This consultation paper is being issued to seek feedback from business, stakeholders, consumers, industry associations, practitioners and any other interested parties on proposed changes to the Banking Deposit Compensation Scheme (Bailiwick of Guernsey) Ordinance, 2008 (the “Ordinance”) to assist the Guernsey Banking Deposit Compensation Scheme (the “Scheme”) to comply with certain of the core principles issued by the International Association of Deposit Insurers (“IADI”).  
We strongly recommend that you read the consultation paper in its entirety before you complete this online questionnaire to ensure you have a full understanding of the background of the proposals.

We are undertaking a consultation via Survey Monkey to elicit your views. The survey will only take approximately 10 minutes and your responses will help to shape amendments. Your views will remain anonymous.

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* 1. The effecting of payments to qualifying complainants.

The Scheme’s ability to defer payment of compensation is set out in section 15 of the Ordinance.  The Committee for Economic Development (the "Committee") is of the opinion that this section be modified to clarify that payment may be deferred under a slightly wider set of circumstances and more specifically that a ‘portion’ of compensation, as referred to in the section, includes the ability to pay differing percentages of compensation to different claimants.  This would be the effect of the initial payment of up to £10,000, referred to on page 5 of this consultation paper, which is intended to assist those likely to be most affected by a default.

Whilst the Ordinance does permit the Scheme to make an interim payment and a balancing payment it does not identify a specific amount.  The Ordinance currently only expressly specfies the maximum amount which can be paid to a qualifying complainant.

Do you believe that these modifications are appropriate?

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* 2. Modifying the payment caps

In respect of any five (5) year period the maximum payment, of £100,000,000, is funded on the following basis:-

(i)  £10,000,000 which is levied on all participants equally (the “Primary Levy”); and
(ii) £90,000,000 which is also levied on all participants (the “Secondary Levy”), but is apportioned between such participants according to a formula set out in the Banking Deposit Compensation Scheme (Liability of Participants to Compensation Levy) (Bailiwick of Guernsey) Regulations, 2010 (the “Regulations”).

While the maximum the Scheme can claim, in respect of the Secondary Levy is £90,000,000 this, in turn, is limited by a restriction in the Ordinance which caps a participant’s payment obligation in any calendar year to a maximum of £1,000,000 or, if less, 50% of its average profits for the previous three (3) years.  At the date of this consultation paper, there are currently twenty four (24) banks in the Scheme which is a material restriction on the amount which can be collected pursuant to the Secondary Levy.

It should be noted that the cap does not reduce the liability of a participant to pay the Secondary Levy.  It merely permits the Secondary Levy to be paid by installments. Interest will apply to any deferred payment at two per cent. (2%) above base rate. Under these circumstances, on the assumption that participants should be able to borrow at or around the base rate, it is generally in their interest to pay promptly, even if they have no obligation to do so.  

The Committee is of the view that the:-
(I) £1,000,000 cap should be increased to £2,000,000 to ease funding pressure on the Scheme; and
(ii) profits cap should be removed in its entirety.  The fact that a participant is unprofitable domestically should not restrict its duty to fund the Scheme. 

Do you believe that it is appropriate to increase the £1,000,000 cap to £2,000,000?

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* 3. Modifying the payment caps.

Do you believe that the "three years profit cap" should be removed?

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* 4. Negative interest rates.

When the Ordinance was enacted, negative interest rates were not being applied in the banking sector.  In recent times they have become more common.  It has been identified that the Ordinance does not legislate for this possibility, and that in some circumstances depositors could be paid more than their account was worth, at the expense of the participant banks.  It is proposed that the Ordinance be amended to remove this anomaly.  The Committee is also of the opinion that the Ordinance requires amending to allow the Scheme, if subject to a negative interest charge, to deduct the same from the Scheme’s administration or compensation funds where appropriate.

Do you believe that it is appropriate to amend the Ordinance to legislate for negative interest rates and protect against possible adverse effects upon participant banks and/or the Scheme? 

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* 5. Clarification of the obligations of participant banks in respect of data provision.

Section 20 of the Ordinance currently requires data disclosure by a participant to the Scheme.  While this section of the Ordinance is wide in scope, the Committee feels that it does not clarify that such data may include personal data on account holders (and thus data subject to the provisions of the Data Protection (Bailiwick of Guernsey) Law, 2001), nor that such data should be provided promptly. In anticipation of the possibility of a seven (7) day payment profile, as recommended by IADI, a clear obligation on participants to provide depositor data must be present.

Do you agree that the Ordinance should be amended to include specific reference to personal data together with an obligation on participants to provide such data promptly to the Scheme.

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* 6. Alteration of the banks' payment period.

The Primary Levy, is payable in equal shares by all participants.  It is currently payable, in accordance with the terms of the Ordinance, on a date set by the Scheme which may “not be later than 14 days” after the issue, by the Scheme, of the required notice. It is proposed that the Ordinance be amended to require that the Primary Levy be payable within three (3) working days of the issue of the notice.  Allowing one day for delivery of a notice, this implies a two (2) day payment window for the Primary Levy and the Scheme being in receipt of these funds within three (3) working days of a participant going into default.  The Committee does not expect any participant to have any difficulty in effecting payment within this timeframe.

Do you believe it is appropriate to amend the Ordinance to specifically state that payment must be made within three (3) working days of the issue of the Primary Levy notice?

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* 7. Alteration of the banks' payment period.

Do you believe it is appropriate to amend the Ordinance to remove the "grace period" and to specifically state that payment must be made within three (3) working days of the issue of the Secondary Levy notice? 

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* 8. Notice period of declaration of default.

Section 9 of the Ordinance gives the Guernsey Financial Services Commission (the "Commission") up to twenty one (21) days to issue a declaration of default, even though the issues that might trigger such a default are likely to be known to the Commission well within this time period.  While it is not suggested that the Commission would intentionally delay the issuing of any such declaration, the Scheme board (the "Board)" is of the view that there is no practical reason for the maintenance of such a large notice period.  Furthermore such a delay could severely restrict the Scheme’s ability to respond to a participant’s default which was in the public domain.  The Board has suggested, and the Committee supports the suggestion that the Ordinance be amended to make the Commission’s obligation to declare a default an immediate one, subject to the Commission being aware of the relevant triggering event.

Do you believe it is appropriate to permit the Ordinance to be amended to require the Commission to declare a default immediately if becomes aware of a trigger event?