A Guide to the Financial Claims Scheme

While securing your money in a bank is the safest option, rather than stuffing it in your mattress, have you ever thought what might happen to your stash if your chosen bank went under?  

If you’re picturing your bank as the titanic and your precious savings as Jack, don’t worry that’s not the way it works. The Australian Government is prepped with a line to throw to stop you from financially drowning, known as the Financial Claims Scheme (FCS). 

What is the Financial Claims Scheme? 

The Financial Claims Scheme is an initiative that was introduced by the Australian Government in 2008 to protect deposit customers of authorised deposit-taking institutions (ADI) - banks, building societies and credit unions - as well as policyholders from general insurance providers in case an institution fails. 

So, how does it work?

The Financial Claims Scheme has three main objectives:  

The FCS has been set up to protect deposits in savings, bank accounts and term deposits, up to $250,000 per customer per ADI. (So per bank, credit union or building society). What this means is, if your bank was to fail, up to $250,000 of the money that you had in an account with them would be paid out. 

While the scheme is always there if a financial institution needs it, it’s not always active - so to speak. Because the FCS is a government initiative, it can only be activated by parliament, but can only be used if an institution fails - not anytime before. 

Similarly, the Government also protects policyholders at general insurance providers for claims up to $5,000 (and in some cases claims above $5,000 but conditions apply). 

The FCS is then administered by the Australian Prudential Regulation Authority (APRA), who would be responsible for paying out customers of failed institutions. 

Who is APRA? 

The Australian Prudential Regulation Authority, or APRA, is a statutory body in the financial sector which regulates banking, insurance and superannuation services. APRA is accountable to the Australian Government and provides banking licenses - known as ADIs (authorised deposit-taking institutions) to financial institutions.   

The body is designed to protect the interest of consumers who make deposits, hold insurance policies and are superannuation members. It is for that reason, APRA is responsible for the administration of the Financial Claims Scheme, if and when it is activated by the Federal Government. 

In most cases, APRA will pay any account holders, or give them access to funds, within seven calendar days from when the FCS was activated. 

Which institutions are covered under the Financial Claims Scheme? 

The Government’s Financial Claims Scheme covers a bunch of authorised deposit-taking institutions, from the major banks and credit unions to neobanks. In fact, all banks, and credit unions in the Mozo database are covered under the FCS. 

This includes: 

• Australian banks 
• Foreign subsidiary banks with an Australian ADI
• Credit unions 
• Building societies 
• Other authorised deposit-taking institutions 

Bear in mind however, there are some exclusions to which institutions the Financial Claims Scheme applies to. 

The FCS doesn’t cover: 

• Branches of foreign banks in Australia with a foreign ADI
• Foreign branches of Australian banks that are located overseas 
• Financial companies and institutions that aren’t licenced by APRA

It’s also important to keep in mind that some banks or other financial institutions may have subsidiaries or other businesses that operate under the same banking license as they do, despite having a different name. 

This means that the FCS protection of up to $250,000 applies to ALL the accounts you hold between those companies as a collective - they are not treated as separate deposits. 

REMEMBER: The protection applies to deposits per account holder per banking license, not per bank, so if an institution shares an ADI with its parent company, then it’s treated as the same institution under the Financial Claims Scheme. 

Here's an example:

Dan has three savings accounts with three different banks: Bank Blue, Bank Yellowand Bank Red. In each account he deposited $150,000, a total of $450,000. 

Bank Blue is authorised by APRA, but also operates through its subsidiary Bank Yellow. Both banks hold the same ADI license, so the total amount that Dan holds between these two banks ($300,000) is treated as a combined amount - so only $250,000 of it is covered. 

However, Bank Red holds its own banking license, so the $150,000 that Dan deposited into his Bank Red account is subject to its own protection. This means the full $150,000 is covered as up to $250,000 is protected on the license that Bank Redoperates on.  

So out of the $450,000 Dan has deposited in savings accounts, only $400,000 would be protected under the FCS. 

In some cases, where customers have two bank accounts between a bank and its subsidiary, customers are able to claim funds outside of the $250,000 in the liquidation of the parent institution. However, this totally depends on what assets are available at the time this happens. 

For a run-down of all the Australian owned authorised deposit-taking institutions that are covered under the Financial Claims Scheme, and their subsidiaries, check out APRA’s list. 

What type of accounts are covered? 

There are different types of accounts and financial products that are protected under the Financial Claims Scheme from savings accounts and term deposits to mortgage offset accounts. But there are also some products that are not covered by the FCS, so here’s the full list of what’s covered and what’s not.   

What's covered by the Financial Claims Scheme?

• Savings accounts

• Term deposits

• Transaction accounts

• Debit card accounts

• Mortgage offset accounts

• Cheque accounts

• Trustee accounts

• Personal basic accounts

• Cash management accounts

• Farm management accounts

• Call accounts

• Current accounts

• Pensioner deeming accounts

• Retirement savings accounts

What's not covered by the Financial Claims Scheme?

• Accounts with foreign funds in it (not AUD)

• Accounts kept at foreign branches of Australian banks, building societies or credit unions (located overseas)

• Credit balances on credit card facilities or other loans

• Prepaid card facilities or similar products

• ‘Nostro’ accounts and ‘Vostro’ accounts of foreign corporations that carry on banking business or otherwise provide financial services in a foreign country

Does the Financial Claims Scheme protect insurance policies too? 

The Financial Claims Scheme covers some insurance policies, but not all. It is designed to protect policyholders with general insurance provider, however, life insurance and private health insurance companies are not protected under the scheme. 

If the Australian Government has to activate the scheme, APRA is required to pay policyholders (and some claimants) the projected amount they would have been able to claim if the general insurance provider hadn’t failed. 

For valid insurance claims that are under $5,000 customers will receive the full amount they are owed, however for those that are $5,000 or over the story is a little different.  APRA will assess whether the policyholder or claimant is eligible for protection under the scheme (and if so, determine how much they will receive in payment).  

The types of policyholders that may qualify for coverage on claims over $5,000 and over: 

• Australian citizens and permanent residents 
• Non-residents who have insured against risks located in Australia 
• Australian-based small businesses (defined under the Income Tax Assessment Act 1997) 
• Australian-based not-for-profit organisations 
• Trustee of Australian-based family trusts 

Like banks and their subsidiaries, some general insurance providers have a different trading name to the licensed insurance provider they are associated with. So make sure that you know which insurance company (if any) your provider operates under, because if the parent company is licensed by APRA then so will yours, and it will be eligible under the FCS.  

For the full list of general insurance providers that are protected under the Financial Claims Scheme, check out APRAs website. 

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