Kaupthing Edge, the Icelandic internet bank, continued to allow cash transfers by existing savers after it collapsed in early October, contrary to instructions from the regulator.

The Icelandic bank closed on 8 October and the next day all its savers' accounts were moved to ING Direct, with no loss of money.

But the administrators, Ernst & Young, were not able to stop internal transfers on the bank's website until 6 November. The administrators blamed an "IT problem".

On 8 October the Financial Services Authority (FSA) banned Kaupthing from taking in any more money from depositors, and the administrators stopped new customers from opening new accounts on the bank’s website.

But 2,300 existing customers found they were still able to move money from their ordinary savings accounts into the bank's higher rate fixed-term deposit accounts, which offered 7.5% interest, because the administrators were unable to disable the relevant software.
 
"We did not disable the entire site, as this would have stopped all customer transacting capabilities on the site, causing considerable inconvenience to the customer base by not allowing them to access their money," Ernst & Young explained.
 
The money involved will be refunded to customers' easy access savings accounts, which are now held by ING Direct, and they will not lose any interest.

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