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PAG Press Release dated 4 July 2008

In response to Isle of Man Government announcement...

The Treasury’s announcement not to update the existing Depositors Compensation Scheme (DCS) is a bitter blow to all those with savings in an Isle of Man account. The Scheme, introduced in 1991, has not kept pace with inflation and in these times of financial uncertainty must give cause for great concern.

If a financial institution fails the DCS compensates people who have money in current and deposit accounts in the Isle of Man with 75% of up to £20,000 of net deposits per depositor per license holder. This means that the maximum compensation payable is £15,000 per depositor – this amount would be paid to someone with £20,000 or more.

Payment is per depositor, not per account, therefore each person who shares a joint account can receive compensation, but if you have more than one account you won’t receive more than one compensation payment. Compensation is paid out of levies collected from license holders in the Isle of Man. These levies are collected at a maximum of £250,000 per license holder per year.

PAG strongly believes that levels of protection for depositors must be inflation-proofed in future and that Maximum and Minimum license holder Levies must rise in keeping with Deposits under management. The Island otherwise could be in danger of being seen as asleep on the job.

If the essence of the 1991 legislation was to offer a genuine level of Depositor Protection and was to ensure the license holders contributed in proportion to the degree of exposure that their business brought to the Island, these figures should undoubtedly have been the subject of FSC annual review.

PAG regrets that Treasury has not acted vigourously to recoup the slippage that has occurred over the past 16 years and to portray the required increase in license holder Levies as following on normally from business growth. Since 1991 there has been a fivefold increase in deposit base and levies should reflect that business growth.

There is a heightened public awareness of fragility in financial markets and, by not updating the existing Depositor Compensation Scheme, competitive advantage may be eroded for Island deposit takers.

Chair of P A G, Roger Tomlinson commented:

“The announcement by Treasury is a non decision. Minister Bell promises to keep the matter under constant review. That will be of no comfort to any Island savers if in the meantime there was a collapse of their license holder.”

“The consultation exercise conducted by the FSC failed to take into account the concerns of ordinary depositors. It was directed at the financial institutions taking deposits over a very short period. Consequently of the 19 responses 17 were from these deposit-takers. It is hardly surprising that most of them opted to retain the current scheme.”

“Inevitably the outcome of the exercise was skewed in favour of the license holders, not savers. We felt that the PAG submissions represented the interests of the customer and also ultimately safeguarded the reputation of the Isle of Man as a responsible financial jurisdiction.”

“We sincerely hope that Treasury will immediately reconsider their decision.”

W Roger Tomlinson

Char, Positive Action Group