MPs will open a detailed investigation into the takeover of the Singer & Friedlander Group by Kaupthing, the Icelandic bank, after a former Singer & Friedland executive revealed yesterday that he had warned financial regulators about the deal in 2005.

At a Commons Treasury Select Committee hearing yesterday, the Financial Services Authority (FSA) also came under pressure to explain the role it played in the collapse into administration of Kaupthing Singer & Friedlander (KSF).

The bank's collapse left thousands of savers with its Isle of Man and Guernsey branches out of pocket after the Government refused to help savers with offshore accounts.

John McFall, the committee's chairman, said that he would write to former Singer & Friedlander executives for further testimony after Tony Shearer, the bank's former chief executive, told the MPs that he had asked the FSA to block Kaupthing's takeover of his bank, warning that the Icelandic bank's directors would not be “fit and proper” owners.

The FSA, which told the committee that it had made a full assessment of Kaupthing and had been told by Iceland's regulators there was no reason to block the deal, will appear before the committee again on February 25 with a more detailed testimony.

The FSA said: “As part of the change of control process, we required Kaupthing to take a number of actions to address governance issues in London, including the appointment of non-executive directors.”

The committee also heard allegations by the Isle of Man's financial authorities that the UK Government had encouraged the offshore bank to transfer £550million of assets to the UK for safe-keeping, then froze them when the British division of the Icelandic bank was put into administration.

The financial regulator for the Isle of Man told MPs on the committee that he had grown concerned about the exposure of KSF to Iceland's struggling banking system as early as last March.

John Aspden, chief executive of the Isle of Man's Financial Supervision Commission, told the committee that he had tried to reduce the bank's Icelandic risk over the next two months and had sought guidance from the FSA.

He said that he had approved the transfer of £550million of funds from KSF in the Isle of Man to the London branch only because of “assurances” and a “memorandum of understanding” that existed between his office and the FSA.

This suggested that the money would be safer in London, he said.

The transferred funds represented about half the bank's Isle of Man assets.

However, they were frozen in the London branch last October when the Government forced KSF in the UK into administration after a run on Kaupthing Edge, which managed money for thousands of UK savers.

The administration, sanctioned by the FSA, left more than 8,000 savers in the Isle of Man out of pocket. Britain initially refused to guarantee depositors' savings. The Icelandic Government subsequently sued the UK, in a case that is ongoing.

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