HM Treasury June 2012: Events leading up to the failure of Kaupthing Singer & Friedlander Limited

Category: Newsflash

Extracts from HM Treasury's report on the failure of KSF (UK):

 

"Kaupthing Singer & Friedlander Limited (KSF) was the UK subsidiary of the Icelandic bank Kaupthing Bank hf. On 8 October 2008, the Financial Services Authority’s (FSA) decided that KSF was in breach of its threshold conditions under the Financial Services and Markets Act 2000 (FSMA) and that it should be prohibited from accepting any new deposits.
The Financial Secretary to the Treasury has asked officials to prepare a note on the events around the failure of KSF. He asked that the note focus on the actions of the Treasury and cover certain specified items. They were:
1.    to provide a chronology of events ahead of the failure of Icelandic banks in October 2008;
2.    to set out why the FSA came to the decision that KSF had breached its threshold conditions;
3.    to explain apparent discrepancies in reporting in 2008 on whether Iceland would honour its obligations to protect UK depositors;
4.    to provide information on any discussions between HM Treasury, the FSA and the Isle of Man authorities on the failure of KSF; and
5.    to assess whether the actions of UK authorities triggered the administration of Kaupthing, Singer & Friedlander Isle of Man (KSF IoM).


Officials have reviewed internal papers as well as information in the public domain to inform this report."

....

"Whether the actions of UK authorities triggered the administration of Kaupthing, Singer and Friedlander (Isle of Man).
KSF IoM is not a subsidiary of KSF but of Kaupthing Bank hf, the Icelandic bank. Regulatory oversight of KSF IoM is the responsibility of the Isle of Man’s Financial Supervision Commission (FSC). It was their responsibility to assess how the failure of the parent company in Iceland, another company in the group or any other counterparty would impact on the Isle of Man subsidiary and to take the appropriate action.


Indeed, following market uncertainties about the Icelandic banking sector, in March 2008, the FSC expressed its concern about KSF IoM’s exposure to the Kaupthing Bank group. Throughout late April and May 2008, the FSC and KSF IoM negotiated the means by which KSF IoM should eliminate its exposure to Iceland. In May 2008, they agreed with the decision of KSF IoM to place a significant portion of their funds with KSF. Whist this removed direct exposure to the parent company; it did not remove indirect exposures to problems with Icelandic banks. Ultimately, it was significant exposure to Kaupthing Bank hf, which failed when it could not meet its liabilities that lead to the failure of KSF IoM.


On 8 October 2008, the Treasury exercised asset-freezing powers in relation to Landsbanki Islands hf, another Icelandic bank facing difficulties at the time. These powers were exercised after the FSA has made its decision, earlier that morning, to prohibit KSF from accepting further deposits. The exercise of these powers followed, and did not contribute to, the failure of KSF. At no time did the Treasury exercise asset- freezing powers in relation to KSF, KSF IoM or Kaupthing Bank hf."

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Download the full Treasury report here

For comment by KSFIOM DAG, see here

 

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