Sunday 16 December 2018

Central Bank in hunt for new post-Brexit partner for its bust-bank scheme

The Central Bank currently outsources certain elements of the deposit guarantee scheme to a UK service provider. Photo: Bloomberg
The Central Bank currently outsources certain elements of the deposit guarantee scheme to a UK service provider. Photo: Bloomberg
John Mulligan

John Mulligan

The Central Bank is considering the appointment of a new partner to assist with the deposit guarantee scheme (DGS) in the event of a meltdown of one of the country's covered banks.

In the event of a liquidator being appointed to a credit institution, the Central Bank is obliged to pay compensation up to €100,000 per person per institution to depositors who are deemed eligible under the rules of the scheme.

Payments must be made as early as possible within the statutory deadline of 20 working days.

A Central Bank spokesperson said that the institution currently outsources certain elements of the DGS to a UK service provider.

But all bank data transferred to a service provider in relation to the DGS must remain within the EU. The UK plans to leave the trading bloc next year.

The deposit guarantee scheme covers dozens of credit institutions that are licensed by the Central Bank to undertake activities in Ireland.

It includes well-known banks such as Bank of Ireland and AIB, KBC Ireland, Permanent TSB, Ulster Bank and EBS, but also to much lesser-known institutions at home such as Hewlett-Packard International Bank and European Islamic Investment Bank, which have branches in the EU. The deposit guarantee scheme is administered by the Central Bank and is funded by the credit institutions, include credit unions and building societies, that are covered by it.

The Central Bank said in a notice just published that if it appoints a new business outsource partner to handle the DGS, the firm would have to establish processes to validate data files received from banks, assess this data in line with DGS eligibility rules and process them though to payments.

"It will also include the capability to ramp up resources to handle a compensation event, operate a contact centre and back office case management," it noted.

If an outsourcer is appointed by the Central Bank, the partner will be expected to run simulation events to "prove readiness of banks to meet DGS obligations".

The Central Bank said the DGS currently "tests systems and procedures on a regular basis in order to ensure its operational readiness".

The solution provided by a new partner will be for banks only, and not credit unions, the Central Bank noted.

The DGS was activated following the collapse of the Charleville Credit Union in Co Cork last October. A liquidator was appointed to the credit union that month.

By mid-October the deposit guarantee scheme had paid out a total of €39.2m to almost 11,000 members of the credit union, representing more than 98pc of eligible deposits covered by the scheme.

Irish Independent

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