GUERNSEY’S finance watchdog warned of the potential dangers of island subsidiaries sending large sums of money to their parent banks.
Many banks in the island ‘upstream’ money to their parent and the Guernsey Financial Services Commission, which regulates the industry, warned in a consultation document in August that this could cause problems.
If that parent failed, the commission said, depositors with money in its Guernsey subsidiary could lose their cash.
The knowledge that Guernsey’s regulator had aired its concerns two months ago will undoubtedly anger Landsbanki Guernsey customers, now facing the real possibility of losing a large proportion of their savings.
Landsbanki Guernsey’s difficulties came as a result of placing funds with fellow Landsbanki subsidiary Heritable Bank in the UK, its administrator confirmed.
It is unknown how much, or if, it had deposited with its parent bank in Iceland.
Article posted on 13th October, 2008 - 2.30pm
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40 Article Comments
I have been an expatriate investor in the Channel Islands for over 20 years now. I invested in the islands because of repeated assurances given by banks that the parent companies take full responsibility of depositors money in case of problems. So what happened to all such guarantees/assurances now?
This is diabolical; the fact that the FSC was aware of this situation and did nothing shows the real level of regulation in the country. Once this fiasco has been resolved then there should be a long hard look at how Guernsey regulates and controls it’s banking sector. It is not as if this is a sudden occurence, there has been financial turmoil over the last 12 months and even then the FSC did nothing.
I have been a long term investor in Channel island banks and had/ have account with Landsbanki. It seems that whilst the UK and Holland go about dealing with the issue and attempting to recover investors assets the State of Guernsey sits on it’s hands and does nothing.
I like I am sure many other investors will be removing funds from my other accounts and i would hope that the State of Guernsey government pays back some of the £’000,s of millions which has been invested through its financial institutions over the years by ensuring investors recover what is rightfully theirs.
I quote story on Deputy Charles Parkinson:
‘LANDSBANKI NOT UP TO STATES’ INVESTMENT STANDARDS
The Treasury Minister says Landsbanki Guernsey’s investment criteria weren’t
good enough for the States to keep any money there.
Deputy Charles Parkinson says taxpayers’ cash is only kept with the most
secure institutions.
The banks they do have funds with have recently been reviewed.
Deputy Parkinson doesn’t believe Landsbanki Guernsey, which has gone into
administration, would have been up to the States’ standards.
Hundreds of customers are still waiting to find out how much money they’ll
get back from the Icelandic bank.’
However Landsbanki was good enough for the rest of us and the FSC!
The GFSC should strictly limit the upstreaming.
The world now sees Guernsey for what it is: a poorly regulated jurisdiction worthy of being blacklisted by the FATF /OECD. Regulators in Jersey, Guernsey and the Isle of Man have long put forward the image that they are “well regulated” jurisdictions, well above the level of Cayman, BVI etc.
We, as depositors, have all been robbed at midday. This failure to regulate should not go without compensation. The world must know that Guernsey is no place to do business.
We are also disappointed that the UK government has not seen fit to help fight Guernsey’s case. We have been left to the dogs, and there are many. Those batting for us are not shouting hard enough. Our case for full compensation is unlikely to be fully heard.
States of Jersey, Guernsey depositors who are non-resident have no protection. Businesses, trusts and company structures are not covered by the Jersey scheme nor are depositors in Guernsey. The Islands are heavily dependent on the UK government to safeguard the deposits of the major British banks. Their should be a warning to all depositors that they are taking a big risk. Below are comments from Richard Murphy which are doing the rounds and are very worrying for the future of the Islands and to hear the stories of the poor souls caught up in the Landsbanki debacle is very frightening and heartbreaking.
The end of the Isle of Man as a banking centre?
The Times has reported (in edited form):
Wealthier investors who have stashed their cash in offshore bonds could lose their nest eggs after the schemes became embroiled in the Icelandic banking crisis. British investors have as much as £5 billion in the schemes, most of which have a minimum investment of £100,000 and are often used by people who intend to move or retire abroad.
