The Dunfermline Building Society Compensation Scheme, Resolution Fund and Third Party Compensation Order 2009

EXPLANATORY NOTE

(This note is not part of the Order)

This Order is made under the Banking Act 2009 (c. 1) (“the Act”).

This Order makes provision for the compensation arrangements to be put in place in respect of the transfers of property, rights and liabilities from Dunfermline Building Society (“Dunfermline”) to Nationwide Building Society and to a bridge bank (wholly owned by the Bank of England) by virtue of the Dunfermline Building Society Property Transfer Instrument 2009 (“the Transfer Instrument”).

The Transfer Instrument was made by the Bank of England on 30th March 2009 in exercise of the powers conferred on it by sections 11(2) and 12(2) of the Act.

Article 3 makes provision for a compensation scheme. The Treasury is required to make provision for a compensation scheme where the Bank of England has exercised its power to transfer property, rights and liabilities to a private sector purchaser (section 50(2) of the Act).

Articles 4 and 5 make provision for an independent valuer to be appointed to perform certain functions under this Order.

Articles 6 to 8 and Schedule 1 make provision for the Dunfermline Resolution Fund. Section 52(2) requires the Treasury to make a resolution fund order where the Bank of England has made a transfer to a bridge bank.

Articles 9 and 10 and Schedule 2 make provision for third party compensation. The Treasury is required to make provision for third party compensation as the Bank of England has made transfers of some, rather than all, of Dunfermline’s property, rights and liabilities (sections 50(4) and 52(4) of the Act).

Article 9(2) and Part 2 of Schedule 2 make provision for the assessment by the independent valuer of the compensation, if any, to be paid to persons affected by the application of section 38(6) of the Act (by virtue of paragraph 6 of the Transfer Instrument)(1).

Article 9(3) and Part 3 of Schedule 2 make provision for the assessment by the independent valuer of the compensation, if any, to be paid to pre-transfer creditors of Dunfermline. These provisions include the mandatory provision for third party compensation arrangements prescribed in the Banking Act 2009 (Third Party Compensation Arrangements for Partial Property Transfers) Regulations 2009 (S.I. 2009/319).

Article 11 provides that the independent valuer must perform the function specified in regulation 8(1) of the Financial Services and Markets Act 2000 (Contribution to Costs of the Special Resolution Regime) Regulations 2009 (S.I. 2009/807), which requires the independent valuer to assess the amount the Financial Services Compensation Scheme (“FSCS”) would have received from the insolvency estate had Dunfermline entered into insolvency immediately before the transfers. This is relevant to the calculation of the amount the FSCS may be required to contribute to the costs of the resolution of Dunfermline.

(1)

Section 38 of the Act deals with default events.