The Isle of Man's attraction has not only been its political and economic stability, but also its sp...
The Isle of Man's attraction has not only been its political and economic stability, but also its special arrangements for depositor, investor and policyholder protection. The financial sector on the Isle of Man currently generates approximately 42% of its GDP. Financial operations currently include a range of banking, investment and fund activities conducted by major institutions from around the world, all supervised by the Financial Supervision Commission.
The centre has £4,124m worth of funds under management. This includes 15 authorised offshore companies, 19 International companies, 47 experienced investor funds and 12 professional investor funds. The island has experienced an expanding deposit base since 2000. March 2001 saw a total of sterling deposits of £16.58bn, while non-sterling deposits were at £9.24bn making a total of £25.82bn, an increase of 4.56% from 31 December 2000.
The Isle of Man has been through a turbulent time over the past few years and legislative changes have been made to bring the island to 'international standards' of regulation. Taxes have been re-examined to appease the OECD and to remain competitive. Moreover, the centre's fund industry is flourishing through the introduction of the flexible Experienced Investor Fund, which is a structure suited to both plain vanilla and alternative investment strategies.
Following a number of legislative changes in the UK, the Isle of Man has passed some new laws this year. The Trustee Bill 2001 was one of the reforming laws passed in the jurisdiction this year. Most of the provisions in the Manx act mirror those in the UK legislation. One major difference is that the Isle of Man act amends the statutory perpetuity period for Manx trusts to 150 years, from the original 80 years. The perpetuity period is the maximum amount of time a trust can stay in force before it must be wound up and the assets distributed to beneficiaries. This extension will allow trusts created under Isle of Man law to be on a level playing field with other offshore jurisdictions, which typically have a similar perpetuity period.
A major change for existing trusts is that they now have a wider power of investment. There is also now a statutory duty of care within the act. Where a trustee holds himself to be a professional trustee, then he must always 'exercise such care and skill...as is reasonable to expect of a person acting in the course of that kind of business or profession'. In relation to the selection of investments, trustees have a duty to pay attention to the 'Standard Investment Criteria'. The criteria trustees must pay regard to are the suitability of particular investments to the trust and the need to diversify investments as appropriate to circumstances of the trust. Furthermore, the trustees have a duty to regularly review the investments.
The Financial Supervision Commission has also put forward a Consultative Paper on a new Companies (Amendment) Bill which proposes to make changes to Companies Act 1931-1993 so as to eliminate confusion and to facilitate online company registration. The bill also includes legislation introducing Protected Cell Companies.
The Financial Supervision Commission
The Financial Supervision Commission is responsible for the licensing and supervision of investment business carried on in or from the island under the Investment Business Acts 1991-1993 (IBA), as well as the authorisation, recognition and regulation of collective investment schemes under the Financial Supervision Act 1988.
The types of organisation licensed under the IBA include financial advisers offering advice on life and pensions products, discretionary portfolio managers, stockbrokers and the managers/administrators of collective investment schemes.
In the Isle of Man, the term 'mutual fund' is used as a generic description for a range of collective investment schemes. These may comprise open-ended funds, formed either as unit trusts or Oeics, as well as closed-ended investment companies, investment trusts and limited partnerships.
From a regulatory perspective there are a total of five different classes of mutual funds that can be established in the island. Closed-ended funds, similar to investment trusts, are not included within the scope of Isle of Man financial services regulations.
Authorised Schemes are funds that are subject to detailed and prescriptive regulation and which are capable of promotion to the general public in the Isle of Man, the UK and elsewhere. These funds are suitable for promoters requiring a retail investment product benefiting from a high degree of investor protection. Investors in authorised schemes are covered by a compensation scheme.
International Schemes are funds that are subject to limited regulation and which are capable of promotion outside the Isle of Man, subject to host jurisdiction rules. Restricted schemes can be used as both retail and institutional funds and are very flexible since few regulatory investment restrictions are applicable.
Exempt International Schemes are unregulated private funds which cannot be marketed to the public and are restricted to having no more than 49 participants; these funds are generally suitable for use by small groups of investors where wide promotion and extensive regulation are unnecessary.
Professional Investor Funds are funds that are specially designed for the exclusive use of institutional and high net worth professional investors. As unregulated funds, they can be established quickly and inexpensively, and are not subject to any regulation or restriction on number of investors. Minimum subscription levels are US$100,000.
The Experienced Investor Fund is a new development which targets global investors with a high degree of expertise. It has been designed to be both simple and flexible to administer. While the fund itself is not subject to regulatory approval in the Isle of Man the onus for its proper administration is laid firmly on the licensed fund administrator, or its manager, if locally based.
The fund must make proper custodian arrangements with a custodian bank or prime broker who may or may not be represented in the Isle of Man. There are no limits on the number of investors, no net worth tests and the statutory minimum investment requirement per investor is $15,000, but can be set higher by the fund sponsor.
Location: The Isle of Man is located in the centre of the Irish Sea, equidistant from England, Ireland and Scotland
Regulatory contact: Financial Supervision Commission, PO Box 58, 1-4 Goldie Terrace, Upper Church Street, Douglas, Isle of Man IM99 1DT
Tel: +44 (0) 1624 692 500
Fax: +44 (0)1624 629 676
Email: [email protected]
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