With financial turmoil currently littering the Mediterranean island of Cyprus, there were concerns that Laiki Bank’s collapse would have a detrimental effect on UK savers.

Laiki Bank UK, however, and its 15,000 accounts totalling £270 million, will be moved to the UK subsidiary of Bank of Cyprus and escape the haircuts imposed upon Laiki Bank customers in Cyprus.

Chancellor George Osborne announced on Tuesday that his office was involved in discussions with the Cypriot authorities, with a view to introducing legislation which allows the account transfers.

“There has been no material recourse to public funds”, he said in a letter to the Treasury Select Committee.  “I promised a solution that would stop depositors here being sucked into that restructuring process.”

It is understood that the Prudential Regulation Authority (PRA), on their first official day of operation, gave the green light to the arrangement last night, as have the Central Bank of Cyprus.

Previously, when the Government had moved to impose a tax levy on all Cypriot accounts, all Laiki Bank UK customers were at risk of taxation as the Bank was not regulated by the Financial Services Authority (FSA).

Bank of Cyprus, however, and its UK subsidiary Bank of Cyprus UK, was endorsed by the regulating body, thus all savings of up to £85,000 were protected under the FSCA compensation scheme.

With the bailout now secured in Cyprus, and plans for the taxation scrapped, it was decided that Laiki Bank and all of its accounts and subsidiaries would fold into Bank of Cyprus; this means all Laiki Bank UK accounts will fold into Bank of Cyprus UK.

Customers with deposits over the guarantee scheme limit should still keep their money during the transfer; with top regulators and government officials from both the UK and Cyprus agreeing the deal, there is a sense of security.

The Laiki Bank disposition will not cost the British taxpayer any money. According to the Chancellor, the agreement is merely that the Cypriot authorities agreed not to impose losses on UK based customers.

According to Bank of Cyprus UK, it will honour pre-existing terms of Laiki Bank accounts however all overdraft facilities are currently suspended.