PRA Covers Cypriot Deposits In UK Accounts

Britain's new banking watchdog has said that local deposits in an ailing Cypriot bank would be transferred and given protection for up to £85,000.

The Bank of England's new Prudential Regulation Authority (PRA) said UK deposits in the Cyprus Popular Bank UK, operating under the name of Laiki Bank UK, would be moved to the Bank of Cyprus UK (BoC UK).

The transfer would allow the BoC UK to offer deposit protection under Britain's banking rules.

The switch in accounts follows a bailout for the government of southern Cyprus and restructuring of its banking sector, amid an unprecedented two-week closure of branches.

"The agreement does not affect access to bank accounts," the PRA said in a statement.

"And therefore all customers who had an account with Laiki Bank UK will be able to access funds as normal and do not need to do anything."

As a result customers, including those with current accounts in credit, will not be hit by any Cypriot levy on their accounts - potentially as high as 60% for large depositors - after the transfer and will be able to access their accounts as normal.

But customers who have allowed their Laiki savings or deposit accounts enter overdraft status will not be transferred to BoC UK and see their accounts are to be frozen.

The PRA has been working on plans for a resolution to protect UK branch customers of Laiki after Cypriot authorities announced it would shut and merge with Bank of Cyprus.

Account holders in southern Cyprus were locked out of banks for two weeks

Deposits of more than 100,000 euros (£85,000) at the Bank of Cyprus will lose 37.5% under a bank levy being imposed across the country, but a second raid on these accounts could see depositors lose up to 22.5% more to prop up the bank's reserves.

UK Chancellor George Osborne said last week in a hearing with MPs on the Treasury Select Committee he wanted a solution for customers of the UK arm of Laiki.

Laiki operated as a "branch" in the UK, which meant customers would have been subject to the levy, but today's transfer will see them become part of Bank of Cyprus UK - a UK subsidiary fully regulated under British rules.

Cyprus has agreed to make local depositors contribute to a financial rescue in order to secure 10bn euros (£8.5bn) in loans from the eurozone and the International Monetary Fund.

The PRA said customers in overdraft will need to contact Laiki Bank UK, while those who had an overdraft but were in credit will need to contact Bank of Cyprus to apply for a new facility.

Mortgage borrowers and loan customers will instead be transferred to Bank of Cyprus in Cyprus and will be contacted in due course, but should continue making repayments as normal.

The move by the PRA means insured and uninsured deposits of £270m in some 15,000 accounts now come under the added protection of UK law.

:: On April 1 the PRA took responsibility from the Financial Services Authority for regulation and supervision of some 1,700 banks, building societies, credit unions, insurers and major investment firms.

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