The island’s financial regulator has insisted funds in all banks licensed in the island for deposit taking are covered by a compensation scheme.

It moved to clarify the position after Karen Badgerow, chief executive of the Financial Services Authority, told a Tynwald scrutiny committee banks incorporated in the island were covered.

Asked if local deposits were now more exposed following the decision to have Isle of Man banks outside the UK ring-fence, she said some retail clients were concerned as the UK operation was considered ’less risky’.

But she added: ’We mustn’t forget the fact that if it’s an incorporated bank on the Isle of Man, a subsidiary, then they have access to depositor compensation scheme here.

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’It depends on the structure of the bank so a locally-incorporated bank would have access to the depositor compensation scheme here on the Isle of Man. So that hasn’t changed.’

She said the Crown Dependencies had not ’won the battle’ to be inside the retail bank ring-fence.

The depositors’ compensation scheme is a fund of last resort that protects individuals’ saving up to £50,000.

In a statement sent to the scrutiny committee, the FSA moved to clarify the position.

It said: ’We would like to confirm that eligible deposits with any bank which is licensed by the FSA for class 1(1) deposit taking is covered by the DCS whether that bank is an Isle of Man incorporated company or an Isle of Man branch of a foreign company.’

The following banks are the current members of the DCS: Abbey National Treasury Services PLC (trading as Santander International); Barclays Bank Plc; Cayman National Bank (Isle of Man) Ltd; Conister Bank Ltd; HSBC Bank Plc; Isle of Man Bank Ltd; Lloyds Bank International Ltd; NatWest Markets Plc; Nedbank Private Wealth Ltd; Standard Bank Isle of Man Ltd; Royal Bank of Scotland International Limited (including activities as NatWest International).

Isle of Man Bank business is being moved from its current legal entity, Isle of Man Bank Limited, to the Royal Bank of Scotland International Limited, based in Jersey.

But an Isle of Man Bank spokesman said: ’Isle of Man Bank Ltd’s customers are covered by the depositor compensation scheme but we would note that the depositor compensation scheme in the Isle of Man doesn’t just apply to banks incorporated in the Isle of Man.

’This means it also applies to customers of Royal Bank of Scotland International Limited, so even after the scheme transfer our customers would still be able to benefit from the depositor compensation scheme.’