David Prosser: How Britain failed Icesave customers


Outlook Gordon Brown often talks about how politicians must take tough decisions, but he won't have faced too many dilemmas like the one that's troubled Icelandic President Ólafur Ragnar Grímsson in recent days. In deciding whether to ratify his parliament's vote to pay £3.1bn in compensation for the banking crisis to Britain and the Netherlands, President Grimsson risked enraging the three-quarters of his population who oppose the idea or the international community (blowing Iceland's chances of joining the European Union, its best hope of financial salvation).

You have to sympathise with Iceland. For Britain, the proposed payment of £2.4bn over 15 years will make only a tiny impression on the budget deficit. But the compensation package represents 40 per cent of Iceland's GDP and is the equivalent of £11,000 of debt for every citizen.

Still, the hard truth of the matter is that Iceland is obliged to make good on this money. For one thing, settling the compensation row was part of the deal it made with the International Monetary Fund when it got a bail-out from the scheme in the wake of its financial collapse. And even before then, Iceland had put on record its commitment to funding a deposit protection scheme for customers of its banks in the event of them losing money. It has to keep that promise.

The biggest villains in this story, however, are to be found closer to home. The UK Treasury and the Financial Services Authority utterly failed in their duties to protect British savers by letting Landsbanki and its UK subsidiary Icesave (and several other European banks) operate here in the way it did.

Three years ago, I wrote an article in the personal finance section of this newspaper explaining that Icesave customers ought to be aware that the bank was not fully regulated by the FSA but operated here through the passport system, which applied then to many banks from the European Economic Area. What this meant in practice (though it took days to wheedle this out of the authorities) was that in the event of Landsbanki going bust, savers would have to seek compensation from the Icelandic authorities, rather than applying to the UK's Financial Services Compensation Scheme.

Even before Northern Rock collapsed (the happy days when the possibility of bank failures seemed remote), that would not have been a satisfactory arrangement. But at the time I was explaining the rules to readers of The Independent, several months after Rock had gone under, the FSA and the Treasury were not in any way concerned. Six months later, they found themselves caught on the hook of the uncertainties over the way in which Icesave customers were protected – and the British taxpayer had to pick up the bill.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Operations Manager

£30000 - £38000 per annum: Recruitment Genius: They are a financial services c...

Guru Careers: Stockbroker

£Basic (OTE) + Uncapped Commission: Guru Careers: A Stockbroker (qualified / p...

Recruitment Genius: Financial Adviser

£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence