By continuously updating standards and legislation, the Isle of Man has tried to stay at the forefront of international developments on regulatory standards, protecting both its reputation and that of the companies based there
At a time where intermediaries and clients have been more discerning about the jurisdictions they do business in, it is necessary for offshore centres such as the Isle of Man to meet changing international regulatory standards to keep ahead of the game. New legislation in the fund and life insurance industry has been aimed at meeting these international regulatory initiatives.
A major initiative in recent months has been in the funds sector, where a new package has been announced in a bid to give a competitive edge to the industry.
Two of the measures have been related to tax ' VAT exemption was extended to management fees and zero-rate tax was introduced for all third-party fund administrators and managers. The latter falls within the government's commitment to zero-rate company profits (with some exceptions) by 31 December 2005.
The third measure within this package was a change in regulations. Overseas funds being administered from the island are no longer subject to dual regulation, provided that they come from a jurisdiction that is deemed to have regulatory equivalence. The Financial Supervision Commission must license the administrators of these funds. It is expected these changes will help increase the attractiveness of hedge funds and other specialist investment vehicles on the island.
Another new development has been the licensing of corporate service providers. This was completed in July and has provided an important boost to the corporate administration sector. The licensing process included a number of new start-up businesses. In addition, the added level of protection for corporate users is set to be extended to the trust sector, where legislation to licence and supervise trust service providers is shortly to be introduced into the legislature.
Modern legislation that is user-friendly and readily understood by practitioners is indicative of an important commitment to future business. The island, which has a large company administration centre, has announced a major and fundamental review of its companies and insolvency legislation. In particular, this will give an opportunity to reassess the competitiveness of the Manx company product and ensure it meets international users' needs going forward. A parallel project will be conducted with all of the Commission's financial services legislation, which is to be simplified and consolidated into a unitary licensing and supervisory regime for all sectors.
To underline the island's focus on corporate activity, Companies Registry (which also falls within the Commission's remit) has been operating a new public search facility for over a year. All company records, historical and current, have been scanned and are held within a new electronic database. People searching a company's file now do so via computer terminals in the Registry's office. This service will soon be expanded on a pay-as-you-go basis via the Commission's website, so searchers can use the internet to make enquiries of the Manx register.
Meanwhile, anti-money-laundering arrangements on the island are in line with other crown dependencies and developments in the UK and EU. This means there is now a greater consistency between jurisdictions, making it easier to anticipate the customer due-diligence requirements which product providers and others will have adopted.
The Financial Action Task Force (FATF) ' the international standard setting body for anti-money-laundering and countering terrorist financing practices ' has recently completed a review of its recommendations. The review was timely because the recommendations needed to reflect recent developments and be suitable for broad application within the financial sector. Individual countries will now be assessing their compliance with the new standards.
Finally, the island has for been one of the few offshore financial centres to implement a deposit protection scheme. That scheme is now under review to increase the level of protection available to depositors, probably to UK equivalent standards, and a consultation paper will be issued shortly.
Another area that has been a focus of legislation has been in life insurance. The Isle of Man has an established life assurance, captive insurance and, following more recent developments, pensions business. An integral part of the island's development into this position has been the recognition on the part of the Manx Government of the Insurance Pensions Authority (IPA) as regulator and the market itself that such a position can only be maintained by a commitment by all parties to the highest standards of conduct.
These standards continue to develop and the island is an active member of two multi-national bodies particularly concerned with such initiatives ' the International Association of Insurance Supervisors (IAIS) and the Offshore Group of Insurance Supervisors (OGIS).
The core principles of the IAIS formed the basis of the International Monetary Fund's assessment of supervisory standards for insurance business. This was carried out by that organisation as part of its recent examination of the island's supervisory and anti-money laundering regimes.
The overall aim of the island's legislation and the IPA's regulatory process is to seek to maintain an environment for business that provides protection for policyholders and the reputation of the island, while at the same time creating an innovative and forward-looking environment in which companies can develop their business. All companies that carry on insurance or pensions business in or from the island are required to be appropriately authorised by the IPA and to demonstrate that have adequate expertise and management in place on the island and sufficient financial resources to support the business underwritten.
The IPA (a statutory board of the Isle of Man Government) is constituted and carries out its duties under the Insurance Act 1986. The island's developing pensions industry is regulated by the authority under the Retirement Benefits Schemes Act 2000.
Reviewing the law
In line with developments in regulation internationally, the IPA has recently carried out a comprehensive review of the Insurance Act 1986 and this has resulted in the Insurance (Amendment) Bill 2003, currently before Tynwald, the island's parliament. The Bill represents a significant updating of the island's insurance supervisory legislation and will ensure the island can continue moving in line with international standards, as they are agreed.
The IPA has also carried out a comprehensive revision of its anti-money-laundering standards for insurance businesses in the past year. These take into account the latest developments in this field, including the recommendations by the Fatf and the work of the IMF. The IPA has also supported the introduction by the Manx Insurance Association (the representative body for international life companies on the island) of a code of practice to govern the procedures to be followed by Isle of Man life companies in granting terms of business to intermediaries.
The IPA has also recently issued for consultation a draft of legislation in respect of protected cell companies. Cell companies have particular attraction in the captive insurance industry, but are also increasingly being used for other purposes. The legislation is expected to be in place early in 2004 and the IPA is drafting regulations and guidance to accompany the Act.
In addition to the legislative programme described above the IPA has also continued to develop its on-site inspection regime for insurance businesses. This is a recent development and reflects the extension of insurance supervision internationally from its traditional emphasis on the regulation of solvency and capital adequacy.
In 1991 the island was one of the first offshore jurisdictions to introduce a statutory policyholders protection scheme ' by establishing the Life Assurance (Compensation of Policyholders) Regulations 1991. This commitment to remain at the forefront of the international financial services industry was demonstrated again when the island also became the first offshore financial centre to launch a statutory Financial Services Ombudsman scheme. This scheme was launched in January 2002.
The Ombudsman scheme is operated by the island's Office of Fair Trading (another Government Statutory Board) and provides an impartial dispute resolution service that has the power to make awards in cases of negligence or mal-administration against a financial services business on the island. The scheme can make a maximum award of up to £100,000.
A new tax package has been announced in a bid to give a competitive edge to the Isle of Man financial services industry.
The aim of the island's legislation is to seek to maintain an environment for business that provides protection for policyholders and the reputation of the island, while creating an innovative and forward-looking environment in which companies can develop their business.
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