Crucial infrastructure developments in recent years are helping the Isle of Man to maintain its position as an important player in the offshore financial world
Like many international financial centres, the Isle of Man has gone through a period of rapid and significant change in recent years. Individual businesses have been required to adapt to changing regulatory and technological environments in order to create the infrastructure necessary to develop niche products on the island. New products continue to emerge in the areas of life insurance, pensions, fund industry and banking.
It is impossible to have a world-class finance sector, or to compete in a 24-hour business environment without having the infrastructure to fully facilitate this. The Isle of Man has focused on installing the right electronic platforms and data systems, so product development and product marketing can be more effective.
Technology, telecoms and e-commerce infrastructure has been built up on the island over the past 10 years. Each of these factors has created a platform for businesses to build off to help them address new markets, develop new products, and to improve client relationships.
In the area of international life assurance, the Isle of Man has around $30bn assets under management. In the current investment climate a significant trend is evident towards lower-risk solutions, with life offices linking a wide range of innovative lower-risk alternative investment or non-market correlated funds to their fund warehouse investment products. For those seeking security, these fund options, coupled with the protection of Isle of Man's Policyholder Protection Act and financial services ombudsman scheme, offer a large degree of stability in uncertain times with the option to switch into funds with greater, or more direct, equity participation as markets recover. The fund warehouse philosophy seems certain to gather further momentum as investors adapt to uncertain markets and seek the reassurance that they can switch between asset classes and investment opportunities in a quick and cost-effective manner.
Structured or guaranteed equity insurance products have also remained popular. It is expected new structured and guaranteed equity product offerings will continue to develop and evolve.
Life assurance policies used as tax-efficient asset wraps are increasingly being identified by those managing private wealth accounts as offering significant benefits to their high net worth and ultra high net worth clients. For many, life-wrapped asset management and private banking solutions offer an attractive way for extremely wealthy individuals to manage their tax affairs more effectively, and achieve tax-efficient succession planning. As a result, there has been a significant upswing of interest from the private wealth management industry in bespoke insured solutions for their clients, with life offices working more closely with the private banking, trust and asset management providers to develop new high net worth products.
In addition, as part of their product development strategies many life companies have invested heavily in IT, developing online client/adviser interfaces that will, over time, increasingly transform and improve the way in which they deliver information to their clients. Whether any life office succeeds in becoming truly virtual only time will tell, although significant recognition has been given to their achievements so far.
At the start of 2002, the Isle of Man launched a new environment for international pensions, establishing an infrastructure that sets out to be attractive to international businesses and internationally mobile individuals seeking centralised retirement solutions. The island's international retirement benefits schemes industry, although still in its infancy, has made significant advances in recent years with eight specialist pension administration companies becoming registered with the Insurance and Pensions Authority in the past 18 months.
With its proposed transition to a zero-rate corporate tax base, the Isle of Man is hoping businesses will centralise functions from the island; pension arrangements being just one component on offer to organisations seeking a jurisdiction capable of providing fiscal neutrality coupled with expertise in managing the multi-jurisdictional elements of their business. This move was in response to the EU's Directive on harmful tax practices. It was designed to help expand product development on the island over the next decade and beyond, by giving businesses the chance to grow in a benign environment.
The island regards international retirement benefits schemes as a growth industry, and increasing global trends in pensions governance in the wake of pensions crises in the US and Europe are fuelling renewed interest in the Isle of Man. The pensions infrastructure in operation on the island is one of the few international regimes that closely aligns with the OECD guidelines on pension fund governance; offering businesses who are prudently adopting global governance policies a strong location from which they can manage their international liabilities.
Due to concerns over pension funding on a global basis, there is also a wider appreciation on behalf of international workers that they need to be doing more to ensure they enjoy a comfortable retirement. This will inevitably lead to an increase in those looking to establish supplementary retirement arrangements in secure, well-regulated, fiscally neutral locations. Investors need to be able to trust these arrangements implicitly, and as such providers on the Isle of Man will be well placed to product package around the island's international retirement benefits schemes legislation.
The island is positioning itself for an upswing in third-party administration business following recent regulatory amendments that allow funds incorporated in other areas to be administered under the island dual regulation requirements. This enables structures incorporated in other centres such as the Cayman Islands or British Virgin Islands to be administered cost-effectively by Isle of Man-based administration companies. Furthermore, with Isle of Man experienced investor funds and professional investor funds, structures established for knowledgeable private investors or professional high net worth investors, now zero-rated for tax and VAT, the island also seems poised to witness significant growth in this sector.
Hedge funds also remain highly popular as a result of current stock market volatility, and the island has many licensed administrators skilled in the administration of both retail and private client hedge funds. This is another growth area where the Isle of Man may be able to add significant value.
Advanced online services are capable of transforming the information flow between a bank and its customers, and improved delivery of banking information is a key component in the future development of offshore banking services. Consequently many Isle of Man-based institutions are focusing on developing improved client interfaces, using the internet as the main delivery medium to personal and corporate clients. In addition, execution-only-based brokerage platforms are emerging, enabling clients accustomed to using stockbroking services to obtain easy access to simplified stock dealing facilities via their bankers.
With the significant drops that have occurred in global stock markets, there has also been a renaissance in structured product offerings, with a variety of innovative accounts which pay interest linked to the movements of key stock market indices together with full capital protection launching into the market. These offerings will become increasingly sophisticated over time. Considering the current low inflation, low interest rate climate, significant future demand for these products is envisaged as clients seek higher levels of income or capital growth than is available from their traditional deposit accounts.
Extending this philosophy to high net worth clients, many banks and private banks are also actively developing bespoke structured products, which offer personally tailored index participation to wealthier clients, as part of their private banking services. These products add a further dimension to client wealth management strategies.
To compete with other jurisdictions, the Isle of Man has installed electronic platforms and data systems, so product development and marketing can be more effective.
In 2002, the Isle of Man launched a new environment for international pensions to attract new business.
The island is positioning itself for an increase in third-party administration business.
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