Banking on the Isle of Man

 

Bank: “An organisation offering financial services, especially the safe keeping of customers’ money until required…” Oxford English Dictionary

…banks, although not “core banks”, should be allowed to fail… John Aspden, Chief Executive Officer, FSC, Compliance Institute Conference, January 2009. (1) *

“We are not favouring 100 per cent cover. There is a view on the island that there is a responsibility on depositors. There is a bit of risk for everybody in life and they are no different.” Tony Brown, Chief Minister, Isle of Man. Financial Times, 16 November 2009 (2)

“There is only a small pool of people on the island on whom we can call, with the right professional background and professional experience. So the issue of conflicts of interest has been a issue going back several years”. John Cashen, Deputy Chairman of the Financial Supervision Commission and Non Executive Director of KSFIOM. Tynwald Enquiry into the Collapse of KSFIOM, 13th November 2009 (3)

“It is apparent that our views are diametrically opposed with regard to the relative merits of your proposal for a Loan Trust. As previously advised The Isle of Man Treasury reached its decision after detailed and careful consideration and will not be progressing your proposal.” Anne Craine, Minister for the Treasury, August 2011, in a letter to the KSFIOM Depositors Action Group in a response to a low cost proposal to rectify the situation depositors have found themselves in.

“As far as the situation for the Isle of Man is concerned, we are accepting our responsibilities and endeavouring to rectify the situation.” Tony Brown, Chief Minister, Isle of Man, United Kingdom Treasury Select Committee on the Banking Crisis, 3rd February 2009. (4)

Comment

There is no “a bit of” risk when it comes to bank failures, your entire deposit disappears overnight. When a bank fails on the IOM your deposit is not returned until the liquidation process starts, even then it is returned in dribs and drabs. See also Depositors Compensation Scheme and Time Line.

The aim of this website is to warn people who have a bank account on the Isle of Man (or who are contemplating opening one) about the dangers of banking there. The reasons are given in the words of the officials of the financial regulator (FSC), Government Ministers and other official sources.

On October the 9th 2008 the Isle of Man branch of Kaupthing Singer and Friedlander collapsed when hundreds of million pounds it had loaned to the UK branch was lost when KSF UK collapsed. This caused the Isle of Man branch to collapse as well taking the savings of approximately 11,000 depositors with it.

Return time line since October 2008

 

 % of Deposit Returned   Time Taken
 24.8  11 months
 15.2  14 months
 11.1  21 months
 10.1  2 years 2 months
 12.5  2 years 6 months
   9.6  3 years 1 month
   7.8  3 years 8 months
   4.8  4 years 9 months
2.2 5 years 11 months

 

“Given the higher speed of return, the expectation of about 97% rate of recovery and the comparatively low number of people who remain to be paid out in full, we have come to the conclusion that paying out a portion of the remaining amount outstanding would now achieve little.” Tynwald Select Committee on KSFIOM Final Report July 2011(Conclusion 72) (4)

The “comparatively low” number of people owned 75% of the amount deposited and the final payout is expected to be made in 2017.

Many FSC commissioners have quite a few directorships as well, in fact of the 8 commissioners listed 7 of them have over 60 directorships between them! You can see them all here: http://www.gov.im/fsc/about/conflicts/current_directorships.xml You have to wonder how much time they can devote to their regulatory duties.

Questions

You might want to ask yourself.

  • Which banks are non core? Is yours one of them?
  • Do you want to bank in a jurisdiction where the director of bank can also serve as a banking regulator and a regulator of their employer’s competition?
  • Do you want to bank in a jurisdiction that claims to be a major financial centre but cannot staff its regulator adequately?
  • Can you reconcile the apparent unwillingness or inability to recruit from outside with the IOM claim to be global finance centre?
  • Can you reconcile “endeavouring to rectify the situation” with “paying out a portion of the remaining amount outstanding would now achieve little” or “will not be progressing your proposal”?
  • Do you think waiting years for the return of less than 100% of your money from a failed bank could be described as a “higher speed return”?

References

1) Manx Herald http://www.manxherald.com/index.php/finance/item/396-fsc-%E2%80%98chief%E2%80%99-tells-c-i-conference-%E2%80%98regulation%E2%80%99-not-coped-well-with-banking-crisis
2) Financial Times http://www.ft.com/cms/s/0/8f5e8b10-d241-11de-a0f0-00144feabdc0.html?nclick_check=1
3) Tynwald Committee Hansards http://www.tynwald.org.im/papers/committee/hansard/oe13112009.pdf
4) UK Treasury Select Committee: Banking Crisis http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/144/144i.pdf

Note

* This quote is taken from an article in the Manx Herald where Mr Aspden reportedly linked ‘chasing interest rates’ with risk. The author of this website is of the opinion that this link is disingenuous for the following reasons. Firstly, there is a myth on the Isle of Man that KSFIOM was paying exceptionally high interest rates. It was not. At the time of the collapse it was approximately 6.8%, the same as many other institutions on the Isle of Man some of which were presumably ‘core banks’. When competing banks are paying interest rates that may vary only by 0.1% or 0.2% between them how is one supposed to asses the risk?

A single banking institution often provides a range of accounts some of which pay no interest at all. Under these circumstances the author contends that there is very little connection between interest rates paid on deposit accounts in banks and risk. For instance a current account usually pays very little, if any interest. By Mr Aspden’s reasoning that should be a lot less risky than a savings account paying a decent interest rate. But, the contents of both accounts would disappear, regardless of the interest rate paid on them, if the bank failed.

