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Commons Report Finds UK Overseas Territory Risk Management Ineffectual

by Robert Lee,, London

02 May 2008

The Foreign and Commonwealth Office (FCO) is not doing enough to manage the risks arising from the UK's liability for the 14 Overseas Territories choosing to remain under British sovereignty, according to Edward Leigh, Chairman of the House of Commons Committee of Public Accounts.

Speaking as the Committee published its 17th Report of the parliamentary session on 1st May, Leigh observed that:

"In most of the Territories, the standards of regulation across areas such as banking, money laundering, insurance and securities are not as good as those in the Crown Dependencies. The FCO, actively supported by other relevant agencies, must do more to help the Territories, especially the smaller ones, strengthen regulation. Where necessary, this should include bringing in more UK investigators and prosecutors."

He continued: "The UK government must also be fully on top of the risks associated with its ultimate liability for the management of law and order in the Territories and for how Territories plan for disasters."

"The FCO should lay down the policing standards expected of the Territories and, together with DFID, draw up comprehensive disaster management strategies where they do not exist. In a world of climate change and rising sea levels, it is worrying that not all the Territories have such strategies."

The report, using evidence from the Foreign and Commonwealth Office and the Department for International Development, examined the oversight of offshore financial services in the Territories; the balance between UK and Territory funding and responsibilities; and governance and management of the Territories' external relations.

The United Kingdom retains responsibility for 14 Overseas Territories, 11 of which are permanently populated, and which choose to remain under British sovereignty rather than to become independent states.

The Territories are a diverse group, including Bermuda, home to 65,000 people and a major financial centre, and St. Helena, one of the most isolated populated islands in the world, and reliant on UK aid.

While the Territories are a UK-wide responsibility, the Foreign and Commonwealth Office is the lead Department for coordinating UK Government policy for the Territories. The Department for International Development (DFID) coordinates development assistance, focusing on the three Territories of Montserrat, St. Helena and Pitcairn.

While the report noted that the UK government is attempting to increase capacity for oversight of Territories' financial services industries, it argued that regulatory standards in most Territories are not yet up to those in the Crown Dependencies (Jersey, Guernsey and the Isle of Man).

It also found that limited capacity reduces the ability of Territories to investigate and prosecute money laundering. The FCO has written to UK agencies, such as the Financial Services Authority, the Treasury and the Serious Organised Crime Agency, to emphasise the need for their involvement.

"Standards of governance and financial reporting in the Territories are variable and can fall below standards acceptable in UK Local Government," the Committee found.

"Lax financial management can evade Departmental controls to protect the UK from risk, although there is stronger fiscal oversight of Territories receiving Development aid," it concluded.

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