The Guernsey Financial Services Commission (the Commission) is today publishing on its website a report prepared by a team from Promontory Financial Group (UK) Limited (PFG), led by Michael Foot CBE, into the circumstances leading to the rescue of Northern Rock (Guernsey) Limited and the placing of Landsbanki Guernsey Limited (LGL) into Administration. A copy of the report is available here. The work was undertaken by staff of PFG who had access to all the Commission’s records. As contractors to the Commission they were, by their terms of engagement, subject to express requirements which were necessary in order to protect the confidentiality of certain information held by the Commission. Having regard to these duties of confidentiality, the report published today differs from the full report provided to the Policy Council and the Commissioners in that confidential information has been removed. This editing has not materially altered either the tenor or the conclusions of the report.
Peter Neville, Director General of the Commission said:
“I am very pleased that the Inquiry has concluded that the Commission measured up to good practice and that our actions were wholly justifiable having regard to the facts known at the time and what could reasonably be foreseen. I am also pleased that the report was prepared by a firm of the standing of Promontory which has Michael Foot and other senior officials with wide ranging regulatory experience and expertise. This underlines the importance of the report and its authoritative nature. During his Inquiry Michael Foot carried out a thorough review and had access to all our records.
Having said that, nothing in the report in any way reduces the distress and hardship being suffered by depositors in LGL. We all have great sympathy for them. Their stories are very upsetting. However, even though the events that overwhelmed Iceland and its banks were unprecedented, we are pleased that the report concludes that action taken by the Commission resulted in a much better balance of risks for the LGL depositors. We consider that it shows that we acted as effectively as we could on the basis of information that we had obtained both from public and from non-public sources, including other regulators.
What is important now is that all those involved concentrate their collective efforts on recovering as much of depositors’ money as we can. Amongst other things, that means keeping up the pressure on LGL’s parent and on the Icelandic authorities. With this in mind, we are continuing to work as closely as we can with the Joint Administrators, the Guernsey Government and the UK authorities.
In addition, and of wider significance, the report highlights two very important issues that banks in small jurisdictions, and their regulators, have to face up to.
Firstly, whereas in the past small retail depositors were seen to bear at least some risk, it appears the expectation now is that retail depositors should not bear any risk, however remote. The introduction of depositor compensation schemes addresses only part of this expectation. New supervisory standards will need to be adopted internationally.
Secondly, co-operation and information exchange between regulators is absolutely critical particularly when a crisis occurs. At present, the global system of cross-border co-operation is not working well.