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Reassuring noises on Icesave

Created:
8 October 2008
Written by:
Moira O'Neill

The UK government has said it will ensure that UK savers get all money back from Icesave, and meted out some sharp criticism of the Icelandic authorities for failing to maintain an adequately funded saver compensation scheme.

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"The Icelandic government, believe it or not, have told me yesterday they have no intention of honouring their obligations here," the BBC website quoted Chancellor of the Exchequer, Alistair Darling, as saying. "I have decided in these exceptional circumstances that we will stand behind those depositors so they get their money back," he added. The government also said it would take legal action against Iceland over its failure to maintain a compensation scheme. Read the full report here.

Mr Darling's comments appear to contradict remarks by Iceland's prime minister, Geir Haarde. He told the Financial Times: "I think it is very unlikely that the assets owned by Landsbanki for instance in the UK will not be able to take care of this situation. They have enough assets to take care of their liabilities in this respect."

In a related development, the Treasury has also said that "arrangements are being put in place to ensure that all ISA customers of Icesave will continue to benefit from the tax-free status of their accounts." The alternative to this would have been a lump-sum refund of account holdings that in many cases would have been too big to put in another Isa product.

Icesave is the UK branch of Landsbanki Islands hf (trading here under the registered name Icesave). It is an European Economic Area bank that is authorised by the Fjármálaeftirlitið (FME), the financial services regulator in Iceland. The Financial Services Authority in the UK has reported that Icesave is now expected to go into insolvency proceedings in Iceland and this would trigger an FSCS default.

Eligible savers with Icesave are supposed to be protected by the Icelandic Depositors' and Investors' Guarantee Fund (IDIGF) (www.tryggingarsjodur.is), up to a limit of the first €20,887 of their deposits. As an Icelandic bank, Icesave is not automatically a member of the FSCS, but it opted to become a 'top-up' member. This means that eligible retail savers with Icesave's UK branch whose savings exceed the Icelandic limit would benefit from top-up compensation from the FSCS covering the excess over the Icelandic limit up to the new FSCS compensation limit for deposits of £50,000.

FSCS has said it will contact all UK savers directly with details of how to apply for compensation.

Loretta Minghella, FSCS chief executive, says: "We are pulling out all the stops to help those who have deposits with Icesave. We know that they will be feeling anxious today and want to reassure them that we will do everything we can to help them get the help they are entitled to as quickly as possible. What we have agreed in principle with the Icelandic scheme is that we should try to use a single application form for both schemes that will spare consumers the need to make separate claims to both compensation schemes. We expect to send application forms to all of Icesave's eligible depositors within the next week. If possible, this will be a form which will enable people to make claims on either the Icelandic scheme or both schemes according to the size of their claim."

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