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.
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"
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'
responsegave 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"
and received written evidence.
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.
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. 
1 HL Deb, 3 May 2006, col. 180W Back
Uncorrected transcript of oral evidence taken before the Committee
on 7 October 2008, HC (2007-08) 1076-i, Q14 Back
Evidence taken before the Committee on 10 December 2008, Q1 Back
See page 7 Back
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
Independent Review into British Offshore Financial centres,
HM Treasury, 130/08, 2 December 2008 Back