Aegon Scottish Equitable International has told financial planners it cannot guarantee the investments of some of its offshore bondholders, which were invested in Kaupthing Singer & Friedlander Isle of Man, which went into liquidation last week. It is understood offshore bonds provided by Axa and Canada Life are also invested in Kaupthing Singer & Friedlander Isle of Man.
The British arm of the bank was bought by ING Direct, the Dutch bank, last week. However, Isle of Man deposits and investments were left out of the deal and now require the protection of the Isle of Man compensation scheme.
The Isle of Man government last week voted to increase the deposit protection to £50,000. However, advisers said that compensation would be negligible as it is limited to one claim per firm - regardless of how many policyholders have bonds linked to the bank.
Aegon Scottish Equitable International told advisers: “The Financial Service Compensation Scheme does not protect deposits with Kaupthing Singer & Friedlander. It is too early to know what the outcome of the liquidation will be.”
The bank’s website says: “The Administrator will be working towards an orderly repayment to depositors . . . [but] we cannot say how much or when.”
Now let’s turn this into plain English. What this means is that the much vaunted depositor protection scheme in the Isle of Man has been proven to be worth £50,000 for each investment company. I call that a fraud by the government of the Isle of Man, but then I’d expect nothing more of it.
Let’s hope the credibility of the place is destroyed, forever.
Let’s also hope that those seeking to flee have their tax affairs thoroughly investigated.
So they were aware? Exactly as I thought. Will heads roll?
Anyone with a hole in their head could see this was coming, however it was hard to predict to what extent the damage would be.
Many Government institutions across the world predicted that the US sub prime dilemma would only marginally affect world trading and banking so you can hardly point the finger just at GFSC or Landisbanki, however.
What people fail to realise, and this is something that people warned about in the risk indusrty was that because the banks are aggressive in their strategy and depend highly on lending, and loaning (invested funds) to other banks without providing adequate assets (liquidity) available to call should anything go pear shaped, then this was inevitable.
The reason banks are so aggressive is because they have shareholders who want to make money, and they have investors who want to make money. All boils down to greed, as opposed to sensible returns.
Why can’t people just make a secure 4% instead of a totally unsafe 7.5%.
You paid your money and you took your choice.
Me, I went with NS&I as it is 100% guaranteed, although the returns are nominal (you can’t get through to them at the moment as half of the UK are trying to place deposits).
People who believe it is the fault of Landisbanki just don’t see the big picture.
The GFSC are not at fault either.
Ultimately, the people of Guernsey have got fat and enjoyed the trimmings that have come with the finance industry exploiting poor regulation, poor assurance and poor accountability of Government (on the Islands) when it comes to managing investments.
I hope the banks leave as this would surely make all the hardened ‘Geurnsey folk’ very happy indeed.
Lets face it, they don’t want people to live here, or stay for more then 3 years, but they are happy to milk the taxes that these people pay into the system, and the rents the banks pay to the people who own multiple houses.
Should a lot of the banks pull out Guernsey will not recover for decades - lets hope this happens as it would be fair to see some balance of perceived benefit, for all I can see (and I’m a true Guernsey man) is that we have taken and taken, and never give an inch - we will reap what we have sewn.
Can anybody explain to me the actual purpose of GFSC other than to collect data so that they can issue statistics to publicise the financial industry in the island.
If they don’t or don’t have any “teeth” to force local banks to conform to good practice what exacly is the point of them. I am not positive,
as I took the sensible choice to leave Guernsey for a lifestyle that wasn’t all about money, but I understand that GFSC employ a considerable number at “good” salaries.
Fellow Victims
We should consider a class action in the courts against the Guernsey regulators. They had a statutory duty to regulate and failed to discharge that duty. Though banks may have collapsed in other jurisdictions, depositors have not lost money; except US of course.
Where is the bail out package from the Gurrnsey government? The whole thing stinks! What a corrupt little isle!
