Isle
of Man Bank Deposits
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. Recently several banks have
begun to offer e-banking services from the
island.
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.
Banks
operate under either a full or restricted
banking licence. The Financial Supervision
Committee 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.
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.
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. To date a total of £42.8
million has been received from the liquidators,
representing 60 cents on the dollar. Of this,
£19.4 million has been paid to claimants.
The remaining £23.44 million formed
part of the general pool of funds held by
the FSC and enabled repayments of £23.47
million to banks — equivalent to 100
per cent of the total levies imposed on them
to date.
Isle of Man banks evidently offer many opportunities
to non-resident investors. However, some care
is needed when approaching a 'private banker'
or a bank offering customised relationship
management (there are lots of expressions
all amounting to the same thing). What matters
is the structure of the bank. This is not
to say that one kind of bank is necessarily
more reliable than another, just to understand
why the bank is offering personal attention,
and what it hopes to gain from it.
Some
banks are little more than front ends for
investment funds. They may be safe enough,
but are they objective? Perhaps it is best
to look for a bank that is trying to make
money out of private banking as an activity
in itself, rather than just using it as a
scoop for customers for its financial products.
If you just want a bank that will give you
a good rate of interest without deduction
of withholding tax, then the choice is simpler.
However,
it is necessary to remember that as from 1st
July, 2005, the Isle of Man, in common with
other European offshore dependencies, has
been applying the EU Savings Tax Directive,
meaning that interest paid to citizens of
EU Member States is subject to a 15% withholding
tax.
Private
banking doesn't just mean investment: banks
like to lend money, and especially to richer
people. This raises the question of how a
private banker is going to get rewarded. Depositing
money with a bank is reward enough, of course,
whether into the bank or into one of its financial
products, but private banking when it has
an advisory nature and is not accompanied
by lending or borrowing may be fee-based.
Provided the sum involved is large enough
to justify the fee costs, an advisory private
banking relationship is probably a good way
to go. The bank will get the benefit from
time to time of being able to offer bridging
finance, or of holding large amounts in transit
etc. It can hope for more substantial involvement
with you in future. But the immediate relationship
is between financial adviser and client.
For
a fuller treatment of offshore banking, see
www.investorsoffshore.com.
For a listing of Isle of Man banks, see the
Isle of Man Services
Directory.
