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Icesave: Iceland obliged to ensure payment of the minimum compensation to British and Dutch depositors


Iceland is obliged to ensure payment of the minimum compensation to Icesave depositors in the United Kingdom and the Netherlands, according to the Deposit Guarantee Directive.[1] This is the conclusion in a letter of formal notice the Authority sent to Iceland today.

The EFTA Surveillance Authority has the task to ensure that Iceland, Norway and Liechtenstein comply with the terms of the EEA Agreement. The Deposit Guarantee Directive forms part of that agreement. According to the Directive, Iceland was obliged to guarantee for EUR 20.000 per depositor after Landsbanki and its Dutch and British branches, called Icesave, collapsed in October 2008.

While the Dutch and British authorities stepped in to compensate most deposit holders in Icesave's Dutch and UK branches, the Directive designates Iceland as being under the obligation to provide the minimum compensation of  EUR 20.000 per depositor.

The Icelandic Government has in a letter to the Authority argued that it considers setting up a guarantee scheme to be enough to fulfill its obligations under the Directive. It has also argued that that the Directive may not be applicable if deposits are unavailable because of a major and general banking crisis. The Authority disagrees on both points.

The Deposit Guarantee Directive ensures that depositors are guaranteed compensation of up to 20 000 Euros if their bank fails. Each state must make sure that depositors are protected. That protection is essential for bank customers to have confidence  that their deposits are safe, says Mr Per Sanderud, president of the EFTA Surveillance Authority.

Both the UK and Dutch authorities took action so that depositors could file claims to the deposit guarantee scheme in each country shortly after the Icesave collapse. In the UK, about 300.000 depositors received a total of GBP 4.5 billion of which 2.1 billion fell within the responsibility of the Icelandic scheme. The Dutch Central Bank paid reimbursements totaling EUR 1.53 billion to 118.000 account holders, of which EUR 1.34 billion was within the Icelandic responsibility.

In its emergency response to the banking crisis in October 2008, the Icelandic Government made a distinction between domestic depositors and depositors in foreign branches. Domestic deposits continued to be available after they were taken over by New Landsbanki, whereas the foreign depositors lost access to their deposits and did not enjoy the minimum guarantee. It is not possible to differentiate between depositors to the extent they are protected under the Directive. By acting as it did and leaving the depositors in Icesave's Dutch and UK branches without even the minimum guarantee, Iceland acted in breach of the Directive.

The Icelandic Government is invited to submit its answer to the letter of formal notice within two months. Sending a letter of formal notice is the first stage in infringement proceedings.

The Authority knows that Iceland, the United Kingdom and the Netherlands have tried to negotiate a solution to this problem. If such a negotiated solution is reached, the Authority would consider that no further action on its part is necessary, says Mr Sanderud

For further information, please contact:

Mr Ólafur Einarsson
Senior Officer
Legal & Executive Affairs
Tel. (+32)(0)2 286 1873


Mr Bjørnar Alterskjær
Deputy Director
Legal & Executive Affairs
Tel. (+32)(0)495 29 16 05






[1] Directive 94/19/EC

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