Claiming compensation

Icesave customers to claim compensation

08-October-2008, By Becca Talbot becca.talbot@consumerchoices.co.uk

British customers of internet bank Icesave may have to claim compensation for money held in their savings accounts, following yesterday’s fears that parent company Landsbanki is to be declared insolvent.

The Icelandic government took control of Icesave (www.Icesave.com), the country’s second biggest bank, yesterday morning (7th 0ctober) to stop it collapsing.

Financial authorities in the UK are now getting ready for the bank’s parent, Landsbanki, to be declared insolvent, following its takeover by the Icelandic Financial Supervisory Authority (IFSA), and preparing for the compensation claims that will be made by more than 350,000 British savers.

All claims from Icesave’s UK customers will be handled by the Financial Services Compensation Scheme (FSCS); and customers won’t have to make two separate claims (one to the Icelandic government, one to the FSCS), as previously thought.

“We are working with the Icelandic authorities to confirm the procedure,” a spokesman for the FSCS said.

“We are gearing up to be ready to do whatever we can in order to get compensation back to UK savers as quickly as possible,” he added.

Under the depositor protection arrangements in Iceland and the UK, the Icelandic authorities will be liable for the first 20,887 euros (£16,300) of compensation. The UK’s FCSC will then pay out the rest of the claims, up to the newly introduced guarantee of £50,000 per person.

“If, as expected, the Icelandic authorities put the firm into insolvency proceedings, this would trigger a default under the FSCS,” said the Financial Services Authority. “In this case, savers with Icesave could make a claim to get their money back.”

Customers who tried to access their accounts online yesterday were told the bank was ‘not currently processing any deposits or withdrawal requests.’

‘We apologise for any inconvenience this may cause our customers. We hope to provide you with more information shortly,’ the site concluded. A spokeswoman for the bank said the site was not operating “due to technical difficulties.”

Landsbanki issued a statement yesterday saying it had gone into ‘receivership, not liquidation,’ and that the Icelandic Financial Services Authority had appointed a receivership committee. “Work has already begun on the restructuring of the operations of Landsbanki,” said the statement.

Following the nationalisation of Glitnir, Iceland’s third-largest bank, last week to stop it being driven into bankruptcy by the international financial crisis, Landsbanki is the second Icelandic bank to be taken over to prevent a collapse of the country’s economy.

In a parallel move, Iceland’s largest bank Kaupthing (www.kaupthingedge.co.uk) has been given a loan of 500m euros from the country’s central bank to ensure it can manage it’s day-to-day business.

On Monday the Icelandic government passed emergency legislation in a bid to rescue the country’s failing banking system; Prime Minister Geir Haarde said the new laws would help the island avoid “national bankruptcy.”

Iceland also decided to offer an unlimited guarantee for all bank customers’ savings accounts, so Icelandic customers would feel more secure about their deposits.

Chris Eagle, commercial manager at CreditChoices.co.uk said: “If you have less than £50,000 in the Icelandic Icesave accounts there is no reason to unduly panic. The government understand the banking crisis in Iceland and are doing everything they can. Alistair Darling is expected to realise new guidelines for claimants later today.”