Draft regulations were published in June for the establishment
of a depositor compensation scheme for accounts held in banks in
Jersey. The draft Banking Business (Depositors
Compensation) (Jersey) Regulations 200- and various
supplemental regulations are expected to come into force this
summer. The stated aim of the proposed scheme is to provide
depositors with compensation quickly in the unlikely event of a
bank failure and thus to minimise hardship by enabling depositors
to carry on with their everyday economic activities.
The regulations provide for the establishment of a permanent,
standalone scheme administered by an independent board. The scheme
will be activated in the event that a Jersey bank becomes bankrupt.
The overall liability of the scheme will be capped at £100
million over each five year period and will be funded by capped
levies on the banks in Jersey that hold eligible deposits at the
time that the bank in default became bankrupt. The States of Jersey
will make up any shortfall in funding and provide short term
liquidity, possibly through loans to the scheme.
Consequential amendments will be made to the Island's income
tax law to allow tax deduction of contributions made by banks to
the scheme and to exempt from income tax compensation paid to
depositors under the scheme.
Private individuals, whether resident in Jersey or not, will be
able to claim up to £50,000 per person, per Jersey banking
group affected. Executors will also be able to claim in respect of
the deceased individual's estate. Charities will be protected
too although partners of a partnership will not. The first
£5,000 of a valid claim will be paid within seven working
days with the balance payable within three months.
If the depositor is entitled to claim compensation under a
scheme in another jurisdiction (for instance, the home jurisdiction
of the bank in default), the depositor will not be able to claim
under the Jersey scheme except to the extent that the Jersey board
agrees with the body administering the compensation scheme in that
In any event, the amount of compensation that may be claimed
from the Jersey scheme may also be reduced by the amount received
by the depositor from an insurance policy or from the
administrators of the bank in default. The board will acquire
rights of subrogation from the depositor to enable it to claim as a
creditor in the defaulting bank's insolvency.
TOP 500 BANKING GROUPS
With 46 banks and deposits of over £195 billion in Jersey
as at March 2009, the authorities must expect that the strict
licensing policy for deposit-taking business in the Island will
continue to minimise the likelihood of a bank in Jersey failing.
Historically successful applicants had to be part of financial
institutions of international stature and reputation, and
specifically had to be members of the global "top 500"
banking groups by reference to their Tier 1 capital base, or
financial services conglomerates of equivalent size. That
requirement remains but a new, strengthened and consolidated
licensing policy was issued by the Jersey Financial Services
Commission (the "Commission") in June.
When the Commission determines whether or not new applicants are
fit and proper persons to be registered for deposit-taking business
under the Island's banking laws, it considers a number of key
areas which are set out in detail in the licensing policy under the
following headings: general, stature, home jurisdiction,
competence, organisation and systems, and ownership and control. A
detailed examination of each of these requirements is outside the
scope of this article.
However, some additional requirements reflecting the banking
crisis have been introduced. These include a requirement that
applicants belong to a group that is of systemic importance in its
home jurisdiction such that, in a crisis, the home jurisdiction
would look to actively support the group and that, in turn, the
relevant jurisdiction is capable of providing adequate support, if
needed, to its systemically important banks.
Of course the home jurisdiction must be considered to operate an
adequate regime of financial supervision, taking into account
relevant reports such as those produced by the IMF as well as
responses to the Commission's own enquires in respect of the
home supervisor's adherence to the Basel Committee's Core
Principles for Banking Supervision.
The numerous requirements which must be fulfilled before an
applicant is registered (or re-registered) for deposit-taking
business and the high degree of financial reporting to and
supervision by the Commission should continue to protect
Jersey's excellent reputation as a banking centre.
This article first appeared in the summer 2009 issue of the
Appleby Jersey Finance newsletter.
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.
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