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The waiting game

They guarantee me, they guarantee me not. Savers would do just as well to pluck the petals of a daisy and repeat this well-known doggerel for an answer to whether their offshore bonds will be covered by local depositor protection schemes.

Yesterday, the Isle of Man government confirmed that it is enhancing protection on its current depositor protection scheme and will present proposals for these revisions at the next sitting of Tynwald on Thursday. However, what these revisions encompass is still unclear.

The government says it will restore protection to “all” the categories of non-individual depositor previously covered under the 1991 scheme, including charities and businesses – but to a maximum increased from £15,000 to £20,000. But neither the IOM government, the island’s Financial Supervision Commission or Tynwald could tell me whether these revisions would cover investment or savings bonds which are noticeably absent from the current scheme.

Skandia, which has around £65m exposure to KSF in 600 of its offshore bond policies has warned that the IOM’s strengthened depositor protection scheme is unlikely to cover people in insolvent banks through offshore bonds. A spokesman for the company says: “We don’t believe this extends to people invested in offshore bonds and does not address the position our clients are in. We will continue to press the authorities and trade bodies for a good resolution for investors in offshore bonds.”

But according to AJ Bell’s marketing director Billy McKay there may be more hope for those with deposits in Ssas and Sipps. McKay is confident these trust based schemes will be covered as the strengthened scheme will restore the non-individual protections offered under the IOM’s 1991 scheme, when trust-based schemes were covered.

The original 1991 scheme stated:

“In determining the amount…due to any person:
(e) a deposit held by trustees of a settlement shall be treated as one account unless the beneficiaries of the trust are individuals whose identity and right to benefit can be conclusively established.”

Evidently the life companies and investors’ protests have not fallen entirely on deaf ears as corporate investors were originally dropped out of the protection scheme completely when they increased individual depositor protection a few weeks back.

Several members of the House of Keys, the Isle of Man parliament, have been lobbying for offshore bonds to be included in the strengthened depositor scheme, worried that the episode could affect the IOM’s standing as an offshore centre.

But a spokesman from an Isle of Man Financial Supervision Commission this week ominously indicated the issue was far down the pecking order.

He says: “The government has had strong representation from individual depositors and insurance companies so they are aware of the concerns but whether or not they can afford to extend it beyond current parameters is a matter for them to consider.

“They were particularly concerned to provide support to charities and small businesses and children’s trusts but the depositors under wrapper arrangements were further down the line in terms of consideration.”

Even if investors are eligible for the non-individual depositor protection it is set at £20,000, much lower than the individual protection level of £50,000, and lower than many of the sums of money investors have built up through various investment vehicles.

Mackay says AJ Bell and others will be lobbying for the two figured to be leveled.

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