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Jersey Parliament expected to give final approval to draft depositor compensation scheme next month

The Jersey States Assembly is expected to give final approval to a draft depositor compensation scheme on 20 October.

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The Jersey States Assembly is expected to give final approval to a draft depositor compensation scheme (DCS) on 20 October.

Implementation could follow within weeks, according to sources familiar with the situation.

As previously reported by IA, the States Assembly approved the DCS plan in principle in July. It then went to a government scrutiny panel, where it is understood some proposed changes, thought not to be of a substantive nature, were to have been discussed by a panel of experts.

If the final version of the plan is approved on the 20th, implementation could follow within weeks, since it would be a regulatory change and does not need Privy Council approval, according to one Jersey official.

£50,000 cap
As originally drafted, the Jersey DCS would compensate individual retail deposits of as much as £50,000 if a Jersey-registered bank were to fail, whether or not the customer were resident in the island.

Couples holding joint accounts would be covered as individuals, meaning that together they would be compensated for as much as £100,000.

The scheme would be operated by a board that would be independent from Jersey government ministers, the States of Jersey and the Jersey Financial Services Commission.

Although details of how the DCS would be funded under the version currently being considered are not known, it is believed that the monies would be collected from the island’s banks only if a problem arose that triggered the scheme, and that there may be a cap on the amount that banks would be asked to contribute in any one year. 

Among the issues the scrutiny panel are said to be addressing are the speed with which the scheme would pay out in the event of a bank failure, and whether the group charged with managing the scheme in the event it were to be triggered should be chosen in advance. 

Oxera study
The scheme was drawn up following the completion earlier this year of a study by Oxera, the Oxford-based economic consultancy.

Jersey’s interest in establishing a depositor compensation scheme was sparked by the collapse last year of the Icelandic banks Kaupthing Singer & Friedlander and Landsbanki, which focussed investor attention on the lack of depositor protection schemes in some offshore jurisdictions.

Unlike some other jurisdictions, Jersey did not have any Icelandic banks, and thus no depositors in need of protection, but officials there said at the time that they would look into introducing such a scheme.

Because a large percentage of Jersey’s bank customers are high net worth individuals and institutions — only a fraction of whose deposits would be covered by a DCS —  some have suggested that the need for such a scheme is less than in some other jurisdicitions.  However, many of Jersey’s 90,000 residents are not HNWIs and are thought keen to have their savings protected.

What’s more, as Martin De Forest-Brown of the Jersey Chief Minister’s department told IA earlier this year, "it has become increasingly apparent that leading financial jurisdicitions are expected to have [a depositors’ compensation scheme], whatever the quality of their banking system." 

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