Friday, September 18, 2009

The Isle of Man can only offer a 'piggy bank' service up to £20k

I have accepted an anonymous comment to the post 'Depositing in the IoM could seriously damage your wealth'. I respond to it hereunder.

The IoM boasts itself as a world leader in the offshore financial market, having a triple AAA credit rating & a budget surplus that is required by statute. Nevertheless it does not have the financial infrastructure in the form of a bank of last resort or a corporate commitment by its banks to underwrite the liquidity of one of its members in the event of there being a run on it.

The IoM boasts having a strong regulatory framework underpinning the conduct of banking business on the island. The government says that KSFIOM was "a one-off" incident (though there were 2 previous 'one-offs'). That being the case the government & the banks should have great confidence in the stability of the banking sector to withstand the chill of a recession, and had there been a mechanism in place to cope with the sort of crisis that hit KSFIoM - a crisis that the FSC was party to & capable of handling rather than simply resorting to withdrawing the licence - KSFIoM might still be operating today. Certainly 11,000 people would not have lost everything on 9 October 2008.

It is not good enough to simply say that the IoM with a population of 80,000 can not have a bank of last resort. You can not have your cake & eat it. If the IoM is to be a leading trustworthy offshore financial centre then it has got to be able to offer depositors from around the world the assurance that their life savings are safe on the island. This is a Crown dependency & if necessary it should have the backing of the Bank of England, and preferably have its banks regulated by the UK.

Hitherto the IoM had no problem in allowing people with £50k ++ to deposit on the island. Now post KSFIoM there is a problem, & the seriously flawed compensation scheme will only cover deposits up to £20k from October 2009. On present form - unlike the UK FSCS - it will be up to 12 months before compensation is paid.

Depositing in the IoM is no longer the best option for anyone looking to deposit a substantial sum from the sale of a house, an inheritance or a life's accumulated savings designed for one's 'golden years'.

On its own admission from October the IoM can now only operate a 'piggy bank' deposit service up to £20k. That in itself is good enough reason why millions of people around the world would not consider depositing on the Isle of Man. There are at least 15 other reasons that readily come to mind for not doing so.


  1. Some interesting points here – as the originator of the anonymous comment, I would like to respond.

    Agreed that there is no central bank in the Isle of Man, and once again I emphasise that a nation of 80,000 people would struggle to implement such a facility. However, unlike almost all other jurisdictions, we do offer a Depositor Protection Scheme of up to £50,000 – Jersey and Guernsey, for instance, offer no protection to non-residents, but they remain leading banking centres, with deposits vastly in excess of our own.

    KSF was indeed a “one-off” incident, but if the present UK government remains in power, nothing can be ruled out. The solution in my view is political rather than regulatory: the Isle of Man should declare independence and join the EU as a microstate. Had this constitutional relationship been in place last November, the island could simply have taken the UK government to the European Court and depositors’ money would almost certainly have been returned. As for the Bank of England regulating banking in the Crown Dependencies and Overseas Territories, I’m afraid that displays a fundamental misunderstanding of the constitutional relationship between the different entities.

    At this stage, it is not clear that the Depositors’ Protection Scheme will revert to £20,000; it is the present intention of the Government to maintain it at £50,000, and it is currently conducting a public consultation on the matter. This is one reason why I feel your vitriolic campaign against the island may prove counterproductive: many taxpayers here must now feel that the Depositors’ Protection Scheme is a compromise that pleases no-one, and that we would not have attracted more adverse publicity had we taken the same stance as Guernsey and offered no support to depositors in the collapsed bank (as they did in the case of Landsbanki).

    For what it’s worth, my own advice on depositing funds in the Isle of Man or anywhere else is simple: choose a household name. Barclays, say, or HSBC is never going to collapse here or in any other jurisdiction, as the damage to the reputation of the parent company would simply be too great.

    Finally, I don’t consider £50,000, or even £20,000, to be a “piggy bank” amount of money, but I suppose this depends on one’s perspective.

  2. Apologies - typing error in my last post. The sentence in the first paragraph should read "However, unlike almost all other small jurisdictions…" - without "small", that sentence makes very little sense.

  3. Sir/Madam:
    The present ceiling of £50k is continuing for the time being in the light of the KSFIoM debacle, but there is no doubt that the Treasury & FSC want it to be reduced to £20k a.s.a.p.

