Among the proposed changes to the existing scheme is for an “annual administration levy” on Jersey’s banks to be introduced, to fund the recurring administrative costs of the scheme.
This amendment is being proposed in the wake of a three-month public consultation in 2010, “and will bring the DCS into line with international standards for funding such schemes”, the States of Jersey said in a statement..
A States of Jersey spokesman said the annual recurring costs of the scheme thus far had been estimated as being around £70,000, which the Jersey government has taken care of until now. This means the amount needed to be levied per banking group is estimated to come out to be around £3,500, he noted, although "obviously in the unlikely event of a failure then the costs would be substantially greater".
The recurring costs in question were said to include the DCS board’s fees, the cost of having an outsourcer on standby to handle claims, maintenance of IT systems and membership fees of relevant organisations, such as the International Association of Deposit Insurers.
Set up after Icelandic bank failures
The depositors’ compensation scheme (DCS) was set up in 2009, in the wake of the collapse of two Icelandic banks that left depositors in Guernsey and the Isle of Man out-of-pocket. It is designed to compensate depositors as quickly as possible in the event a Jersey bank were to fail, for a maximum compensation of £50,000 per depositor per banking group, subject to certain requirements and limitations.
The £50,000-per-depositor limit is the same as the DCSs in Guernsey and the Isle of Man, and used to be the norm in the UK. However, on 1 Jan 2011 the maximum compensation level for individual savers rose to £85,000 in the UK, and to €100,000 in Europe. Prior to 2008, the UK protection level stood at £35,000.
Jersey officials typically point out that its so-called ‘Top 500 banks’ policy ensures that only the most robust institutions are permitted to do business there. This policy is a set of licensing criteria that includes a number of factors including but not limited to a bank’s size that the island’s regulators consider when granting banking licences.
Under this policy, licenses are not granted to banks that are not among the world’s 500 largest, but being in that group is not a guarantee that a bank could open its doors St Helier.
The other proposed amendments to Jersey’s DOC are:
- the renewal of an existing set of regulations that come up for renewal every three years;
- a change to the legal structure under which the DCS regulations are made, so that that existing set of regulations will no longer need to be renewed every three years, and a plan to impose a new obligation on the liquidator of a failed Jersey bank, “to cooperate with the DCS Board and ensure that compensation is paid to depositors as soon as possible”;
- a change to the “order of priority” for a bank insolvency, to make the DCS Board a “priority creditor”. This, the States of Jersey noted, would mean that “in the unlikely event of a Jersey bank failure, the DCS Board will receive recoveries from the liquidator before the bank’s other unsecured creditors”, which would “make additional liquid capital available to the DCS Board and, thereby, speed up the flow of payments to depositors”.
With respect to the latter amendment, "the total amount over which the DCS Board would be entitled to priority will be the same as the total amount of compensation paid to depositors", the States of Jersey statement outlining the proposed amendments noted.
It added: “Many other jurisdictions have similar priority arrangements or, like the United Kingdom, are planning to introduce them.”
Further amendments to the DCS Regulations are planned for late 2012, according to the States of Jersey statement. These, it said, include a plan to extend DCS coverage to include some small company deposits, and another that would introduce a “straight-through payout” system so that, in appropriate cases, depositors would not have to submit application forms.
To see the proposed amendments, click here. For more about the Jersey depositors’ compensation scheme, click here.
The debate is scheduled to take place on 25 Sept.
