IFAs under fire from Treasury Committee over Icelandic advice

The Treasury Committee has attacked the quality of IFA advice given to clients with money deposited with Icelandic banks in the run-up to their collapse in October last year.

In the first report in a series on the Banking Crisis, the Treasury Committee says: "Bearing in mind the heavy coverage in the financial press of Iceland's fragility we would have expected offshore savers using independent financial advisers to have been advised of the changing risk profile of their savings."

It intends to probe the role of advice to customers in its forthcoming enquiry into the banking crisis.

The report also considers the case for assistance by the UK Government to UK citizens who deposited money in the offshore subsidiaries of the Icelandic banks, as well as for local authorities and charities.

It says the UK Government cannot provide cover for deposits held by British citizens in jurisdictions outside the direct control of the UK. However, the committee acknowledges the "severe distress" caused to depositors, many of whom are British citizens.

UK authorities should seek to work closely with other interested parties such as the Financial Services Commission of the Isle of Man to maximise transparency of the administration of Kaupthing Singer & Friedlander (KSF) UK to get the best outcome for depositors including those with funds in KSFIOM, the report says.

Chairman of the committee, John McFall says: "While we have much sympathy for the fate of all depositors, the Committee unanimously agreed that UK taxpayers cannot be expected to cover deposits held in institutions outside the UK's direct regulatory control."

"However, we are today strongly urging the UK authorities to work with those of the Isle of Man and Guernsey to resolve these issues."

McFall believes the inquiry has raised questions about issues such as consumer advice and cross-border regulation of financial institutions. Taxpayers' funds have been required to compensate onshore UK depositors in Icelandic banks that were "passported" into the UK regulatory system.

"This area of European law requires further consideration, and the Committee intends to return to it in a future inquiry into the banking crisis within its international context," he says.

The report also found charities should be compensated for their losses from Icelandic banks, while the Treasury Committee does not accept there is a need to assist local authorities.