The Isle Of Man has introduced the Corporate Service Provider Act, giving the island's Financial Supervision Commission full licensing powers
The Isle of Man has one of the largest corporate administration or corporate service provider (CSP) sectors in the world. Almost 40,000 Isle of Man companies are currently registered with the island's Companies Registry, which is a part of the island's Financial Supervision Commission. However, the CSP industry in the Isle of Man does not restrict itself to providing services to Isle of Man companies. Most CSPs have substantial portfolios of companies under administration that are registered elsewhere, including the United Kingdom and other onshore jurisdictions, as well as those offshore. Such business is facilitated by a flexible tax structure and the political stability of an island that boasts the oldest Parliament in the world in continuous existence. In addition, the island has a largely English law-based legal system and an efficient judicial system with local legal and financial expertise.
The history of regulation of CSPs on the Isle of Man goes back to 1995, well before Andrew Edwards conducted his review of the Crown Dependencies at the behest of the UK Home Office. Even at that time there was a perception on the island that regulation of the corporate sector was highly desirable. The recommendation in the Edwards Review that corporate and trust service providers be regulated in the Crown Dependencies only served to underpin proposals which were already under serious consideration in the Isle of Man and upon which consultation had already commenced. Following detailed consultation, the Corporate Service Providers Act 2000 was passed in mid-2000. The CSP Act renders the Commission responsible for the licensing of CSPs and bestows similar powers to those it has in relation to banking and investment business for their ongoing supervision. The licensing process began in November 2000. Approximately 150 applications have now been received and the first batch of more than 100 licences is due to be issued shortly.
The CSP Act will come into force on 1 January 2002. After this date, it will be illegal to carry on CSP business without a licence granted by the Commission. Businesses that have applied for a CSP licence prior to 1 January 2002 will be allowed to continue trading pending the determination of their application by the Commission.
Before receiving a licence, all applicants will be fully vetted by the Commission. Both the applicant entity and all its key personnel must establish they are fit and proper persons to the satisfaction of the Commission. The fit and proper test is based on three key elements: integrity, competence and solvency. All three elements must be satisfied on an ongoing basis by the applicant and all its directors, controllers, managers and key staff. As part of the application process, licence applicants must also sign an undertaking that their business will be conducted in accordance with the island's stringent anti-money laundering legislation (which has applied to CSPs since 1998) and the guidelines issued by the Commission to its licence holders. These guidelines set out the Commission's interpretation of best practice in relation to preventing money laundering and are recognised in accordance with the highest and most stringent international standards.
After licensing, CSPs will also be required to comply with CSP-specific regulatory codes issued by the Commission. Such codes will regulate the handling of clients' money, and the way in which the CSP conducts its business, including the contents of its client agreement; the requirement to have adequate professional indemnity insurance and disaster recovery provision; the ongoing solvency of the licence holder; and the reporting to the Commission of material changes to the business.
Compliance with the requirements of the CSP Act, the codes and with anti-money laundering procedures will be examined as part of the ongoing supervision of licence holders by the Commission. Such supervision will be both desk-based (mainly assessing annual returns which licence holders are required to make under the codes) and proactive. Commission officers will visit licence holders on a risk-prioritised basis to ensure compliance and other best practice requirements. The Commission has a wide range of powers to deal with failure to comply with the Codes and there may also be criminal sanctions.
The CSP regime represents a substantial addition to the regulatory armoury of the Commission, which also licences banks, investment business, collective investment schemes and building societies on the Island. It is also proposed to extend the CSP regime to Trust Service Providers (TSPs) in 2002.
The decision to proceed with licensing CSPs in advance of TSPs was taken in the Isle of Man partly because the island's CSP industry is relatively large compared to its trust industry and also because the consultation on regulation of CSPs was already underway and it was felt to add TSPs to this existing process would delay the implementation of a licensing regime for CSPs to an unacceptable extent.
It is likely that the regulation of TSPs will be grafted onto the CSP legislation with the same enabling powers being used for both. However, TSP-specific codes will be issued and it is envisaged there will be three new categories of licence for TSPs in addition to the present two for CSPs. In practice, it is not anticipated there will be many, if any, TSPs who are not already licensed as CSPs and, therefore, the extension of the legislation to TSPs will largely consist of ensuring entities which have already satisfied the Commission they are competent as CSPs are also competent to run TSP business. Any perceived lacuna arising from the licensing of CSPs in advance of TSPs will be minimal and short-lived.
In conjunction with the rigorous programme for the supervision of CSPs, commencing as soon as the first licences are granted at the end of 2001, imminent developments in the Isle of Man Companies Registry, including electronic access to all Companies Registry records (which will be available within the next few months), will enable the Commission to monitor closely corporate governance issues relating to the filing of statutory documents by CSPs. This will enhance the supervisory powers of the Commission in relation, in particular, to competence and the good governance of client companies by CSPs. In the medium term, the island has plans to enhance further the electronic service provided by the Companies Registry by developing remote online searching of the wide range of publicly available information on Isle of Man incorporated companies, incorporation of companies and filing of documents. In addition, the Commission is discussing with interested parties the possibility of carrying out a far-reaching review of the Isle of Man's company law with the aim of modernising and improving the existing system to take account of the needs of an expanding and forward thinking financial services centre.
Regulation of CSPs has a long history in the Isle of Man.
The Corporate Service Providers Act 2000 was passed in mid-2000
Before receiving a CSP licence, all applicants will be fully vetted by the Financial Supervision Commission
Compliance with anti-money laundering procedures will also be supervised
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