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Deposit protection: questions and answers

08 October 2008

Is the Depositors Compensation Scheme in force?
Yes. The Depositor Compensation Scheme (DCS) was approved by the States Assembly on Friday 6 November 2009 and came into force immediately. Depositors are now protected up to a maximum of £50,000 per depositor per Jersey banking group.

What is the DCS?
In the unlikely event that a Jersey bank should fail, the DCS will pay compensation to depositors up to a maximum of £50,000 per depositor per Jersey banking group. The DCS will pay the first £5,000 of a claim within 7 working days and the balance within 3 months of receiving a valid claim. Compensation payments will be funded primarily through levies that the other Jersey banks will pay to the DCS. The overall amount of compensation that the DCS can pay out will be limited to £100 million in each 5 year period.

What has happened to the political guarantee?
The political guarantee was a short-term measure in response to a period where banks were perceived by depositors to be at greater risk and before national governments stepped in to provide support for their leading banking groups. In order to meet international standards, the statutory DCS has replaced the political guarantee that was previously in place and would pay compensation to both resident and non-resident depositors.

Which deposits/depositors are protected?
Deposits held by private individuals (i.e. retail deposits) and charities with Jersey banks are protected. The up to £50,000 per depositor protection does not extend to corporations, SMEs, partnerships or trusts.

In keeping with international standards, protection extends to deposits held by residents and non-residents. Deposits in foreign currencies would also be protected. Deposits must be held in Jersey with banks regulated by the Jersey Financial Services Commission. A list of these banks can be found on the Commission’s website:

Jersey Financial Services Commission

Why is there a limit on the amount of compensation that can be claimed?
The limit matches the protection offered in the UK, Guernsey and the Isle of Man. It would provide protection for a significant proportion of depositors in Jersey, targeting protection in particular to the accounts of depositors that may face particular hardship in the event of loss. However, the limit will be reviewed should international standards change.

If I had more than £50,000 in an account, does that mean I would lose money?
A depositor who has more than £50,000 with a failed bank would receive compensation from the DCS only up to the limit (i.e. £50,000). However, depositors with deposits above the limit may also receive a proportion of any higher balance from the liquidation of the failed bank. Depositors would have to wait until the liquidator had completed the liquidation to find out how much, if anything, they might receive in addition to the compensation paid by the DCS.

Which banks are in the same group?
The Minister for Economic Development has designated the following 7 banking groups. Each group will be taken to be one bank for the purpose of paying compensation to depositors. This means that where a depositor has accounts with more than one bank in the same group, collectively deposits in those accounts will only be protected up to £50,000 in total: 

HSBC Bank International Limited
HSBC Bank Middle East Limited
HSBC Bank Plc, Jersey Branch
HSBC Private Bank (C.I.) Limited, Jersey Branch 

Bank of Scotland International Limited
Bank of Scotland Plc, Jersey Branch
Lloyds TSB Bank Plc, Jersey Branch
Lloyds TSB Offshore Limited 

Barclays Bank Plc, Jersey Branch
Barclays Private Bank & Trust Limited
Barclays Private Clients International Limited, Jersey Branch

National Westminster Bank Plc
The Royal Bank of Scotland International Limited
The Royal Bank of Scotland Plc

Citibank (Channel Islands) Limited
Citibank N.A., Jersey Branch
Citicorp Banking Corporation, Jersey Branch

BNP Paribas S.A, Jersey Branch
BNP Paribas Securities Services S.A, Jersey Branch

Standard Chartered (Jersey) Limited
Standard Chartered Bank, Jersey Branch 

The above is not a complete list of banks covered by the Depositors Compensation Scheme. A complete list of Jersey banks, which are covered by the Depositors Compensation Scheme, is available from the Jersey Financial Services Commission website: 

Jersey Financial Services Commission 

Why was a DCS not introduced previously? Should I be worried that a DCS is felt to be necessary now?
In Jersey we remain confident in the strength of our banking system. We have always believed that the best protection for depositors lies in our sound regulatory position. However, the current global financial crisis, and in particular reports of isolated bank failures in other jurisdictions, has led to a call for a DCS from some depositors. It was therefore felt appropriate to introduce a permanent, stand alone DCS in Jersey.

How would joint accounts be treated?
The compensation limit of up to £50,000 applies to each depositor for the total of their deposits with a Jersey bank, regardless of how many accounts they held or whether they were a single or joint account holder. Thus, for a joint account in the name of two account holders, the limit would be up to £100,000. The DCS would assume that the money in a joint account was split equally between the named account holders, unless evidence showed otherwise.

What would happen if I owed money to a bank that failed?
Amounts owed to the failed bank (e.g. loans, mortgages, overdrafts or credit card debts) would not be taken into account before any compensation was paid, so the amount you could claim from the DCS would not be affected by the fact that you owed money to the same bank. However, any such debts owed by depositors to the bank would not be extinguished and you would still owe money to the bank.

How would I claim compensation?
To claim compensation you would need to apply to the DCS and provide proof of your deposit with the failed bank, which the DCS would then verify against the bank’s books and records. Clear, accurate, records of deposits and transactions may help to speed up any payment of compensation. Should a bank fail, the DCS would ensure that application forms and instructions on how to make a claim were easily available.

How long would it take to process my claim?
If a bank were to fail, the States would provide upfront funding to the DCS to make sure that it could pay out up to the first £5,000 of each claim within 7 working days. The Regulations require the balance of all claims to be paid within 3 months.

How will the DCS be funded?
The DCS will be funded primarily through levies on Jersey banks, based on the proportion of protected deposits each bank holds. However, in order to ensure that the DCS is not unacceptably more costly than in other jurisdictions, these levies would be capped for each banking group over a 5 year period and the States would make up any shortfall. In the event that the full £100 million liability of the DCS was called upon, banks would contribute about two thirds of funding with the States contributing about one third, which, in nearly all circumstances, would eventually be repaid from the recoveries from the failed bank.

I have lost money in a failed bank, will I benefit from the DCS?
The DCS is not retrospective and only applies to banks regulated by the Jersey Financial Services Commission. None of the high-profile bank failures such as Kaupthing and Landsbanki fell into this category, and so depositors who have lost money with these banks will not benefit under the DCS.

Why is Jersey’s DCS not pre-funded?
Post-funding is considered to be the most effective way of meeting the funding needs of a DCS in Jersey. Although there are advantages and drawbacks to both models, a pre-funded DCS would not be appropriate or proportionate in Jersey. The States guarantee to provide liquidity to the DCS to enable it to pay out compensation quickly means that compensation payments could be made to depositors just as quickly as if pre-funding were in place.

Will deposits with Community Savings & Credit Limited be protected?
As a credit union, Community Savings & Credit takes members’ savings and deposits these with banks in Jersey. Should one of these banks fail, Community Savings & Credit will be able to claim up to a maximum of £50,000 from the DCS for each of its members.

Will deposits held by SMEs / small businesses be protected?
SMEs / small businesses are not covered under the existing DCS, which aims to protect natural depositors. The Economic Development Minister has agreed to undertake further research into costing the possible inclusion of small businesses / SMEs in the DCS and aims to report back to the States Assembly within 5 months. Deposits held by sole traders in their own name are protected up to the £50,000 limit. 
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