This Is Guernsey

By Tom Edwards

A DEPOSITORS’ protection scheme in Guernsey could be a step closer.
The Guernsey Financial Services Commission has issued a consultation paper to members of the Association of Guernsey Banks.
It wants to seek their views about proposals to amend several key areas of regulatory policy and to introduce a range of measures aimed at safeguarding retail depositors.
GFSC director-general Peter Neville said the plans would reinforce Guernsey’s reputation as a mature and well-regulated finance centre.
‘The review has its origins in the credit crunch and more specifically in the problems experienced by the Guernsey subsidiary of Northern Rock prior to its transfer into public ownership.
‘That episode led us to consider the vulnerabilities inherent in a banking model that is widely used in Guernsey, which involves gathering retail deposits and then lending a large proportion of those funds to the parent bank – what we call “upstreaming”.
‘The Northern Rock case also highlighted the fact that we do not have a deposit-protection scheme to protect people who put their money with banks based here. There is a need both to protect members of the public and to safeguard Guernsey’s reputation.’
The GFSC had received a lot of questions from the press and individuals asking why Guernsey did not have such a scheme, said Mr Neville.
‘Introducing one will demonstrate that Guernsey not only has banks that provide excellent service but also that we look after people who do business here. Initial informal soundings suggest that banks in Guernsey recognise the benefits of introducing a scheme.
‘Now is the time for us to consult on those aspects of the changes that affect banks and the public directly.’
The consultation paper sets out the benefits that the GFSC claims would flow to Guernsey from having such a scheme.
It also addresses the costs associated with one that would be funded by the banking sector.
‘Once we have received responses, further work will need to be done to calculate how much of the retail deposit base would stand to benefit from a scheme,’ said Mr Neville.
‘This will help us to be more precise about the potential cost to banks in the event that the scheme was triggered and about the ongoing annual costs of having a scheme in place.’
The consultation paper is available on the GFSC’s website – www.gfsc.gg – so that members of the public can study the proposals and offer their views. Comments should be made by 15 September.

Article posted on 7th August, 2008 - 2.29pm