FSA Consults on Non-EEA National Depositor Preference Schemes

The Financial Services Authority has published a consultation paper on the implications of national depositor preference schemes that govern the liquidations of certain banks based outside of the European Economic Area (the "EEA") that take deposits in the UK.

According to the consultation paper, in certain non-EEA countries, banks may be liquidated pursuant to national depositor preference schemes that subordinate the claims of branch depositors situated outside of the bank's home country; e.g., in the UK, to the claims of the bank's in-country depositors. The FSA is proposing that within two years these banks be permitted to accept deposits in the UK only if using a UK-incorporated subsidiary or otherwise implementing alternative arrangements that do not disadvantage UK depositors in the event of the bank's failure. Further, during the two-year grace period, any non-EEA banks that would be liquidated under a national depositor preference scheme be required to provide UK depositors with clear disclosure that their claims are subordinated.

The consultation paper did not name or single out any country with banks subject to a local depositor preference.

Lofchie Comment:The FSA also recently issued a consultation paper as to the handling of client assets by UK-regulated investment firms, as previously published.

Comments Due: December 11, 2012.