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
Voices
Homeless Veterans charity auction: Cook with Angela Hartnett and Neil Borthwick at Merchants Tavern
charity appeal
Sport
Amir Khan is engaged in a broader battle than attempting to win a fight with Floyd Mayweather
boxing Exclusive: Amir Khan reveals plans to travel to Pakistan
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
Sport
Ched Evans in action for Sheffield United in 2012
footballRonnie Moore says 'he's served his time and the boy wants to play football'
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

Rodgers fights for his reputation

Liverpool manager tries to stay on his feet despite waves of criticism
Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

Michael Calvin's Last Word

Sepp Blatter is my man of the year in sport. Bring on 2015, quick
Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families