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 July 14, 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 GBP50,000 per person, per Jersey banking group, for local and international depositors
• An interim payment of up to GBP5,000 will be made within seven working days and the balance of compensation within 3 months
• The GBP50,000 limit will apply per person, so a GBP100,000 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 GBP100 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.
Jersey’s 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 GBP100m 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.
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