Shall we consider instructing the local law firm Carey Olsen? Responses required urgently. We need to get an opinion on whether our case against the regulators for breach of statutory duty has merit? Further delay is not to our advantage. We have to play hard ball with the regulators who fell asleep at the wheel, or worse still, knew what was happening and did nothing.
What a wonderful example of a leading ‘financial centre’ this island is, even after whats happened with Landsbanki our politicians are saying it will take weeks or even months to get deposit protection in place…..WHY????
The GFSC has done/continues to do a great job of regulating the finance industry. However, they are not there to wrap cotton wool around investors and depositors. Anyone with half a brain can see that higher returns engender higher risks. The role of the GFSC is to ensure that the finance industry meets international standards - which it does. Depositors have lost money world-wide. People have talked about (potentially) losing several hundred thousand pounds locally - only the first £35,000 is covered in the UK.
Why should the government bail out those who chased higher returns? No one was forced to put their money with Landsbanki! Even in the UK depositor protection is capped…
A large number of people invest here to avoid tax in the country of their domicile. They do so with the knowledge that there is no government protection for those deposits. Local residents have the option of depositing their money in jurisdictions where some level of protection is afforded.
A class action will fail. The GFSC have not failed to discharge their duty. They are not charged with holding the hands of investors and depositors - that would be the job of a financial advisor. Maybe people will learn to be less greedy and in future place their deposits with institutions promising lower returns, but some degree of protection.
Under the guidance and guidelines which have come from the GFSC, if a licensed business had behaved in such a way, the regulator would have taken action. We are all embracing this risk based approach. What a foolish thing for the regulator to say. The buck stops at the very top. Lets see if they have a appetite to follow their own advice………
I, Legair
Sadly the postings of LG depositors on this and other web sites are fast becoming known for the scatter gun approach of blaming everyone other than themselves for the predicament in which their find themselves.
Allegations elsewhere of criminal negligence and here comments such as “What a corrupt little isle!” will serve to evaporate the support that exists for those who used the services of Landsbanki Guernsey.
No one was forced to make deposits in Guernsey.No one forced those who chose to deposit to choose LG out of around 30 odd deposit takes.
The Northern Rock debacle made clear the need for depositors to be street wise and to take a more proactive interest in their financial affairs. A look at the Landsbanki web site and Press Releases reveals the downgrading of the bank by Fitch as well as criticisms of the Iceland economy.
The comment of I, Legair that the GFSC had a duty to regulate is true. It has been a shock to many in Guernsey, long aware of the self praise the GFSC has poured on itself, as a wonderful and effective regulator, to see that it is after all incapable of doing one of the main things it was expected to do - protect those using Guernsey’s financial services.
As more information seeps out it has become clear that whilst the GFSC was aware of the dangers associated with Landsbanki it was, either bi institutional or and personal failure unable to ensure the ongoing of Guernsey Landsbanki.
The more I read of this crisis the more it reminds me of the Bank of England’s behaviour in the months prior to the collapse of BCCI. Knowing of a potential catastrophe, but totally incapable of preventing the unthinkable happening.
All of this suggests regulatory impotence but there is of evidence of criminal negligence nor corruption.
Now is not the time to look at the GFSC and its performance, but when the dust is settled there will be questions that need to be asked about the licencing of Guernsey Landsbanki and its regulation by the GFSC.
Interesting posts by everyone.
Two things:
1 - GFSC are an independent body there to ensure regulation is being conformed with and investors are protected within the confines of the law; should they find a breach they will report on these findings. That GFSC had indicated possible weaknesses in Landisbanki is enough for me. You cannot expect a regulator, or indendent adjudicator to advise investors what to do, or compensate them if if goes wrong. They highlited the problem, however you chose to keep your money there.
2 - ANY investment made comes with terms and conditions, and people are expected to read these. Banks get ripped off, banks go bust, banks stop trading - this has happened from the inception of banking so why is now any different.
