The Financial Services Authority said it expected the Icelandic authorities to put the firm into insolvency proceedings, which would trigger payouts from the UK's and Iceland's saver protection schemes.

The warning came after Icesave stopped consumers withdrawing money from their internet accounts after its parent company Landsbanki was placed into receivership this morning.

The FSA published a notice on the consumer section of its website saying: "Icesave is no longer processing new deposits or withdrawal requests from customers.

"If, as expected, the Icelandic authorities put the firm into insolvency proceedings this would trigger a default under the Financial Services Compensation Scheme (FSCS).

"In this case, savers with Icesave could make a claim to get their money back."

If Icesave is declared insolvent, British customers with sole accounts will be able to reclaim up to £50,000 and those with joint accounts are protected up to £100,000.

But the payouts are complicated by the fact that the Icelandic scheme would pay the first 20,887 euros (£16,170) people lost, with the FSCS topping up the rest.

If the Icelandic scheme was unable to cope with the scale of the payouts, other Nordic compensation schemes would step in as part of a reciprocal agreement the countries have.

Payouts from the Icelandic scheme could potentially be made quite quickly, as the scheme has an element of pre-funding, but consumers would be likely to have to wait for four months to get money from the FSCS.


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