Select Committee on Justice First Report

Crown Dependencies: evidence taken

1. The Isle of Man, Jersey and Guernsey are self-governing dependencies of the UK. These "Crown Dependencies" have their own directly-elected legislatures together with independent legal, administrative and fiscal systems. UK legislation only extends to them with the consent of the relevant legislatures. The UK Government represents the Crown Dependencies in international and defence matters, a role for which it receives annual payment from each dependency.

2. The Crown has residual responsibilities and powers over the Crown Dependencies, the limits of which have never been tested, but is ultimately responsible for their good government.[1] The UK Government scrutinises legislation from the Crown Dependencies for compliance with international law before passing it for Royal Assent. The Secretary of State for Justice has described the relationship between the UK and the Crown Dependencies as a "subtle" one.[2]

3. The Ministry of Justice is the UK Government department responsible for managing the UK's constitutional relationship with the Crown Dependencies and the department's performance in doing so falls within the remit of this Committee.

4. In 2008 problems in the Icelandic banking sector (also affecting subsidiaries of Icelandic banks in, inter alia, the UK, Isle of Man and Guernsey)—and the UK authorities' response—gave rise to a number of issues which, in the opinion of this Committee, merited examination. Many UK-based depositors in banks in the Crown Dependencies fear that they may have lost most or all of their savings and want to know what responsibilities the UK Government has in these matters.

5. Accordingly, the Committee took evidence from Lord Bach, Parliamentary Under-Secretary of State, Ministry of Justice, the Minister responsible for "protecting the role of the Crown Dependencies in UK Government"[3] and received written evidence.[4] Prior to this, in November 2008, the Committee had the benefit of an informal meeting with a delegation from Tynwald, the Isle of Man legislature, led by its President, Hon Noel Cringle MLC.

6. Following the oral evidence from Lord Bach the Committee believes that some questions over the relationship between the UK and the Crown Dependencies remain to be answered and that further clarity on the way in which the dependencies' interests are protected by the UK Government is required. There was a lack of clarity on the respective roles of the Ministry of Justice and HM Treasury which has the financial expertise and was given day-to-day responsibility for representing the dependencies' interests (as well as those of the UK) in negotiations with Iceland and in negotiations with other countries of an International Monetary Fund (IMF) loan to Iceland. Given the potential divergence between the interests and concerns of UK-based depositors in Icelandic banks in the Crown Dependencies and those of the UK taxpayer, we sought clarity on whether relevant conditions in the terms of the IMF loan had been sought and obtained before the loan was granted to Iceland. The Minister was not in a position to assist us on this point. [5]

7. The situation is further complicated by the relationships between the parent banks in Iceland and their subsidiaries in the UK, the Isle of Man and Guernsey as well as between the financial regulators in each jurisdiction. We are not sure that the arrangements within the Government were adequate to deal with all aspects of the recent crisis.

8. The role of the Ministry of Justice in relation to the Crown Dependencies is clearly an important issue in current discussions about the implications of the state of the Icelandic banking sector and we therefore agreed to publish, and draw attention to, the evidence we have gathered as a matter of urgency. We intend to return to the wider issues, and the performance of the Ministry of Justice in these matters, in the New Year. There is also the independent review of the immediate and long-term challenges facing British offshore financial centres in the current economic climate commissioned by HM Treasury. We note that changes to the constitutional relationship between the dependencies and the UK are specifically excluded from the scope of that review. [6]

1   HL Deb, 3 May 2006, col. 180W Back

2   Uncorrected transcript of oral evidence taken before the Committee on 7 October 2008, HC (2007-08) 1076-i, Q14 Back

3   Evidence taken before the Committee on 10 December 2008, Q1 Back

4   See page 7 Back

5   Evidence taken before the Committee on 10 December, Q15. See 'Agreed guidelines reached on deposit guarantees', Icelandic Prime Minister's Office announcement, 16 November 2008 Back

6   Independent Review into British Offshore Financial centres, HM Treasury, 130/08, 2 December 2008 Back

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Prepared 19 December 2008