Last year the Isle of Man Financial Supervision Commission was asked by the Government to undertake a...
The Bank of Ireland identified a key market segment for this service - the English-speaking expatriate market.
The main challenge for the commission was to fashion a regulatory regime to meet the needs of the internet and e-commerce market.
The core principles of banking supervision, agreed under the Basle Concordat on Banking Supervision, apply to any bank, regardless of where it operates. However, the expatriate will often be based in a remote location, with access only to their employer's facilities. It is clear that a provider looking to develop internet banking for such a client has to design new ways of meeting various regulatory needs, such as the provision of identification. Imagine the expatriate being asked to forward his passport to the Isle of Man while they are working in a foreign jurisdiction.
There is also the question of whether the jurisdiction has the appropriate legislation for electronic transactions. Without such provision it becomes extremely difficult to enforce actions. Will the organisation, for example, accept a digital signature?
Indeed, anyone providing such services has to constantly check that their own internal security is robust. (Current standards would apply at 128-bit level.)
It is also necessary to look at the infrastructure which exists within the jurisdiction. Within the Isle of Man, Manx Telecom is the major infrastructure provider. However, most of BT's development work is first tested in the island. It also enjoys a virtuous loop, with cables running from the UK through the island and on into Ireland. Cable and Wireless also have a cable running through the centre and the Manx Electricity Authority have imminent plans to lay a new cable to provide additional capacity.
The island has significant bandwidth potential, with infrastructure developing beyond the ISDN lines and now making maximum use of ADSL technology. Indeed, it is likely that the island will be the first jurisdiction to fully make use of wireless application protocol (WAP) technology - an area which is clearly transforming the market for internet and e-commerce activities.
One example of this paradigm shift is the transformation seen in the FTSE 100 Index over the past weeks where many traditional businesses with solid earnings potential have been overtaken by internet stocks with price-earnings ratios that would send any prudent investor scuttling for cover. In the future, investors may only purchase stocks with price-earnings ratios in excess of 80.
The world has become a very small place and it no longer matters where a particular product-provider is based. What matters is having access to worldwide markets. Current initiatives within the EU regarding distance marketing have served to heighten regulators' awareness. However, the question of jurisdiction remains the subject of debate. The FSC will remain vigilant over providers operating from the jurisdiction of the Isle of Man.
The development of e-commerce has made it more difficult to know with whom you are contracting business, so one of the key requirements of any website is clear disclosure as to who may be considered suitable customers. Failure to exclude certain groups can lead to promoters being subject to enforcement action in jurisdictions where they have no direct involvement. It is essential that all websites are formatted as an 'invitation to treat' and that a contract is only brought into effect in jurisdictions where it is appropriate, with clients from jurisdictions acceptable to home and host regulators.
The island is looking to capitalise on its premier position as a major provider of internet services. It has excellent infrastructure. Its banks are coming forward with independent standalone entities and are also adapting elements of the internet to enhance existing client provision. Its electronic transactions legislation will provide an environment for continued growth in this sector, and its regulatory bodies are experienced in this new and complex area and are looking to work in partnership with those seeking to set up internet activities.
It is said that there are seven internet years to one calendar year. On that basis, the Isle of Man has over 10 years experience in developing internet offerings and should be a key jurisdiction for anyone seeking to develop either their own representation on the internet or with an internet provider.
John Bourbon is head of supervision, Isle of Man Financial Supervision Commission [email protected]
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