21 August 2012
The Economic Development Department has lodged a package of 4 amendments relating to the Jersey Bank Depositors' Compensation Scheme (“DCS”), which will bring the DCS into line with developing international standards.
The amendments will be debated by the States Assembly on 25 September 2012.
The DCS was established by the Banking Business (Depositors Compensation) (Jersey) Regulations 2009 (the “DCS Regulations”) along with the Jersey Bank Depositors Compensation Board (the “DCS Board”) to administer the scheme. In the unlikely event of a Jersey bank failure, the DCS will pay compensation to depositors as quickly as possible with the aim of preventing hardship.
Compensation is capped at £50,000 per depositor per banking group, subject to the requirements and limitations of the DCS.
Draft Banking Business (Depositors Compensation) (Amendment and Miscellaneous Provision) (Jersey) Regulations 201-
This will introduce an annual administration levy on Jersey banks to fund the recurring administrative costs of the DCS. This follows a 3-month public consultation in 2010 and will bring the DCS into line with international standards for funding such schemes.
The levy will pay for recurring costs such as the DCS Board’s fees, the cost of having an outsourcer on standby to handle claims, maintenance of IT systems and membership fees of relevant organisations, such as the International Association of Deposit Insurers (IADI).
Draft Banking (Depositors Compensation Supplementary Provisions) (Jersey) Regulations 201-
Provision for offences relating to the DCS is currently made through triennial regulations, which stay in force for 3 years. The current regulations expire in November 2012.
This amendment renews the existing triennial regulations, providing relevant offences for a further 3 years. No new offences are being created.
Draft Banking Business (Amendment No. 8) (Jersey) Law 201-
This amendment will amend the legal power under which the DCS regulations are made so that they can provide for offences in future, thus avoiding the need to renew triennial regulations every 3 years.
A new duty will also be put on the liquidator of a failed bank to cooperate with the DCS Board and ensure that compensation is paid to depositors as soon as possible.
Bankruptcy (Désastre) (Amendment No. 6) (Jersey) Law 201-
This amendment will alter the order of priority for a bank insolvency to make the DCS Board a priority creditor. This follows a 3-month public consultation carried out in 2010.
This means that, in the unlikely event of a Jersey bank failure, the DCS Board will receive recoveries from the liquidator before the bank’s other unsecured creditors. This should make additional liquid capital available to the DCS Board and, thereby, speed up the flow of payments to depositors.
The total amount over which the DCS Board will be entitled to priority will be the same as the total amount of compensation paid to depositors.
Many other jurisdictions have similar priority arrangements or, like the United Kingdom, are planning to introduce them.
Further amendments to the DCS Regulations are planned for late 2012. These will extend coverage of the DCS to include some small company deposits and introduce a “straight-through payout” system so that, in appropriate cases, depositors will not have to submit application forms.
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