Guernsey To Amend Depositor Compensation Scheme

by Amanda Banks, Tax-News.com, London

25 October 2010

The Guernsey government has announced that it will present a proposal to the States in November to amend the Depositor Compensation Scheme, established in 2008.

According to the government, the changes “will not result in any depositor having less protection than they have enjoyed since the scheme was introduced two years ago. Instead, after careful research and full consultation with the Association of Guernsey Banks, the Department is proposing these changes to ensure Guernsey remains a competitive place for banking business,” the government said, adding:

“The key change being recommended is changing the [scheme's] funding from a system that is partially pre-funded to one which is wholly post funded. The reason for this change is that pre-funding places Guernsey at a significant competitive disadvantage to other jurisdictions. By removing pre-funding Guernsey will be reducing the costs of operations in the banking sector without affecting the level of protection available to depositors.”

Currently, Guernsey banks are required to allocate large funds to the Guernsey government for use in the case of a future banking failure. Guernsey banks have, since recovery from the global financial crisis, argued that this is excessive, and banks should instead be required to contribute towards the scheme in the case of a future collapse.

Explaining its decision, the Guernsey government said: “In the past two years there has been a significant reduction in the number of banks operating in Guernsey. That reduction is primarily driven by the global consolidation of the banking industry. During that period Guernsey’s banks have continued to grow and accept new business but in the current economic climate Guernsey must remain a competitive jurisdiction and these changes will help reduce the cost to industry and maintain Guernsey’s competitive position.”

Deputy Marc Laine, Deputy Minister, Commerce & Employment Department said: “These proposals strike the right balance between protecting depositors while maintaining Guernsey’s competitive position. Depositors covered by the scheme will continue to enjoy exactly the same protection that has been in place since the scheme was established in 2008.”

Introduced on November 26, 2008, the Guernsey Banking Deposit Compensation Scheme is extended to all retail deposits in the island.

The scheme provides limited compensation of up to GBP50,000 per person per licensed bank; the amount to be paid within three months of a bank failure; with the maximum amount of compensation paid out by the Scheme capped at GBP100m in any 5 year period.

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