The recent banking crisis has highlighted the fact that Jersey did not in the past have a depositors compensation scheme equivalent to that in the United Kingdom. As a consequence, the States of Jersey are bringing into effect the Banking Business (Depositors Compensation) (Jersey) Regulations (the "Regulations") establishing a new scheme (the "Scheme") designed to provide compensation to any person, whether resident in Jersey or not, who has a bank account in Jersey at a Jersey registered bank which enters bankruptcy. The Regulations are scheduled to be introduced on 14 July 2009.
Who Is Protected?
The Scheme will be available to any "eligible depositor". This is defined in the Regulations as any person who is:-
- a natural person with a deposit in a bank account in Jersey,
where such deposit is held:
- for the person's own benefit (not, for example, as trustee or as a partner of a partnership); or
- for the benefit of a child for whom that person has parental
responsibility; or
- the administrator or executor of the estate of a deceased person with a deposit in a bank account in Jersey, where such deposit represents the whole or part of the proceeds of the estate of the deceased person; or
- a charity with a deposit in a bank account in Jersey.
It is notable that the Scheme will be available to eligible depositors wherever they are resident. However, the Scheme is not generally available to corporate entities.
A bank account in Jersey means any account in Jersey held at a person registered under the Banking Business (Jersey) Law 1991 to carry on deposit taking business. Therefore, the Scheme will apply to accounts at Jersey branches of foreign banks.
What Is Covered By The Scheme?
If a Jersey registered bank becomes bankrupt, whether under the laws of Jersey or elsewhere, the maximum amount of compensation that may be paid to an eligible depositor is the lesser of:
- £50,000; or
- an amount equal to the total amount of all deposits in Jersey that he or she had with the bankrupt bank on the relevant date.
However, the maximum amount payable under the Scheme may be reduced if the eligible depositor receives payments in respect of those eligible deposits;
- from a bank depositors compensation scheme operating in some other jurisdiction;
- from an insurance policy taken by the depositor or on his or her behalf;
- from the administrator of the bankrupt bank.
The eligible depositor is entitled to be paid £5,000 within seven working days of receipt of a valid application for compensation, with the balance being payable within three months of receipt of such application.
Who Administers The Scheme?
The Regulations provide for the establishment of a Jersey bank depositors compensation board (the "Board"). This will be established as a separate legal body with the capacity to sue and be sued in its own name and to enter into contracts. It will be independent of the States of Jersey and the Minister for Economic Development. The Board will have at least three members who will be appointed by the Minister; he may seek nominations for consideration from the Jersey Financial Services Commission and the Jersey Banker's Association. The Board is not liable in damages for anything done or omitted to be done in the discharge of its function under the Regulations unless such act or omission was in bad faith.
How Is The Scheme Funded?
As soon as practicable after a bank registered under the Banking Business (Jersey) Law 1991 becomes bankrupt, the Board will publish a notice and inform the Minister that such bank is now in default. The Board will then raise levies against other regulated banks or groups of banks in Jersey. The overall levy is apportioned between the banks according to the percentage of eligible deposits held by a particular bank as against eligible deposits held by all banks.
The maximum amount payable by each bank is 0.3% of the eligible deposits held by such bank subject to an overriding limit of:
- in any five year period, an aggregate of £10,000,000 (unless 0.3% of the eligible deposits held by such bank is less than £10,000,000, in which case the limit is £5,000,000 for the five year period);
- in any 12 month period, an aggregate of £2,000,000 (unless 0.3% of the eligible deposits held by such bank is less than £10,000,000, in which case the limit is £1,000,000 for the 12 month period).
The Board may expend a maximum amount of £100,000,000 by way of compensation payments and meeting its administrative costs in respect of any one or more banks during any period of five years. If there is a shortfall of funds (subject to such cap) after the banks have contributed the maximum amount that they are required to contribute, the States of Jersey will be required to meet such shortfall.
The introduction of the Scheme brings Jersey in line with practice in the UK and offers comfort to individuals holding cash in Jersey bank accounts. This can only be seen as a positive step in protecting the rights of Jersey accountholders who, over the recent period, have seen banks with solid reputations face and, in some cases outside Jersey, succumb to the threat of bankruptcy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
