Consumers saving in offshore subsidiaries of the failed Icelandic banks are not under the regulator's control so should not be compensated by the taxpayer, MPs have said.
Savers in the Isle of Man and Guernsey subsidiaries of the Icelandic banks which collapsed last year should not receive government compensation, an influential MPs' committee has said.
The Commons Treasury Select Committee, chaired by John McFall MP, released a report recommending that only charities involved with these firms should be compensated by the government. If followed, the recommendations would leave individual savers - many of whom had several thousand pounds deposited in the banks - uncompensated.
Landsbanki and Kaupthing, Iceland's two largest banks, collapsed in October 2008 due to the worsening global credit crunch. Both firms had successful savings operations, Icesave and Kaupthing Edge, operating in the UK.
All customers in the latter bank were subsequently transferred to Dutch provider ING, while most Britons who saved in the former have been compensated for money lost through the taxpayer-funded financial regulator.
However, people saving in the offshore operations of the Icelandic banks in the Isle of Man and the Channel Islands are not covered by this compensation, an anomaly which led to the committee's report.
Mr McFall said: "The consequences of the Icelandic banks' failure are clearly serious and distressing for all concerned. While we have much sympathy for the fate of all depositors, UK taxpayers cannot be expected to cover deposits held in institutions outside the UK's direct regulatory control."
The Scandinavian nation's economy, which was previously heavily dependent on its financial services firms, has been one of the hardest hit by the credit crunch. Huge debts run up by the banks before they entered administration have decimated Iceland's public finances, forcing the government to request a loan from the International Monetary Fund last year.