The reason people want blood and expect the government to bail them out, as well as GFSC to roll over and cry ’sorry’ is because in this modern age people expect everything for nothing.
You invested in a high return, high risk fund, and the risk materialised. Get over it and move on you greedy lot.
And as for stating ‘the States this and the States that’, well the States can’t even run itself properly so you are in cloud cuckoo land if you expect them to help you.
Ask yourself this - in 2001 the States had an Audit Director, an assistant Audit Director and an Audit Manager, along with 4 staff in the audit department, reporting on capital expenditure and other activity.
Ask the States what they have got now . . . .
Even from the outside looking in this debacle feels like those annoying times when Condor or one of the airlines is running late and no one has the gumption to ease the tension with a public announcement explaining the problem and what is being done to overcome it.
Multiply that feeling a thousand times and you’re probably somewhere near the frustration being felt by Landsbanki depositors
I believe a once a week prepared statement
( without a microphone shoved in his face demanding off the cuff answers )from Deputy Parkinson explaining events and progress openly and honestly,without Labour type spin,would go a long way towards easing this crisis.
The people who put their trust in this Island’s Government surely deserve to be kept in the picture
Fair comment Darren.
if guernsey is such a terrible, poorly managed place for investors, naff off the lot of you, then those of us who don’t want to worship at the altar of money, big cars, jacuzzis and good ness knows what else can lead a groovy life building homes from the wreckage of the finance industry. the individuals put their money in a high interest account, the states didn’t do it for them, it is their responsibility. i do feel sympathy, but there it is. if i set up a business and it fails then it is my fault, nobody will bail me out. take responsibility for your actions.
Darren
I forgot to mention that yesterday I with a couple of clicks on my computer mouse, I transfered and deposited funds with NS&I which is 100 % safe, plus a UK Building Society which is secured under the Government Compensation Scheme.
No more worries, job done.
Smart move Muzeek - MS&I have been snowed under with applications the last 7 working days as people saw what was about to arrive. The frenzy is just starting to slow down now.
Glad you made the move - peace of mind is better than worry and an extra few bob.
Darren, it’s not fair to say: “You invested in a high return, high risk fund, and the risk materialised. Get over it and move on you greedy lot.” This is because most of us deposited our savings in the Cheshire Building Society in Guernsey - not some Icelandic bank - and building societies are supposed to be as safe as houses. I was of course concerned when the Cheshire in Guernsey was taken over by a hitherto-unknown Icelandic bank and my first impulse was to withdraw my savings but, on reflection (in hindsight very foolishly), thought that if the GFSC had authorised it it must have done its due diligence so it should be safe. How wrong I was.
I feel the utmost sympathy with the Landsbanki depositors who lost their money. A little while ago I was going to put my savings into this bank but for some reason I checked some website or other about banking in Iceland and guess what it said - these banks were in a volatile situation and to proceed with caution regarding your finances. Well that stopped me in my tracks. If I was able to discover this information by chance why or why did the GFSC not release some information to warn investors or at the very least give them an informed choice. I despair and I can very well understand the local investors anger and despair. I don’t trust the banks any more.
Tereea
I can’t imagine that the GFSC was unaware of the many warning signs.
I just wonder if sufficient regulation was applied to this accident waiting to happen bank.
I’m sure there are ways in which a closer check could have been made, and that certainly applies to remarks made by LG on its web site about the standing of the company in the last few months.
I must give the GFSC a pat on the back for its proactive decision to set up an inquiry. Get in first and on your terms. Very smart.
Any investigation should be setup and supervised by the States and not the body being investigated.
Darren
You almost come over as enjoying the misfortunes of others. Most of the investors are ordinary people, a lot of pensioners, who were invested with the Cheshire. I was one of them. When Landsbanki took over I did a rating check on them and they rated highly at that time, so i left my money with them. We are not greedy but try to get a good return on money to subsidise a pension. The GFSC must take some flack over this, because they are the experts and i must admit that I felt that if they had allowed this bank into Guernsey, then it was secure and my money was secure. Landsbanki’s rates were about the same as many other merchant type banks at the time so why should a person feel that Landsbanki was not secure. Your attitude towards those investors leaves something to be desired, a little immature perhaps. The States of Guernsey & the GFSC owe me nothing except perhaps a bit of honesty at the right time.
