Mr Watterson raised the issue of the rejection by the Icelandic authorities of the liquidator’s claim under the parental guarantee.

Mr Bell replied it is a matter for the liquidator but he understood the matter would go straight to court.

Pressed by Mr Watterson about whether he thought the guarantee was valid and enforceable, Mr Bell reminded the committee a delegation had gone to Iceland, met with the Resolution Committee, and at that time it was thought it was valid and would be honoured.

Mr Watterson inquired if the IOM Treasury had considered becoming the ‘lender of last resort’ and step in and offer a loan to the bank; but no they hadn’t as it hadn’t been thought appropriate, replied Mr Bell. However, he said, the government did investigate reconstructing the bank and selling it on.

Mr Watterson wanted to know who made the policy decisions over whether to nationalize or make a loan to the bank.

Mr Bell reminded the Committee the Chief Minister had established the ‘Gold Committee’ a few days after the bank’s collapse to look for a way forward, and thought they may have looked at the options.

Mr Watterson put to Mr Bell the earliest minutes of the ‘Gold Committee’ they had seen was 30^th October 2008 and asked him to check whether there were any before that date.

Mr Bell was sure there had been discussions prior to the 30^th and agreed to check.

Returning to the visit to Iceland, Mr Watterson asked Mr Bell about the purpose of the visit. Mr Bell said it was mainly an information gathering exercise and to let them know the concerns of the IOM Government.

Mr Watterson wondered whether he thought it had been a successful enterprise.

Mr Bell said they went with very little expectation as the bank and Iceland in general were in a very bad way. However, it had been a “good meeting” even if they had come home without any optimism that the money would be returned. He again reiterated the regulator had responsibility for matters to do with the bank not Treasury.

Eddie Lowey MLC pointed out there is no such thing as a 100% guarantee referring to the dubious parental guarantee and the lack of co-operation by the FSA; to which Mr Bell agreed there are no “absolutes” and pointed to the difficulties being experienced by the UK and Dutch authorities in recovering funds.

He went on to say 75% of KSF (IOM) customers have already recovered all their money and the rest will get 90% back; although, he added, it was very disappointing they would not get it all back but it was better than originally expected.

Mr Watterson said there has been a lot of criticism about the lack of communication with depositors and Mr Bell concurred; saying he had personally received a lot of calls from depositors suffering shock and fear of the situation. He admitted there were a “lot of frantic people” trying to get information.

He again repeated the claim he had a team working 7 days a week, and over Christmas - a statement previously challenged by Michael MHK David Cannan in parliament - trying to get information for depositors but they couldn’t always answer their questions. He said this led some to believe they were not being forthcoming with them; but the reality was they just didn’t have the answers to give.

He said it had been a frustrating time for everybody and it had been a very great difficulty in getting information from the liquidator and KSF in London. However, the UK’s priority, he said, was sorting out the Edge accounts; so they just did as much as they possibly could.

Mr Watterson inquired if he now thought communications are running smoothly; to which Mr Bell replied he thought they are lot better; although he acknowledged 75% of the depositors are out of the equation. He added he thought communications between the FSA and the FSC had also got better.

Mr Watterson inquired if lessons had been learned from the affair and whether it could have been handled better.

Mr Bell said all their efforts had been to do the best for the depositors and everything else was secondary; and once he had received the Committee’s report a review will be conducted to see if anything could have been done better. However, he doubted, there would be anything other than the communication issue.

Mr Bell expressed the opinion the powers available to deal with such situations are adequate and, taking into account the global spread of the people involved, he doubted whether much more could have been done.

Mr Watterson wondered if the resources (or lack of them) of the liquidator may have been at fault for some of the problems; to which Mr Bell replied, if there had been a weakness this may have been it.

Moving on, Mr Watterson asked which UK authorities he had dealt with over the matter.

Mr Bell said mostly the Ministry of Justice (MOJ), but he had also had some contact with the UK Treasury and some through the Chief Secretary’s Office. However, the regulators had dealt with each other directly.

“How are relations with the MOJ” inquired Mr Watterson.

“Very good” replied Mr Bell.

“And the relations between IOM Treasury and UK Treasury”; to which Mr Bell responded: “Interesting”.

Mr Watterson wondered if Mr Bell would like to expand on his comment; to which Mr Bell replied: “Not on the record”.

When pressed further Mr Bell appeared almost as an apologist for the UK Treasury, stating they had been protecting the UK interests and if there had been any “secondary interests” they had been “trampled on”; and effectively became “collateral damage”.

