A response from HM Treasury regarding call for decency

Posted 29/05/2009 - 14:19 by expat

Not that I expected much else but a standard response, but anyway here it is. I have informed the writer that it is not acceptable and I will be responding to inaccuracies and matters not dealt with. Still it cost somebody time to write and send it!

Dear Mr Thomas,

Thank you for your email of 19 May to the Prime Minister regarding Kaupthing Singer and Friedlander Isle of Man. I am replying as I have responsibility within HM Treasury for this policy area.

The UK Government understands that the failure of the Icelandic banks has had serious consequences for depositors with the Kaupthing subsidiary in the Isle of Man. However, arrangements for depositors with Kaupthing Singer and Friedlander Isle of Man (KSF IOM) are a matter for the Government of the Isle of Man.

KSF IOM is not a subsidiary of KSF in the UK, but of an Icelandic company in the Kaupthing group. It was the responsibility of the Isle of Man's regulator to assess how the failure of the parent company in Iceland or the failure of any other company in the group would impact on the Isle of Man subsidiary and take the appropriate action. Ultimately this was a failure that started in Iceland and responsibility for banks in Iceland rests with the Icelandic authorities.

The action which should be taken in relation to KSF IOM in the future is also a matter for the Isle of Man Authorities. However, we are aware that following the meetings of creditors on 19 May 2009, the Scheme of Arrangement proposed by the Company and the Treasury of the Isle of Man failed to be approved by creditors. At a hearing in the Isle of Man High Court on 27 May 2009, a winding up order was passed in respect of KSF IOM and KSF IOM has been placed into liquidation. Further information is available on the Isle of Man's website: .

Arrangements for depositors in banks in the Isle of Man are a matter for the Government of the Isle of Man. Deposits with KSF IOM may be eligible for the Isle of Man Deposit Compensation Scheme (DCS). Further information about the DCS, and eligibility for the scheme, is available on the Isle of Man Government's website at: http://www.gov.im/fsc/investor/dep_comp.xml

On 3 February at the Treasury Select Committee hearing on the protection of UK citizens investing funds in non-UK jurisdictions the Isle of Man Authorities were asked whether the Isle of Man has the resources to payout up to £50,000 per depositor required under its compensation scheme. The Chief Minister of the Isle of Man responded that the Isle of Man is satisfied that they have the resources.

Money transferred from KSF IOM to KSF UK

On 8 October the Financial Services Authority (FSA) determined that KSF, the UK subsidiary of Kaupthing, no longer met its threshold conditions for the purposes of its authorisation to accept deposits, and was unlikely to be able to continue to meet its obligations to depositors. The FSA, in the exercise of its regulatory functions, concluded that KSF was in default for the purposes of the Financial Services Compensation Scheme (FSCS). The Treasury has used the Banking (Special Provisions) Act 2008 to ensure a resolution that preserves financial stability and provides protection and continuity for depositors. KSF's Edge deposit business has been transferred to ING Direct, a wholly-owned subsidiary of ING Group. The transfer of the retail deposit accounts has been backed by HM Treasury and the FSCS.

Following due legal process, the remainder of KSF UK was put into administration. Ernst & Young LLP has been appointed as the Administrator for KSF UK. As part of the administration process, as is usual, a moratorium is in place on the enforcement by creditors of claims against KSF UK. The administration process of KSF UK is a matter for the Administrators of KSF UK.

KSF IOM had deposits in the region of £532m with its sister company KSF UK at the time of KSF UK entering into administration. Under UK insolvency law, KSF IOM ranks like any other creditor in the administration - money that a customer has placed with a bank on deposit (including with a sister company) is a liability of the bank in which it has been placed. The customer only has a debt claim against the bank. If the bank chooses to place the money it has received on deposit from a customer with a second bank, the first bank is placing its own money with the second bank and the customers of the first bank do not have any direct legal claim to the deposit with the second bank. KSF IOM will have been fully aware of this. It could have chosen to put its money elsewhere and to have diversified the deposits it made rather than making a single large deposit, which concentrated the credit risk to which it was exposed. As it is, this sum is now subject to UK insolvency procedure and forms part of the administration estate of KSF UK.

The reason these funds cannot be repaid is because KSF UK has been placed into administration and, as part of that process, a moratorium on enforcement action by creditors is in place. Creditors of KSF UK, including KSF IOM, will be treated in accordance with the administration procedures and will be paid out via the administration in the normal way. As mentioned above, the administration process is a matter for the Administrators of KSF UK.

The first UK creditors' meeting for KSF (UK) was held on 1 December 2008. At this meeting, representation for the Creditors' Committee was determined by the creditors. Although the KSF IOM Liquidator is not a member of this Committee, the administrators of KSF UK are in ongoing, constructive and cooperative discussions with the Liquidator for KSF IOM. They also publish information on the administration on the KSF website: s.

You also raise concerns about restricted access to banking services in the UK for non-residents. There is no legal or regulatory barrier to banks providing services to non-residents, but many banks and building societies have decided not to do so. We understand this is largely on commercial, not regulatory grounds, and is driven chiefly by concerns about fraud prevention and additional administrative requirements in dealing with people abroad.

Treasury officials have made enquiries and we can confirm that the number of banks and building societies who are prepared to offer services to non-residents is small. It may partly depend on a firm's target market and whether an applicant can present themselves at a suitable branch to make an application in person rather than remotely.

The Government cannot offer a referral service to help non-residents. Instead the British Bankers Association has begun to offer an account finder service through its website at www.bba.org.uk. It is intended to help those who have difficulty in finding a suitable onshore account.

I hope you find this reply helpful

Kind regards

Victoria

Victoria Gibbs
Financial Services Strategy Team
International and Finance Directorate
HM Treasury
1 Horse Guards Road
London SW1A 2HQ

4
Your rating: None Average: 4 (1 vote)