There
are currently some 54 banks established
on the Isle of Man, and although this
figure has fallen slightly over the
last 5 years, the calibre and scale
of banking operations has been showing
marked improvement. The Royal Bank of
Scotland International, the Royal Bank
of Canada, Coutts (Northern European
HQ) and Merrill Lynch have all moved
to the Isle in the last few years and
NatWest has ring-fenced its offshore
business by moving to the Island.
Several
international banks with branches on
the island offer global payment-processing
solutions, and Manx Telecom offers an
Island-based secure e-payment platform
which can take multi-currency and Sterling-based
transactions, enabling Island businesses
to market their products globally.
Manx
Internet banking operations tended initially
to share the rather limited success
that attended Internet banking operations
generally. One of the more high-profile
Isle of Man Internet banks was F Sharp,
a subsidiary of the Bank of Ireland,
and in October 2001 it was merged back
into the offshore operations of its
parent, Bank of Ireland, to be known
in future as Bank of Ireland F Sharp.
In recent years, however, most of the
better known Manx banks have begun to
offer Internet facilities.
Deposits
in the year to 31st March 2007 increased
by GBP6.56 billion (16.65%) to GBP45.95
billion,
according to the Financial Supervision
Commission. Over 20 banks had capital
ratios exceeding 20% at the end of March,
2005. (The capital adequacy of Isle
of Man incorporated banks is measured
on a risk-weighted basis in accordance
with the Basel Capital Accord.)
The
Island's banking industry is dominated
by subsidiaries or branches of the main
UK clearing banks and some foreign banks.
The majority of banks in the Isle of
Man are engaged in providing private
banking services to UK expatriates and
to foreign nationals. The services offered
often extend beyond deposit taking to
establishing and administering trusts
and managing the underlying companies
and assets held by those trusts, including
investment management. The growth in
other areas of the Island's finance
sector, including captive insurance,
life assurance, collective investment
schemes, investment management and ship
management, means that these organisations
have sums of money to invest and therefore
require investment management services.
Some banks also act as trustees to collective
investment schemes.
Banks
operate under either a full or restricted
banking licence. The Financial Supervision
Commission regulates the banking and
investment industry under the powers
created by the Financial Supervision
Act 1988 and the Investment Business
Act 1991. To obtain a domestic licence
a bank must have a real presence on
the island, while an Offshore Banking
Licence allows banking business to be
conducted from outside the island through
a locally-incorporated bank on a managed
basis.
The
FSC has a system of supervision based
on quarterly or half-yearly financial
returns. This is reinforced by annual
audited accounts which must be audited
by qualified accountants who have effected
professional indemnity insurance currently
at £10 million.
For taxation purposes a "managed
bank", in accordance with the Banking
Act 1975, signifies that the bank has
no local premises or staff but is operated
on the island by an approved local bank.
Since 12th July 1989 the Treasury may
exempt, for a specified period, all
or part of the profits or income of
a "managed bank" from income
tax. Where such exemption exists, the
Assessor cannot require deduction of
income tax from payments to non-residents
and cannot pursue income tax liability
of non-residents on such payments.
An
application for exemption is submitted
to the Financial Supervision Commission.
Exemption must not be granted unless
the Treasury is satisfied that the bank:
- does
not transact, directly or indirectly,
any banking business with any Isle
of Man resident other than a bank,
- has
been granted a licence under the Banking
Act 1975, and
-
is managed by the holder of such a
licence.
Fees
for exemption applications can be prescribed
by order by the Financial Supervision
Commission. A bank which has been granted
exemption must produce accounts, etc
if required.
Unlicensed
banking operations remain a problem
and have become known as 'brass plate'
companies. These 'rogue' operations
are, when reported, investigated by
the Enforcement Division of the FSC.
The Banking Act (as amended) recognises
the contractual duty of a banker to
keep the affairs of his customer confidential
and the customers' entitlement to confidentiality.
There are very few limited exceptions
to these principles, set out in the
Financial Supervision Act 1988, and
these include circumstances where disclosure
is required to assist criminal proceedings
or to enable the FSC to discharge its
statutory functions.
All banking licence holders are required
to participate in the Depositors Compensation
Scheme. The FSC is the Scheme Manager.
The Banking Business (Compensation of
Depositors) Regulations 1991 extends
to all licensed banking institutions,
except those listed by name in the Schedule.
Deposits are protected up to 75% of
the first £20,000 per depositor
and the Scheme extends to the sterling
equivalent of foreign currency deposits.
Compensation is not available with regard
to secured deposits or deposits which
had an original term to maturity of
more than five years.
The
Scheme was successfully operated in
respect of the default of BCCI which
had a branch in the Isle of Man.
The
government announced in July 2001 that
it would become the first Crown Dependency
with a financial ombudsman which means
that customers worldwide will have access
to an independent dispute-resolution
scheme covering Isle of Man-based financial
institutions. The 'Financial Services
Ombudsman Scheme' covers complaints
about financial advice and products
across the range of personal finance
such as banking, credit, insurance and
investments. The scheme is open to individuals
with a financial complaint against an
Isle of Man firm that the firm has been
unable to resolve.
In
June, 2005, the Isle of Man's Financial
Supervision Commission announced that
a project is underway to update the
Banking (General Practice) Regulatory
Code 1999. The key drivers for this
project were to update the Banking Code
in line with current requirements whilst
taking into account the recommendations
made by the International Monetary Fund
(“IMF”) inspection team following its
visit in 2002.
As
a result, the Banking (General Practice)
Regulatory Code 1999 was replaced by
the Banking (General Practice) Regulatory
Code 2005 on 1st July 2006.
The
Commission published its approach to
Basel II adoption in February 2006.
Says
the Commission: 'The EU has issued the
Capital Requirements Directive (“CRD”)
which all regulators of member states
must implement. Although this encouraged
adoption from 1st January 2007, the
CRD contains a qualification that, where
a bank has committed to the standardised
approach by 1st January 2008 it can
continue to report under Basel I during
2007.
'The Isle of Man is not part of the
EU and is not under any legal obligation
to require locally incorporated banks
to report under Basel II from 1st January
2007 or 1st January 2008.'
However,
the Commission says it understands that
locally incorporated banks which are
subsidiaries of banks in countries requiring
Basel II reporting in 2007 may wish
to begin similar reporting to the Commission,
whether under standardised or more advanced
approaches (re parallel runs). With
this in mind the Commission intends
to have available the necessary reporting
forms and guidance during 2007 but may
require these banks to also continue
reporting under Basel I.
The Commission says it will require
locally incorporated banks to report
under Basel II with effect from 1st
January 2008 for the standardised approaches,
with some degree of flexibility on a
case by case basis for later adoption.
Basel II will require the Commission
to make some changes to the Banking
(General Practice) Regulatory Code 2005,
as amended (“the Code”).
It is expected that these changes will
be minor and will focus on capital,
risk management, and reporting forms
(which are specified in the schedule
to the Code). In addition, the Commission
anticipates that guidance notes will
be utilised to supplement the Code to
ensure compliance with Basel II principles
contained within Pillar 1 and Pillar
2.
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