Mr Watterson put to Mr Bell the UK Treasury had said they would represent the IOM’s interests in negotiations with Iceland and wondered if he was satisfied with the “voracity of their representation”.

Mr Bell said it was made clear under the terms of the constitutional relationship the IOM couldn’t negotiate directly with Iceland, so although, ultimately, the UK Treasury did agree to make representations he didn’t sense any urgency on their part. In his view the UK Treasury had been very robust in protecting the interests of the UK but not the IOM’s. In fact he confirmed, in reply to a follow up question, he had seen no evidence at all of the IOM’s interests being represented.

Exploring the issue of direct negations further, Mr Bell said he thought the UK would have washed their hands of the IOM if they had tried.

Mr Watterson put it to Mr Bell the reality is the UK washed its hands of us and kept the IOM quiet at the same time.

“You could say that” came back Mr Bell.

Mr Watterson reminded Mr Bell the UK Treasury Select Committee had recommended the regulators to co-operate closely on getting a satisfactory outcome; and inquired if he thought they had.

Mr Bell thought relations had improved and recounted a meeting with Alistair Darling, when the issue was discussed, and said Mr Darling had assured him he would see what he could do to improve relations. Referring to the Turner Report, Mr Bell pointed out co-operation between regulators forms a part; and emphasized relations had improved from the previous low point.

It was at this point in proceeding the first exchange took place regarding any conspiracy by the UK to mislead the IOM authorities over the collapse of KSF (IOM) and Mr Bell gave his equivocal answers.

Mr Bell said there had been a “less than robust exchange of information” which had to a lack of clarity in the situation. However, despite what he may have said before, he had no evidence there had been a deliberate attempt to mislead by the UK authorities and excused their actions by suggesting they had been under pressure from a huge workload.

North Douglas MHK, John Houghton entered the fray at this point and quizzed Mr Bell about the introduction of the MOU between the FSC and Treasury and what had prompted it.

Mr Bell explained he had thought the arrangements too informal and decided to have them put on a more formal footing and so he had them put in writing.

Mr Houghton wondered if the arrangements should be complied with; to which Mr Bell replied yes and thought they were “in spirit”.

Asked if minutes of meetings were agreed and signed; Mr Bell said he would need to check.

Asked if there were any differences between informal and formal meetings; Mr Bell said he didn’t think there were many formal meetings and doubted that informal meetings were minuted. Mr Houghton asked for any minutes to be provided; to which Mr Bell consented.

Mr Houghton sought confirmation that the majority of meetings with the FSC were informal; and Mr Bell confirmed they were.

Mr Houghton wondered if Mr Bell thought there should have been more formal meetings in the period leading up to crash; but Mr Bell didn’t and thought the issues of interest were strictly for the FSC as regulators.

Mr Houghton put it to Mr Bell KSF was at crisis and he didn’t disagree.

So when had Treasury become aware of this, inquired Mr Houghton?

Mr Bell said it was on 9^th October, but he had been uneasy for a few days previously as a result of reading press reports. However, he said he was informed the bank was not in “dire straights”.

Mr Houghton put it to Mr Bell that John Aspden had given evidence that Treasury had been informed on the 7^th October of the prospects of a bank going into liquidation and asked for his response.

Mr Bell was less than decisive in his answer, saying he may have been told but it wasn’t minuted, and in any case he had no recollection of being told; but he wouldn’t argue the point.

Before moving on to another issue Mr Houghton sought confirmation from Mr Bell the FSC and Treasury had been communicating between the 7^th and 10^th October; to which Mr Bell replied yes.

MR Houghton inquired about communications between the FSC and the Chief Financial Officer in May 2008, in respect of any political implications for removing exposure to Iceland, but Mr Bell said he hadn’t been involved; nor had he been given any information.

However, Mr Houghton said he would still like to see any notes Treasury had relating to this issue; and added he thought interesting to know the Treasury Minister had not been informed.

Mr Bell said since he took over at the Treasury, and the IMF report, his policy had been to avoid getting involved in any matters the responsibility of the regulators.

So had he had any other contact with KSF inquired Mr Houghton; but Mr Bell said he had had none.

Mr Watterson put it to him the directors had been quite aggrieved by the FSC’s decision, so had there been any representations made to him.

Mr Bell was adamant no lobbying or political interference had taken place. However, he recalled there had been discussions with the FSC about the DCS.

Mr Houghton wondered what relevance that had to do with the KSF situation; to which Mr Bell again replied none. He said the discussions were in response to the general banking situation. He said at the time the decision had been to leave the DCS unchanged over the summer but “by September 2008 people were getting panicky so it was decided to modernize the scheme”. He added the meeting on 7^th October 2008 had been a “work in progress meeting”.

