Tuesday, 17 January 2006

Bank Safes not Safe Banks ?

Today I received my regular motley fool newsletter e-mail. For those of you not familiar with them please do check out their link on my links page if you are interested in free, generic financial advice. They have advice on how to save money, how not to spend too much of it and most things in between.
The bit that caught my attention in this particular e-mail was their usual list of "savings accounts". For the first time I can remember, not only did the list not include good old Cahoot, but it included a bank I hadn't seen before by the name of ICICI. As they were offering a really good interest rate I decided to take a look. It turns out this is a bank originating from India. Now without wanting to sound dubious about foreign country regulations, this made me wonder how safe using them might be. Anyone wondering why I thought this should look into to news reports such as The Sun newspaper buying account details from IT staff in India, an Indian company threatening to release patient details belonging to a US hospital in a payment dispute and the like. Now I'm am in NO WAY trying to suggest anything negative about India or it's wonderful people. The question is valid for all countries outside your own, or in this case my own. I am actually raising the question of differences in international laws and regulations as I hope people will appreciate.
Being a reasonably sensible person I looked on the ICICI web site and found an answer to my question of "security" of any money I might place with them. What shocked me was not what it said, but what, as a result of asking the helpful people at Motley Fool I found out about ALL UK bank accounts. So, what is this nugget of scary information ?. Well, it is the fact that even if you use a bank that is registered with the UK FSA which "means it is reputable", you are still only protected for roughly 100% of the first £2K 90% of the first £33K held there. Obviously the FSA web site holds accurate details at http://www.fscs.org.uk/consumer/key_facts/ for anyone interested.
I would like to think that this is not a scary piece of information but when you consider what happened to companies such as Enron and Barings Bank it makes you wonder. Hopefully we can all feel safe that we are protected by such things as the Sarbanes Oxley Act and other regulations on operations of financial institutions. But quite how these apply to foreign finance houses is probably going to remain something of a mystery to the average bank account holder like myself.
Sorry I don't have an answer to this question. Hopefully the people at Motley Fool will continue to help us keep our heads above water in such respects. In lieu of anything else then maybe just remember the old saying "as safe as houses" and stick to the property market if you have enough money to be concerned by the approximately £30K limit of protection (subsidence, ocean rises as a result of global warming and late 1980s style market crashes not withstanding).