The GFSC were aware of the Landsbanki dangers about two months prior to its collapse but were unable to warn the public.
So, let’s find a way to warn the public in future.
How about GFSC spending some of their States
(Tax payer’s) grant on publishing a weekly or monthly notice in La Gazette Officielle listing all the Bailiwick Finance Houses under their jurisdiction and giving each firm’s Standard & Poor’s, Fitch and Moody’s most recent ratings.
Presumably GFSC has its own website and they can display the ratings for off island depositors.
Anyone choosing to take a gamble on less than a triple A rating will have less of a chance of blaming everybody but themselves for their unfortunate predicament
In the wake of heavy personal loss, comments will be naturally and understandably subjective. Where there is no loss, one may well indulge in the luxury of an objective viewpoint. There is no question that if we are to mean anything in the world of finance we need the Commission with its authority in place. Unfortunately the most stringent of regulation can never mean that local institutions are commercially secure although this seems to be a serious misconception on the part of unsuspecting investors. I do not think they are greedy. Just shopping around in what they think is a secure environment. It almost points to a statutory health warning having to be displayed on the packet simply because many who invest just do not have the experience to make these judgements, nor do they think they have to. Some just see a good return, a nice building or website and get sold on it. Many will remember the Bank of Sark when controls were minimal and money was lost. The Island authorities did not get such a roasting at time, probably in a large part due to the moneys being dodgy anyway. Later there was BCCI where the clientele was largely different but the authority received a similar pasting nonetheless. I believe at the time when the true position had not yet crystallised, the argument for not issuing a warning was that to do so would have exacerbated the situation causing a run on the bank. A plausible reason and one that perhaps obtains today.
I just wonder whether a conflict has emerged where the brief of the GFSC is to regulate and at the same time promulgate the business of the Island. A fishmonger does not call out ’stinking fish’ so it must be a tall order to sell Guernsey, say, in China, without at the same time warning that Landsbanki is distinctly wobbly and others may be. I do believe that at least a ‘health’ warning should be a statutory requirement for all publicity not only here but in the UK and elsewhere, but certainly here if only to alert the uninitiated.
Tom’s question as to “whether a conflict has emerged where the brief of the GFSC is to regulate and at the same time promulgate the business of the Island” is appropriate and timely.
Ray’s idea of GFSC “publishing a weekly or monthly notice in La Gazette Officielle listing all the Bailiwick Finance Houses under their jurisdiction and giving each firm’s Standard & Poor’s, Fitch and Moody’s most recent ratings” is the sort of common sense idea one would expect form any one of the 100 plus employed at the GFSC.
Darren most of your postings and others come over as being heartless and not recognising the fact that most of the local authorities in Britain after getting various credit checks invested millions into these worthless companies. Even States members had their money invested in these banks and to criticise people for going for an extra percentage point is very offensive and more a less calling these people fools.
It must be wonderful to be such a clever Dick but remember there go I but for the grace of God.
If Guernsey really wanted to sort this problem out they should demand that any bank that takes depositors money the parent company should guarantee 100%.
All these banks that take depositors money should work on the basis of the old style Building Societies
The GFSC’s role IS to regulate and their people went to China to meet with regulators there. Guernsey Finance promotes the Island’s services abroad and this is a separate organisation.
Ray and Stephen John,
Unfortunately rating’s issued by the ratings agencies are what caused this whole problem in the first place. They rated assets backed by sub-prime debt as AAA.
Also bear in mind that it is the largest, highest rated banks that have suffered the most in the current crisis and had to be rescued due to their huge exposures to these assets and the fact that they highly leveraged their balance sheets.
