allow the Financial Services Compensation Scheme to protect big sums for a year if the customer has deposited the money before Jan. 31, 2021. The scheme will revert back to only lasting for six months from Feb. 1, 2021, under the new proposal.
The FSCS indefinitely protects up to £85,000 in savings for an individual and double that amount for joint accounts. But under normal circumstances, the financial lifeboat only protects any amount above this — and up to £1 million — for 6 months.
The temporary extension is aimed at helping the property and investment sectors bounce back from the economic downfall caused by the coronavirus pandemic. The high balance protection scheme came into force in 2015 and protects higher sums of money deposited by consumers after the sale of their house or a redundancy package, for example.
"Due to the impact of COVID-19, the residential property market stalled in late March," the central bank said in a consultation paper published Thursday. "For [temporary high balances] depositors seeking to purchase residential property, it may — in some cases — take longer than originally anticipated for them to be in a position to complete residential property transactions, during which time many may have lost their FSCS [temporary high balances] coverage."
U.K. deposit holders have until July 23 to respond to the central bank's proposal.
The high balance deposit protection scheme is governed by the European Union's Deposit Guarantee Schemes Directive, which forces member states to safeguard money in retail accounts.
The BoE said that it will assess whether any changes will be needed to the scheme once the U.K. leaves the bloc at the end of the Brexit transition period, which is due to take place in December.
--Editing by Rebecca Flanagan.
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