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ISSUE No. 87 Winter 2008


The Federation office has received a number of calls from members asking if the money they have paid for service charges and reserve funds is safe if the bank with which they are deposited ceases to trade.

The questions have come from our RMC members as well as those with independent freeholders or managing agents.

Members have received contradictory and confusing information from the banks and other sources.

The Federation has therefore asked the Financial Services Authority (FSA) what the situation is. We also received contradictory and confused information. We asked for clear answers for our members, but unfortunately the FSA failed to respond, despite several reminders. We even delayed the publication date of this newsletter to give them extra time.

What they have told us is that small businesses, (and most RMCs would qualify for this), have the same protection as individuals. The definition of a small business is any business that meets any two out of the following three criteria: • Turnover not more than £6,500,000 • Balance sheet total of not more than £3,260,000

• Total employees not more than 50

In addition, we have been told (and this has not been confirmed) that where monies are held in trust, but held by a larger organisation (which does not qualify as a small business as above) such as a freeholder or managing agent, PROVIDED that for each individual account held, the holder of the account writes to the bank advising them that monies are held on behalf of individuals and the bank acknowledges this, then each of these individuals is protected up to a maximum of £50,000.

The £50,000 limit applies to an individual so will include any other deposits that individuals may have with the same bank.

We have asked the FSA for the position regarding Section 42 Accounts under the


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Commonhold and Leasehold Reform Act 2002, whose accounting regulations are expected to come in next year, but have not had a response. These are the new accounts where all service charge monies must be held under the new regulations which are expected to come into force in 2009. They will be fully reported in future newsletters.

FPRA has long campaigned for clear protection of lessees’ funds. This whole situation with the banks reminds us all of the need for lessees’ money to be protected, not only from defaulting banks, but also from defaulting (or dishonest) agents, freeholders and others. The protection needs to be clear and we are talking to Government in various guises to try to achieve this.


FPRA recommends to all its members that they obtain confirmation in writing from their bank or managing agent etc that The Financial Services Compensation Scheme (FSCS) applies to all monies deposited.

This article was written on November 20, and circumstances could change, so it is worth checking with the FSA ( or FSCS (

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