    In the scale of things £20-£50k is a lot of money not only to have but to lose. On the world stage hitherto the IoM has attracted deposits in the order of £400k to £1million+
    That too is a lot of money to have & to lose.
    KSFIoM depositors are on both ends of this spectrum, and both ends have been hurting pretty badly over the past 11 months!

    You suggest that HSBC & Barclays are safe banks for deposits on the IoM. John Aspden says that there is no such thing as a safe bank on the Isle of Man. Kaupthing was considered to be the safest of them all but it went bust! So it was a 'one-off'. So were the 2 previous banks that failed on the IoM. But if they are as safe as you say they, then why do they not gladly accept deposits of the order of £100,000-£1 million & say that such deposits are underwritten by their parent bank?
    If they are so safe, why doesn't the FSC exempt them from proscribing a DCS limit of £50k ?

    This campaign is neither mine nor is it vitriolic. It is the campaign of the DAG & it is very pragmatic.

  4. When I refer to a “vitriolic campaign”, I am referring to your behaviour as an individual rather than DAG more broadly. You have, for instance, allied yourself with the hard-line anti-offshore campaigner Richard Murphy. Assuredly, he is entitled to his views, as are you, but if you share his opposition to the Crown Dependencies, then why did you deposit a cheque into a bank within one?

  5. I have never deposited offshore with any idea of avoiding or evading paying my taxes. I am an expat who not only pays taxes in the country where I am resident but I also pay tax in the UK on my government pension.

    Your perception of me being personally vitriolic is incorrect. I have incurred no loss & therefore have no personal axe to grind. The IoM is still a tax haven despite being on the OECD white list. The Judicial Commission is getting the evidence so let's wait to see what it has to say about what the IoM claims & what is the reality.

  6. Respectfully, I think we are missing the point here: I was not suggesting that you are a tax evader (or indeed avoider). However, if you are opposed to "tax havens", why give business to one? Or is your support for the anti-tax haven campaign new-found, and do you simply see it as a tool to use against the Isle of Man? This is a genuinely interesting point, and I am keen for your answer.

  7. Yes, I think we have all got, together with the rest of the world, that we DON'T BANK ON THE ISLE OF MAN!! But, WHEN OUR CHEQUES ARRIVE, where do we Bank our money?

    Seriously, has any DAG members got some good advice for us 'once bitten, twice shy' depositors?

  8. The DAG campaign is not about me & where I put my pension & life savings. It's about the failure of the Isle of Man to honour the trust that was put in it when people placed their life savings offshore with KSFIoM. Gordon Brown said: "where there is unfairness we will act"; Tony Brown says: "we will only do what we are obliged to do by statute"

    If the government were to say that it was a case of 'inability' rather than 'failure' then it should do what the Treasury Select Committee recommended, namely talk to HM Treasury to find a way to resolve the issue. It refuses to do that. The IMF is standing by to offer help via the UK but the IoM prefers to trumpet the report of the IMF that thinks its banking regulations are more or less in line with the Basel protocol.

    I can assure you that I have no hidden agenda in my support for the DAG's campaign to a secure 100% return of everyone's deposits.

    If you want to pursue this further with me then you know how to contact me by e-mail.

  9. Jim don't fall for the Isle of Man spin that this was an isolated event.

    This was NOT an Isolated Event

    The demise of the bank and total mishandling of the entire KSFIoM affair is NOT an "isolated event" on the Isle of Man, as stated by John Spellman. The Isle of Man have actually got a long track record of failed banks under their "care" but they have serially abandoned depositors to their fate. I give you SIB and BCCI as just a couple of the more recent examples of bank failures on the island.

    Not once in the recent history of all the failed banks on the Isle of Man, have depositors seen all of their savings returned to them. Rather, they have waited years to receive only a small percentage of their deposits trickle back from the liquidators. In the case of SIB, depositors waited over 23 years to recover just 29p in the pound. The Isle of Man Depositor Compensation Scheme is devious, flawed, extremely slow and ineffective.

    There is no bank of last resort on the Island. As sure as eggs are eggs if you happen to put your savings in an Isle of Man bank that fails, you WILL wait many years to recover only a small percentage of your deposit. Don't bank on the Isle of Man to compensate you 100% when their banks fail. They are more than happy take billions of pounds a year from depositors (2007-8 circa £52 billion deposit base) but beware, you have a realistic chance of never getting all your savings back.

    Captain Sensible