Chief Executive of the Financial Supervision Commission (FSC), John Aspden gave a particularly defensive performance before the Tynwald Select Committee investigating the collapse of Kaupthing Singer & Friedlander (IOM) Ltd.

Mr Aspden was on the back foot from almost the beginning when Committee member, Eddie Lowey MLC, one of the ‘elder statesmen’ of Tynwald, informed Mr Aspden he didn’t much like being “put on notice how to deal with financial sensitivities”; and inquired if the KSF (IOM) affair had enhanced the reputation of the FSC.

Mr Aspden had to admit it had not.

Mr Aspden was grilled for almost 3 hours by the Committee - consisting of Chairman Juan Watterson MHK (Rushen), John Houghton MHK (North Douglas) and Mr Lowey – and at one point complained he had not been provided in advance with some of the questions.

This rather limp protestation was prompted by Mr Houghton bombarding Mr Aspden with a series of prepared and quite technical questions – which clearly Mr Houghton had been assisted in putting together. Perhaps it was less than coincidental that local advocate, Jonathon Smalley, and critic of the FSC, who was sitting in the public gallery, appeared to have a set of the questions in his possession.

Mr Aspden said many of the issues being raised by Mr Houghton were covered by his written submission to the Committee; and at one point wondered if the Committee had actually read his submission.

Mr Houghton responded by saying he wanted to get the matters on the record; and also to be sure the matters he was raising had been addressed in the submission – and that nothing had been omitted.

Mr Aspden pointed out he had copied the entire KSF (IOM) file to the Committee but still said he would check to see if anything had been overlooked.

During the questioning Mr Aspden effectively admitted the business model used by the IOM is not adequate to address the type of situation that struck KSF (IOM), but - even though he clearly thought this to be the case – he, and the Commission, appear to have done very little to try to change the position.

The excuse appeared to be it was outside the remit of the Commission.

One aspect on which he was clear as being outside their remit, unlike the FSA in the UK, is to ‘educate’ potential customers/consumers of IOM financial services.

It appeared to be accepted that consumers were taking ‘licensed by the FSC’ as an endorsement when in fact they should have been reading it has a financial health warning; after all the IOM has no clearing bank of its own or a bank of last resort.

From the evidence provided by Mr Aspden it would appear the FSC has little if any influence over the operation of banks in the IOM, especially if they are subsidiaries of foreign banks; which the majority are.

It appears the licensing process is barely anything other than an income generating process: deposit takers are statutorily required to apply for/have a licence to trade and the FSC is the body they apply to/issue the licences. It appears unless you are a bank based in Timbuktu (somewhere Mr Aspden said would not be considered) you will get a licence.

However, the granting of licence doesn’t guarantee, by any stretch of the imagination, that depositors’ money will be safe and looked after properly.

Mr Aspden appeared to be saying there is little that the IOM can do to prevent or dissuade deposit takers from up-streaming most or all of the money they take in the IOM to their parent company in the UK or elsewhere. Banks in the IOM are, therefore, at the mercy of regulation and support of other jurisdictions – and as the IOM found out with KSF (IOM) – when the chips are down the other jurisdiction will look out for its own interests before anyone else’s.

Mr Aspden did admit, as result of the KSF (IOM) affair, consideration is being given to changes in regulation or approach to IOM deposit takers; but as of yet no real action has been taken.

Quite a bit of attention was paid to an apparent discrepancy between a Commission decision for KSF (IOM) to eliminate any exposure to Iceland and what actually occurred.

Mr Aspden was adamant that the bank had eliminated any direct exposure to Iceland by removing funds from the parent bank Kaupthing Hf – but seemed to accept the reality was some what different.

Mr Aspden laid the fault for this with the FSA in the UK, who he implied had not kept to their side of an understanding over the level of exposure KSF (UK) had to Iceland.

Mr Aspden was also of the opinion the onus was on the FSA to tell the FSC of any changes to the exposure KSF (UK) had to Iceland rather than on the FSC to check with the FSA if any changes had taken place.

Again the limp excuse was the FSC had no power to require the FSA to provide the information – it was just a gentlemen’s agreement they would.

In fact Mr Aspden said the effectiveness of the Memorandum of Understanding had been over stated, as had been the parental guarantee from Kaupthing Hf.

The Manx Herald wonders if that was so why didn’t the FSC or OFT take action to prevent KSF (IOM) from marketing their accounts so heavily on, particularly, the latter point.

Mr Houghton continued to press Mr Aspden on the elimination of the exposure of KSF (IOM) to Iceland and the rest of the group; but Mr Aspden was having none of Mr Houghton’s aspersions. He said, if necessary he would call the Commission members to testify he had not exceed his authority and changed a decision of the Commission. He said Mr Houghton was wrong to suggest there had been a decision of the Commission to eliminate exposure to the group and this had then been ignored. He said no decision had been made to totally eliminate the exposure to the group; and, furthermore, he wished to make it clear the FSC had not directed the KSF (IOM) to deposit the money in the sister company in London.

Mr Houghton made Mr Aspden read out a file note, made by Head of Banking Supervision at the FSC, Michael Weldon, of a telephone conversation with Aidan Doherty, CEO of KSF (IOM), on 25^th April 2008. In it Mr Weldon says Mr Doherty expressed astonishment that the FSC was expecting KSF (IOM) to eliminate its exposure to it parent bank; and that it could lead to the closure of the bank and the loss of 70 jobs.

Perhaps that would not have been such a bad thing if the business had been transferred to the UK division of the bank – at least all the retail depositors would have had their money protected in full and the IOM wouldn’t have had to deal with the fall out, and multi million pounds, cost of a failed bank.

Mr Aspden also debunked the claims of Derbyshire account holders, who have claimed they didn’t know they had been taken over by an Icelandic bank or had been prevented from withdrawing their money. He went as far as to say the Derbyshire was, contrary to the story being put about, a “basket case”; and implied if had not been taken over depositors would probably have lost a lot more than they stand to lose from the collapse of KSF (IOM).

Mr Aspden was asked if the FSC was to conduct an investigation into the operation of the bank, but he said the liquidator was conducting one and they would be given a copy of their findings; but said he couldn’t rule out a FSC investigation.

Committee Chairman brought proceedings to halt just before the end of the three hours but said Mr Aspden may need to be recalled in the future; which he seemed to accept as almost inevitable.

The Committee is due to hear next from the Directors of the bank, including ex-Chief Minister, Donald Gelling and ex Chief Financial Officer of the Treasury and Deputy Chairman of the FSC, John Cashen on Friday 13^th November.