Icesave likely to be declared insolvent

07 October 2008

Customers warned they will “probably have to claim compensation”

Customers that currently bank with the Icelandic internet bank, Icesave, have been warned they will likely have to claim compensation for the funds held in their savings accounts.

UK authorities are preparing for Icesave’s parent bank, Landsbanki, to be declared insolvent.

On Tuesday the Icelandic government stopped Iceland’s biggest bank from collapsing by taking control of it.

Claims for compensation from Icesave’s UK customers will be handled by the Financial Services Compensation Scheme (FSCS).

The Icelandic authorities will be liable to pay the first 20,887 euros (£16,300) of compensation while the UK’s FSCS will cover the rest of the claims up to today’s newly launched limit of £50,000 per person.

The Financial Services Authority (FSA) said: “If, as expected, the Icelandic authorities put the firm into insolvency proceedings this would trigger a default under the FSCS.

“In this case, savers with Icesave could make a claim to get their money back,” it added.

In a statement issued by Landsbanki the bank said it had gone into ‘receivership’, not liquidation, and that the Icelandic Financial Services Authority had appointed a receivership committee.

“Work has already begun on the restructuring of the operations of Landsbanki,” said the statement.

An FSCS spokesman said that if Icesave were declared insolvent, it would not be necessary for UK customers to make two separate claims and that all UK claims could be handled on one form.

“We are working with the Icelandic authorities to confirm the procedure,” said the spokesman.

“We are gearing up to be ready to do whatever we can in order to get compensation back to UK savers as quickly as possible,” he added.

As it stands, Icesave is not currently allowing customers to access their bank accounts to add or withdraw funds.