Offshore savers exposed by 'gap' in protection scheme
Billions of pounds of British savers’ money in offshore accounts is potentially at risk if a bank goes under as no deposit protection schemes exist in Channel Islands, Jersey and Guernsey.
Although Jersey’s government recently pledged to protect all savers’ money, this guarantee only applies to residents of the islands. Meanwhile, Guernsey has no such protection scheme in place, although it recently announced plans to establish one. In contrast, Isle of Man offers protection for both local and international deposits up to £50,000.
Jersey and Guernsey both fall outside of the European Union protection, meaning that savers based in the UK are not covered by any deposit protection scheme. The UK’s Financial Services Authority (FSA) confirmed to Moneywise that its Financial Services Compensation Scheme (FSCS) would not protect cash deposits in offshore accounts in either Jersey, Guernsey or the Isle of Man.
As of June 2008, banks in Jersey held £68.7 billion of sterling deposits while Guernsey held £1.4 billion in sterling as of the end of March 2008. Experts say a substantial amount of this money potentially belongs to British savers.
Chris Rene, a spokesman for the Jersey Financial Services Commission, told Moneywise that it is in talks with regulators such as the FSA to see how foreign savers are protected. He described the situation as “fluid”.
However, a spokesman for the FSA said he was not aware of the situation, or that British savers are effectively not protected by schemes in the Channel Islands. He describes the lack of protection as a "gap for some UK depositors".
Many of Britain’s leading banks have offshore operations in the Channel Islands. Although most banks have publicly stated to protect savers’ money, the fact that Channel Island regulation does not require them to refund British savers’ money does pose a problem – and is a serious concern if you have money in an offshore bond.
A spokesman for Abbey International, which is located in Jersey, says that although its offshore deposits are not protected by protection schemes, its parent companies (Abbey and Santander) will “discharge the liabilities of subsidiaries” – that is, they will cover any money should the brand run into difficulties.
In a statement, Abbey International says: "Abbey International is a subsidiary of Abbey and the full amount of all deposits placed with Abbey International is unconditionally guaranteed by Abbey.
"This means however much money clients have invested with Abbey International, Abbey will guarantee 100% of funds. Whether savers have £20,000 or £200,000, this money is guaranteed."
While this may offer savers some reassurance, the fact remains that, should Abbey International fail, depositors would become just another creditor to the bank, and no outside consumer protection scheme would be available for redress.
The practice of locating your financial affairs (banking, savings, investments) in a country other than the one you’re a citizen of, usually a low-tax jurisdiction. The appeal of offshore is it offers the potential for tax efficiency, the convenience of easy international access and a safe haven for your money. However, offshore is governed by complex, ever-changing rules (such as 2005’s European Union Savings Directive) and, as such, is the exclusive province of the wealthy and high-net-worth individuals.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
The Financial Services Compensation Scheme is the compensation fund of last resort for customers of authorised financial services firms. If a firm becomes insolvent or ceases trading, the FSCS may be able to pay compensation to its customers. Limits apply to how much compensation the FSCS is able to pay, and those limits vary between different types of financial products. However, to qualify for compensation, the firm you were dealing with must be authorised by the Financial Services Authority (FSA).