Banks in the UK are currently paying virtually no interest on savings accounts but they are the same banks that needed enormous bailouts by the UK taxpayer. Today, presumably, they have more non performing loans and reduced asset values. The risk is with the institution not the interest rates paid. Are UK banks less risky than than they were in 2008 because they are now paying derisory interest rates?

 Posted by at 2:38 am

  11 Responses to “Banking on the Isle of Man”

  1. You make very clear that the Isle of Man banking system is not to be trusted, having no real integrity.

  2. unfortunately expats have lttle choice about where to invest safely thanks to the UK banks refusal to accept depositors from overseas. That’s why we bank in the IOM and the Channel Islands with their poorer compensation schemes. As you rightly say it is not lower interest rates which make a bank safer, but he quality of the bank itself. What is a “core bank”? Are RBS and Lloyds, both part nationalised, core banks?

  3. A well organised website which lifts the lid on the Isle of Man’s nefarious government and deliberately feeble regulatory and consumer protection agencies.

    This place is a mess. Heed the advice of hundreds of pensioners who were lured there by promises of “Capital Security and Guarantees” only to lose half their “Capital” (life savings).

    Never deposit or invest a single penny on this island – and if you are doing so already pull out before it is too late. Trust us.

  4. Let’s be quite clear about the Isle of Man’s triple “A” rating.

    This applies ONLY to the government’s ability to fund and repay debt. It has ABSOLUTELY NOTHING to do with the integrity, morality and ethics of the island’s financial services industry.

    Not that the Isle of Man government would disclose this information ….

  5. The Isle of Man’s financial regulator failed in its duty and obligations to depositors of the bank, Kaupthing Singer and Friedlander. The Isle of Man Government only did what was minimally necessary in order to salvage its reputation, rather than take responsibility for its professional negligence and failure to properly oversee and control the banking sector.

    I would never trust these horrendous individuals in the Isle of Man Government now that I have suffered over three years of anxiety and ill health, as a result of my life savings being lost.

  6. I am not sure why people think the IOM should be guaranteeing deposits. KSF shafted it’s own customers. Business’ fail. That is life. Everyone assumed a bank could not fail.

    And it is hard to sympathise with life savings being lost when held with one small bank. Why would anyone hold their life savings in one place?

    The IOM has done more than it’s fair share and the real villains here are KSFUK and ultimately the parent company.

    And I noticed stories about UK resident and domiciles banking with KSF IOM. why? No need to be. Higher ( taxable ) rates were available in the UK.

    • The Isle of Man government certainly did plenty. It held up the liquidation so that so that it could develop its Scheme of Arrangement (SOA). The government was late delivering the required papers to the court in February 2009. No apology or explanation was offered. This incompetence alone delayed the vote on the SOA process by a further 2 months. The SOA when it was finally delivered offered no better than liquidation and would not have delivered depositors’ money back to them any quicker. If the non efficiency of the Depositors’ Compensation Scheme had been replicated by SOA then we’d would have had to wait weeks to receive money after the liquidator paid it to the SOA. Those that choose to receive their money back directly from the liquidator get it on the day the liquidator pays it, not 2 weeks later.

      On another occasion the Treasury Minister, when trying to sell the SOA, implied that assets could be sold off in a “fire sale”. The liquidator was apparently horrified by this comment and assured depositors that this would not be the case. http://www.manxherald.com/index.php/business/525.html

      And, if by the comment “And I noticed stories about UK resident and domiciles banking with KSF IOM. why? No need to be. Higher ( taxable ) rates were available in the UK.” you are trying to imply that depositors were tax dodgers then look at the FSC website (http://www.gov.im/fsc/faqsdeposittakers.xml) where it says quite clearly: “?Customers who are liable to pay tax within the European Union (including the UK and Eire) must either pay a withholding tax on the interest income that they earn in the Isle of Man, or they must permit disclosure of their details and the amount earned to their home tax authority.”

  7. What about Royal Skandia RSK?
    They ripped people off their life savings and there are hundreds like me who couldn’t even find someone to talk to about how to get a fraction of their money back!

  8. I think people on here need to understand how the banking system works. When you put your money in a bank it doesn’t just sit there it gets lent out and if too many loans fail you lose the money. Its not up to everyone else to gal you out!! when you got interest did you share it with everyone? no!! How about trying some simple rules. 1 Don’t put all your eggs in one basket! 2, Look at the accounts of Banks to see if they are solvent. A five year old could see that bank was in trouble trying to offer higher rates to get deposits in. Don’t be so greedy to chase the Yield. Remember when you invest for a return your money is at Risk!!!! If you don’t want risk put it under your bed.

    • I shared my interest with the taxman.

      There is a myth on the Isle of Man that KSFIOM paid higher interest than its competition; it did not. I’m not sure why that’s considered greedy. Did you bother reading the notes on the main page?

      I note your comment was posted from the Isle of Man so I presume you bank there as well and I presume you know that the Depositor Compensation Scheme is basically unfunded. Good luck with that.

      Do you entrust your finances to the advice of a five year old? Unfortunately I don’t know any five year old people.

      I had a relative who kept money at home. It was stolen by a burglar.

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