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The chancellor, Alistair Darling, today announced a review of the protection afforded to depositors by offshore tax havens and foreign banks operating with branches in the UK.
In October, the government was forced to step in to guarantee British savers' deposits after the internet bank Icesave's parent company Landsbanki was nationalised by Iceland's government.
Unveiling his pre-budget statement to MPs the chancellor said: "We must resolve the situation highlighted by the Icelandic bank – Landsbanki – where billions of pounds of British savers' money can be deposited in a foreign bank with branches in the UK – with insufficient safeguards for those depositors.
"They were not adequately covered by the compensation scheme of the Icelandic authorities, so we had to step in to guarantee UK savers' money."
Darling said the British government has asked the European Commission to come back with recommendations by the spring on how to tackle shortcomings in the international compensation arrangements.
He also criticised compensation arrangements in overseas territories and crown dependencies such as the Isle of Man and Channel Islands.
Britons with savings in off-shoots of Icelandic banks based in the dependencies stand to lose thousands of pounds following their collapse and have been appealing, unsuccessfully, to the UK government to bail them out.
The chancellor said: "They attract banking customers with lower taxes – without contributing to the UK exchequer. But at times of stress, depositors need to know who will compensate them. The British taxpayer cannot be expected to be the guarantor of last resort."
Darling has asked for a review of regulatory arrangements in these areas, which will report to the Treasury in the spring.
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