02 June 2009
The Minister for Economic Development has lodged draft legislation for the introduction of a Depositors Compensation Scheme (“DCS”) in Jersey. The draft Banking Business (Depositors Compensation) (Jersey) Regulations 200- will be debated by the States on 14 July 2009.
The proposal is for a permanent statutory scheme. If passed by the States, the scheme would come into force immediately and would replace the current political guarantee to bring a scheme to the States in the unlikely event that a Jersey bank should fail.
The key features of the proposed DCS are that:
- It will provide compensation of up to £50,000 per person, per Jersey banking group, for local and international depositors
- An interim payment of up to £5,000 will be made within 7 working days and the balance of compensation within 3 months
- The £50,000 limit will apply per person, so a £100,000 deposit held in a joint account by two people would be completely covered
- It will be operated by a board that will be independent from Ministers, the States of Jersey and the Jersey Financial Services Commission.
- The maximum liability of the DCS will be capped at £100 million in any 5 year period, in line with the Guernsey scheme
- The majority of the cost of the compensation will be borne by the Jersey banking industry, with the States making up any shortfall. In most cases, the DCS would be funded solely by levies on the banking industry
- In the unlikely event of a large Jersey bank failing, the States would contribute to the DCS funding, which may be repaid depending on the level of recovery in the bank liquidation.
- The proposed scheme draws on the findings of independent consultants Oxera’s economic analysis of all the options for depositor protection specifically tailored to Jersey’s banking industry. The findings of the Oxera report have enabled the Economic Development Department to propose a scheme that is robust, competitive and credible.
- The Minister for Economic Development, Senator Alan Maclean, said: “We have always believed that the best protection for depositors lies in the strength of Jersey's banks, all of which are in the top 500 banking groups in the world; and in our sound regulatory position, which is designed to prevent the need to ever use such a scheme. But it is still important to be able to provide depositors with the additional reassurance provided by a statutory scheme.”
Separate propositions are being brought by the Minister for Treasury and Resources to enable the States to lend up to £100m from the strategic reserve, to the DCS, to enable it to pay compensation within a short period of time. Any such loan will be repaid less any States’ contribution required.
The Treasury Minister, Senator Philip Ozouf, said: “We believe this scheme provides an appropriate level of protection for depositors while meeting the latest international standards.”
The lodging of this draft legislation follows the commitment given by the previous Minister for Economic Development in December 2008 on Proposition P150/2008 to bring a proposal for a depositors compensation scheme to the States by July 2009.
The overall liability of the proposed DCS including administration costs will be capped at £100m over each five year period. Each banking group’s contribution will be capped at £10m.
Based on the most recent available data, the banking industry would pay up to the first £65m of any failure. If the full £100m were required the States could be required to contribute approximately £35m. The States may also need to make up the contribution of any failed bank, which could amount to another £10m.
For further information please contact Senator Alan Maclean, Minister for Economic Development, on 448886.
For questions of a more technical nature, please contact James Mews on 440413.
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