Mr Houghton thought the meeting “ironic”.

Mr Bell stated he was quite unaware of the KSF situation at the time and simply a decision was made to bring in an updated scheme; but for the benefit of the Committee he would check to see if there was anything else relevant to give them.

Mr Houghton put it again to Mr Bell that at the 7^th October meeting he knew of the possibility of a liquidation, and therefore his statement to Tynwald conflicted with what he knew, and also differed to the evidence of Mr Aspden.

Mr Bell restated the first time he knew KSF (IOM) had “gone under” was the morning of 9^th October. He added up to the evening before he had been reassured by the Chairman of the bank all was okay. Therefore, the decision regarding the changes to the DCS had “nothing to do with KSF”.

He went on to say it was “a nightmare to wake up and find the bank had gone” and there was “no link to KSF”. He reiterated he had no recollection of being told; and somewhat amazingly admitted he had talked to Mr Aspden, about his evidence, and he now said he wasn’t sure either if it had been mentioned (how very convenient – Ed).

Changing subject, Mr Houghton reminded Mr Bell of IOM Government’s evidence to the UK Treasury Select Committee – highlighting the lack of communication between the FSA and the FSC – and issues surrounding the ‘rescue culture’ as opposed to the previous policy of not being a ‘lender of last resort’ and asked for his comments.

Mr Bell said all was planned is a review of the DCS but could not see a situation where the IOM Government would become a ‘lender of last resort’. Any review, he said would take account of the Committee’s finding and any other information.

Mr Houghton also reminded Mr Bell the Chief Minister had made a statement on 10^th October 2008 regarding the ‘parental guarantee’ and asked, as it is now considered invalid, what about the FSC’s position.

Mr Bell said as he had only just learned about the matter he would have to assess the situation first.

Returning to an earlier subject, Mr Lowey put to Mr Bell the lack of communication by the FSA had been a “cardinal sin” and therefore hadn’t this been a failure.

This is the point Mr Bell denied a conspiracy in a conspiratorial manner but agreed if you needed “to put a finger on one point” the lack of communication was it.

Drawing towards a close of the session, Mr Watterson put it to Mr Bell 15 months had now elapsed since the crash and what had he had time to reflect upon.

Mr Bell said he expected there will be lessons but the situation had to be put in context. It had been “exceptional times”, there had been “no template to lift off the shelf” to work with, and so they had to respond “hour-by-hour”. He felt they will need to review the “level and quality of communication between the regulators”, although he added it is already being addressed; but he couldn’t “specifically say any specific fault needed to be improved on”.

So no new bank regulations were planned in the short term, suggested Mr Watterson, or anything else other than a review of the IPA & FSC. He went on; it would be a case of no action in the immediate term and just a following of best international practice.

Mr Bell said the situation is still evolving but he undoubtedly expected some changes would be made in due course; and he didn’t want the IOM to act precipitously.

Mr Watterson wondered if the IOM had an opportunity to have an input into this process and to raise any concerns it may have.

Mr Bell responded by saying the IOM is a “tiny jurisdiction” and so didn’t have much of a voice, but he thought the matters under consideration are of relevance to the Island.

Mr Lowey seemed a bit upset by this and pointed out that some of the larger jurisdictions are now holding out the IOM as an example to other small jurisdictions of how they should work.

Mr Bell agreed the Island is now getting much more recognition for its efforts and stated the IOM has led the way for small jurisdictions and is now being recognised as a “world class financial jurisdiction”. (Not all would agree Mr Bell – Ed.)

Bringing the session to a close Mr Watterson said he looked forward to having Mr Bell back to provide further evidence in due course.

“I can hardly wait” replied Mr Bell wearily.

The Manx Herald believes three important issues are raised by Mr Bell’s evidence. Firstly, the date which he first knew liquidation of a bank was likely and if it was prior to the 9^th October 2008 what action, if any, he took, whether he informed anybody else at the time; and whether he was totally candid in what he said to Tynwald colleagues and in his evidence to the committee.

Secondly, the cosy informal chats etc held with the FSC - which on the face of it appear to be at odds with the requirements of the MOU between the FSC and Treasury – whether they were professional and appropriate given the importance of the issues involved.

Thirdly, whether certain findings and recommendations of the Mount Murray Commission of Inquiry, and other inquiries, have yet again been ignored; particularly where it involves contact between government officials and outside bodies. In Mr Bell’s case, having been intimately involved in the MM inquiry, he should be well versed in the findings and recommendations.

Clearly these are issues the Committee need to investigate and report on.