There is still confusion in some circles about what exactly happened to the £550million (approx) of KSFIOM assets that were transferred from Kaupthing hf (the Icelandic parent Company) to KSFUK.
These assets were transferred by the KSFIOM directors after consultation between the IoM Financial Supervision Commission and the UK Financial Services Authority. The depositors believe that the directors failed to exercise due diligence because they they sanctioned such a large sum to be transferred totally unsecured to a bank within the Kaupthing group, knowing that if the parent bank in Iceland were to collapse then the sister banks were at serious risk of doing the same.
The FSA & FSC both knew way back in March 2008 that there was a deteriorating financial situation in Iceland. Kaupthing hf was the largest bank in Iceland and it was 'at risk' in the whole Icelandic financial scenario.
In October 2008 there was a run on KSFUK but Kaupthing hf was unable to keep its subsiduary from facing insolvency & it went into administration. Subseqently Kaupthing hf was judged to be insolvent and it was nationalised. This meant that the KSFIOM assets were in the KaupthingUK 'pot' leaving KSFIOM as an unsecured creditor. The secured creditors had first claim on the assets of KSFUK. This has resulted in approximately 50% of the KSFIOM money being lost in the administration of KSFUK.
Who is to blame for this disaster? Iceland? Alistair Darling? the FSA? the FSC?
In the final analysis the responsibility for the loss of KSFIOM assets rests with the IoM FSC & the bank's directors. It was they who did the unforgivable by putting over 50% of the bank's assets totally unsecured into a sister bank that they knew could fail if the parent bank in Iceland were to fail.
The FSC has sought to blame the FSA for not following the Memorandum of Understanding between them by advising it of the deteriorating situation & hence the need to move the assets before the plug was pulled on KSF UK. Whatever the reason for the FSA failing to do this the fact remains that the FSA was only ever in an advisory role, so the ultimate responsibility for safeguarding the KSFIOM assets rested with the bank & the FSC.
The directors put all the £550million into one basket. Why did they not do the logical thing and spread the risk by putting the money into a number of other banks?