I would point you to a fascinating article in this weekend’s Financial Times about the activities of the three major credit rating agencies, Moody’s, Standard & Poors and Fitch. It provides a great insight into what went wrong with the credit rating agencies re. their ratings of some of the instruments which brought about the collapse in the system. It also highlights the ethical weakness of credit ratings being paid for by the institution asking for it…hardly independent ! There are many questions to be asked of these rating agencies and it seems inevitable that they will be sued for their inaccurate ratings upon which so many investors relied.
Thanks Dominic - being a clever Dick is what being a Guernsey person is all about from I what I have seen.
Everything seems to be everyone elses problem, never their own.
Being serious for one moment - the problem lies with the States of Guernsey, simple as that.
They have no Risk and Assurance (i.e. audit, compliance) section, whereas 5 years ago they had a team of 7.
If the States believe that everything will be rosy in the garden and nothing will cause a significant risk (whether this be the GFSC, a bank, or America’s Government policies - where this started) then what can I say.
Yes, I am flippant, but being serious about it will not do any good to me.
I’m also quite angry at comments that were made early in these debates when people were placing the fingers at people within the bank in Guernsey, suggesting they were behaving dishonestly, or immoraly.
I know people who worked there, they have money invested themselves, they were hard working, decent folk, who have been unable to respond to the criticism because of the way Guernsey works.
If you want to get to the root cause look at America’s policy on home ownership.
Oh, and get a life while you are at it, clever Clogs.
Darren I agree this has nothing to do with Bank workers and everything to do with regulation for years people have been putting their money into the Channel Islands and the Isle of Man not realising that there are no safeguards.
Now the whole World knows through the media at present there is no protection for straight forward depositors. Guernsey should have the Guarantees of the Banks parent companies especially when the major Banks pay such derisory interest.
People should also be made aware where their money is being placed. Your comments re America are justified but you also have to blame Prudence.
I also am pleased to tell you I have a life and I am very grateful for this. I try my best to be clever clogs in Financial and Political circles as knowledge is every thing.
My heart still goes out to the people that were so unfortunate to have had their money lost it is really heart breaking.
Dominic
Letters of comfort are generally seen as being a substiutute for a legally binding agreement.
Therefore the assurances the GFSC had from Landsbanki were unenforceable. You can see Kleinwort Benson v Malaysian Mining Corporation 1989 for an insight.
Even if legally binding the letter of comfort is worthless if the parent has become bankrupt.
Stephen I agree with you but if the parent company is somebody like Lloyds, HSBC , Barclays or Credit Suisse it would have real meaning.
If Lloyds or Barclays went to the wall it would be the end of Britain as we know it today in many way it could be a good marketing tool to eliminate opposition as after the last few weeks safety means every thing and an extra percentage point meaningless
Dominic
I don’t understand what you are agreeing with me about.
A letter of comfort has the same legal value no matter how blue chip the parent is.
Stephen my point is who is giving the letter of comfort makes all the difference and I repeat If Lloyds or Barclays went to the wall it would be the end of Britain as we know it today. Somebody could give a personal guarantee or letter of comfort but if they are companies of straw it is meaningless however legally binding.The country of origin of the parent company is also an important factor.
One thing is obvious now. International clients would be unwise to continue banking in Guernsey/ Jersey/ or IOM banks; save in the exceptional cases where they use HSBC or Barclays or one of the nationalised banks like Fortis or Norther Rock. We now see that these 3 territories give their own residents preferences as only they are covered by the miserly guarantee. In the case of Jersey and Guernsey, there is no guarantee at all! So, leave the local residents to carry the banking sector. So how far they get. The rest of us would do better in a country that can meet its commitments.
Mr Young
You are so right about picking the more stable banks in which to make deposits.
I find it very difficult to understand why people such as chartered accountants could make a half million pounds deposit in Landsbanki Guernsey, when there were numerous warnings, plus open knowledge that deposit protction did not exist in Guernsey.