Depositors’ Compensation Scheme
Compensation: “…something given or received as an equivalent for services, debt, loss, injury, suffering, lack, etc.” Dictionary.com
The Isle of Man has a “Depositors Compensation Scheme.” But…
“In the event there was another bank failure while KSF (IoM) is still ‘live’ or in the future any systemic or major bank in default, it is highly unlikely that there would be sufficient funds to compensate depositors to the full value of the threshold limits.” Tynwald Select Committee on KSFIOM Final Report July 2011  (1)
“…there is no time limit for payment of compensation…” Financial Supervision Commission. Isle of Man Depositors’ Compensation Scheme web page (2)
“The amount of compensation paid and the timing of compensation payments will depend upon the size of the deposit taker which fails and the amount of funding contributed. The payment period will also vary according to whether, and to what extent, the DCS borrows, the timing of the contribution from the Treasury and the timing of levies from participants” Financial Supervision Commission. Isle of Man Depositors’ Compensation Scheme web page (2)
“…there is a compensation scheme and that has served us well…” Tony Brown, Chief Minister, Isle of Man, United Kingdom Treasury Select Committee on the Banking Crisis, 3rd February 2009. (3)
“The Isle of Man, I think, has led the world with its Depositors’ Compensation Scheme. It has done since 1991. I believe that we continue to lead the world [with our DCS] …” Juan Watterson MHK , chairman of Tynwald Select Committee on KSFIOM, in Tynwald 13 July 2011. (4)
Whilst the The Isle of Man is in the British Isles it is not a member of the European Union and it does not need to comply with directive 94/19/EC, amended by 2009/14/EC (5), for Depositor Compensation Schemes. In the EU “Duly verified claims must be paid within three months (twenty working days from the end of 2010) of the date on which the competent authorities establish that deposits are unavailable. This time limit of not more six months (ten working days from the end of 2010) may be extended in exceptional circumstances and in specific cases.” The last time the IOM Depositors’ Compensation Scheme was used it took 9 months to be activated and used the returns from the liquidation of KSFIOM and a top up from the IOM Treasury to “compensate” depositors.
The IOM DCS is limited to £50,000 and in the European Union €100,000 (or equivalent).
On 12th July 2011 (6) the UK halted the Value Added Tax (VAT) subsidy it was paying to the Isle of Man reducing the tax inflow into the IOM treasury by tens of millions of pounds, a large percentage of the Manx government’s yearly income.
In light of the differences between the IOM DCS and compensation in the EU and Mr Watterson’s comment it would appear the the edge of the IOM world does not extend beyond Burrowhead, UK, the nearest point (58km) in the European Union to the IOM capital, Douglas.
You might want to ask yourself:
- Do you want to bank in a jurisdiction where the definition of compensation is not what you might expect?
- Do you want to bank in a jurisdiction where in the event of a bank collapse the time taken to pay compensation is unlimited?
- Do you think the ‘us’ Tony Brown was referring to were depositors?
- When do you expect £50,000 to be worth more than €100,000?
- Given the substantially reduced tax income to the IOM Treasury. How much can the IOM treasury contribute to fund the DCS even if were inclined to do so?
2) Financial Supervision Commission: http://www.gov.im/fsc/investor/dep_comp.xml
3) UK Treasury Select Committee: Banking Crisis http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/144/144i.pdf
4) Tynwald Court Proceedings: http://www.tynwald.org.im/papers/early/tynwald/ept130711c.pdf