Lloyds Bank wealthy customers to be stripped of government-backed protection over cash savings

Thousands of Lloyds Bank high net worth customers are to lose higher levels of protection over cash savings under plans to merge the licence of the private banking arm with that of the main bank.

The lender wrote to its 50,000 private banking customers on Thursday, telling them that the level statutory insurance on their accounts is to be reduced.

The move will see up to £425m of customer savings no longer protected in the event of the bank ever failing.

Lloyds Bank Private Banking, its premier offering, is available to people with £2m of investments or a sole income of more than £500,000.

Around 5,000 customers who previously enjoyed cover of £170,000 under the government’s Financial Services Compensation Scheme (FSCS) will see it halved to £85,000 from 1 October 2017. Until now, such wealthy clients received twice the cover from the FSCS because both Lloyds Bank plc and Lloyds Bank Private Banking had licences to operate.

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The lender will make an application to the High Court, scheduled for 12 September, to consolidate clients into the Lloyds Bank plc licence.

“We plan to bring the products and services offered under these two licences together to simplify our business so we can improve our services to clients,” Lloyds wrote in a letter to clients seen by City A.M..


The letter does not reference specific service improvements customers will enjoy in lieu of reduced protection but Lloyds added its plans were to “simplify the structure its banking licences”.

Lloyds Private Banking and Scottish Widows Bank will be affected and they will be writing all customers impacted.

With affected customers set to lose up to £85,000 of protection each, this means as much as £425m of cash will not be insured.

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A spokesperson said: “For the vast majority of customers there is no impact – they will use the same products and services as they do today and we will continue to offer the full FSCS protection under the terms of the Lloyds Bank licence.

“A small number of customers who hold combined balances above the FSCS limit will be offered the opportunity to withdraw funds from their account, without penalty or notice, to reduce their total balance held with Lloyds Bank plc.”

City firms pay an annual levy to fund FSCS lifeboat. The move will allow Lloyds to pay one levy rather than two. A spokesperson for Lloyds said the savings would “improve the efficiency of the group, allowing us to invest more in customer improvement”.

Set up in 2001 the FSCS is the UK’s statutory fund of last resort for customers of financial services firms.

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