Britain should get a grip on its territories to avoid being liable for lax standards of financial regulation, according to a report from a highly influential committee of British MPs.

The Chairman of the Committee of Public Accounts (CPA) said UK investigators and prosecutors should be brought in where necessary, and there is also a recommendation to train governors.

Commenting upon the release of the CPA report chairman Edward Leigh MP said: "The Foreign and Commonwealth Office 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.

"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."

The report will be sent to British Foreign Secretary David Milliband who will have to either promise action or state why further action is unnecessary.

The report said Bermuda had hired more regulators since 2000 but concerns were raised that some public bodies had accounts that were up to six years in arrears while there were delays to the public pension and insurance fund which controls approximately $1 billion of assets.

The British Government said it is attempting to increase capacity for oversight of territories' financial services industries after pointing out standards were not up to those in the Crown Dependencies of Jersey, Guernsey and the Isle of Man.

It noted limited capacity also reduces the ability of Territories to investigate and prosecute money laundering.

The Foreign and Commonwealth Office 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.

The CPA had been critical of Bermuda's financial regulation with Mr. Leigh pointing that with anti-money laundering measures Bermuda was materially non-compliant in 22 percent of cases while compliance in Bermuda's insurance sector was materially non-observed in 44 percent of cases.

It led him to brand Bermuda's record "appalling" during a grilling of Britain's top civil servant in the Foreign and Commonwealth Office, Sir Peter Ricketts, who was accused of being "asleep on the job".

However Bradley Kading, executive director of the Association of Bermuda Insurers and Reinsurers (ABIR), said: "It's unfortunate the UK discussion featuring a five-year-old IMF assessment of Bermuda insurance regulation is so inaccurate. The new IMF insurance sector report is due to be released soon. That report is expected to show the Bermuda Monetary Authority as an effective insurance regulatory leader — meeting or exceeding international regulatory standards."

Mr. Kading said Bermuda and the UK should be proud of Bermuda's insurance solvency regulation system as applied to its international insurers.

And he said Bermuda's Government and ABIR are committed to having an insurance solvency regulation system that meets or exceeds international standards.

"With regard to anti-money laundering initiatives, Bermuda is in the midst of improving its regulatory framework. The Government is committed to doing what needs to be done," said Mr. Kading.

"Bermuda has been cited by international bodies including the US Department of Treasury and the Organisation for Economic Cooperation and Development (OECD) as a cooperative jurisdiction with regard to international financial transactions.

"Bermuda is not considered a domicile where money laundering is a problem. But in its bid to meet or exceed evolving international standards, the Government has already launched an intensive new compliance program in this area and Bermuda will likely be judged anew in the coming years after these measures have been implemented."

Mr. Kading said the international property and casualty insurers represented by ABIR are not greatly affected by the anti-money laundering compliance program but he encouraged the Bermuda Government to do what it took to beef up its anti-money laundering efforts.

"We encourage the IMF to come back in future years and review what Bermuda has accomplished."

Finance Minister Paula Cox said the Bermuda Government had not had sight of the CPA report so it would be premature to comment.

"Clearly from a risk management perspective, I would anticipate those items that can usefully be addressed to further enhance Bermuda's position will be carefully considered and a realistic time-frame for action established by the relevant Ministers and/or authorities."

Mr. Leigh also urged the UK government to get 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 the Department for International Development, 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."

Concerns were also raised that some Public Accounts Committees in the OTs met in private, as is the case in Bermuda, and there were suggestions that PACs should be beefed up by drawing on UK expertise and appointing ex-officio experts.

The CPA said British Government funds aimed at increasing the capacity of Overseas Territories to meet risks and encourage sustainable development had been too thinly spread to be effective.

The committee also found standards of governance and financial reporting in the Territories were variable and could fall below standards acceptable in UK local Government.

And the CPA said lax financial management can evade controls to protect the UK from risk.

A statement from Government House last night said: "The Committee of Public Accounts is a cross-party committee of backbench MPs.

"Having now submitted their report, the British Government will have up to 60 days to respond. Government House will certainly have input to that response, but is not able to comment further until the response is published."

The United Kingdom 14 Overseas Territories have also come under the microscope from the Foreign Affairs Committee which is due to publish a separate report in June.

¦ A report in yesterday's paper should have said that the British Government pays £338,000 for the Bermuda Governor's staff costs, not $338,000.