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this Section:
- ISLE
OF MAN OFFSHORE BUSINESS SECTORS
- ISLE OF MAN COMMERCIAL
TRADING COMPANIES
- ISLE OF MAN BANKING
- ISLE OF MAN TRUST MANAGEMENT
- ISLE OF MAN INSURANCE
- ISLE OF MAN SHIP MANAGEMENT
& MARITIME OPERATIONS
Isle
of Man Investment and Fund Management
The
first mutual funds were established in the Island
in the mid-1960s and were mainly used by British
expatriates. New legislative initiatives in the
early 1980s created opportunities for growth and
gave rise to a rapid expansion of the Island's
fund management industry. The Isle of Man became
the first offshore jurisdiction to be granted
'designated territory status' by the UK in 1986,
thus enabling Isle of Man funds to apply for SIB
recognition in the UK.
Confirmation
of the Island's OECD membership in 1990 subsequently
led to Isle of Man funds being approved by the
Japanese Securities Dealers' Association, although
the fall of the Asian economies somewhat dampened
this achievement.
The introduction in 1991 of a 5% rate of tax on
fund managers' profits provided a further incentive
for managers to look towards the Isle of Man.
Mutual funds can take the form of companies (open
or close-ended), trusts, limited partnerships
or pure contractual arrangements.
As in other offshore jurisdictions, managers in
the Isle of Man are more focused on administration
than asset allocation. Where a manager chooses
not to establish a real presence in the Island,
it is a requirement that its business must be
administered by a licensed third party fund administrator.
The
leading association in the Island is the Fund
Management Association.
In
late 2003, in its ninth annual report on the Isle
of Man, independent investment fund research company,
Fitzrovia International revealed that the jurisdiction's
funds industry had stood up remarkably well to
the sustained pressure inflicted by difficulties
in global equity markets.
According to Fitzrovia, a key factor in the industry's
impressive performance had been growth in the
number of Experienced Investor Schemes. These
schemes, launched in October 1999, now make up
around 63% of all funds notified to the Financial
Supervision Commission, and in mid-2003 there
were 122 in operation on the Island, up from just
48 in 2001.
By
mid-2006, out of 184 investment funds domiciled
in the Isle of Man, with total capitalisation
of US$30bn, 135 were Experienced Investor Funds.
In
July, 2005, after consulting with the Isle of
Man Fund Management Association, the Commission
revised its policy in relation to who, locally,
may act as a Custodian to an Experienced Investor
Fund (EIF) or Professional Investor Fund (PIF).
In
addition to licensed banking institutions in the
Isle of Man, the Commission will now consider
certain licensed investment businesses, namely
those with a Category 4 or 5 licence.
Such
licenceholders wishing to act as Custodian will
be assessed on a case by case basis taking into
account the type or nature of the underlying scheme
assets. It will also be required to demonstrate
to the Commission that it is an entity with adequate
financial resources and has the relevant track
record, competence, experience and systems to
undertake this function.
The
Commission’s existing policy (i.e. under which
only a licensed banking institution can act as
a Custodian in the Isle of Man) is being retained
for those persons wishing to act as Trustee/Custodian
of an Authorised or 'pure' International Scheme.
John
Aspden, Chief Executive of the FSC commented:
“This development should further enhance the attractiveness
of the EIF fund structure which was established
in 1999 as a flexible fund structure to promote
the establishment of hedge and alternative investment
funds”.
The
Experienced Investor Fund (“EIF”) structure was
launched in October 1999 and was designed to provide
a simple, inexpensive and flexible solution to
the ever more complex needs of sophisticated individuals,
market professionals and global asset managers,
while seeking to provide an adequate level of
comfort to investors by ensuring proper disclosure
and administration.
The
Experienced Investor Fund is subject to a form
of regulation that is aimed at the 'Experienced
Investor'. Such schemes are exempted from certain
of the legal and regulatory requirements that
are generally applicable to International Schemes
through the Financial Supervision (Experienced
Investor Fund) (Exemption) Order 1999.
In
April, 2006, following consultation with the Fund
Management Association, the Manx Financial Supervision
Commission revised its policy on the activities
that a fund administrator or fund manager can
undertake for a foreign Collective Investment
Scheme.
Under
the revised policy, Isle of Man licenceholders
will be able to provide broader administration
services to operators of foreign schemes provided
these are carried out under an outsourcing contract,
and the appropriate licence extension is obtained
from the Commission.
Previously,
outsourced services could only be provided in
relation to one of the 'core' activities of fund
administration.
Commenting
upon this change, John Aspden, Chief Executive
of the Financial Supervision Commission noted
that:
“The
Commission is always seeking to maximise flexibility
in the regulatory environment and to support new
business opportunities for industry where it can
do so without compromising the regulatory standards."
"The
review of the inward outsourcing policy will enable
local fund managers and administrators to take
on more business with minimal regulatory hurdles.”
The
Isle of Man Financial Supervision Commission has
welcomed the approval by the Tynwald of a series
of orders that will add to the jurisdiction's
choice of collective investment schemes.The
orders were required to introduce the Specialist
Fund and the Qualifying Fund, and to update the
Experienced Investor Fund. They will come into
effect on November 1, 2007.
The
Tynwald's approval of the orders is the culmination
of an initiative sponsored by the Funds Review
Group of Isle of Man Treasury, which looked at
the future opportunities for the Island’s
funds industry. Amongst its recommendations, the
FRG advocated the introduction of two new fund
types, one targeted at the institutional funds
market and another aimed at non-retail investors.
There were also implications for existing Experienced
Investor Funds.
The
landmark investment figure of $50.1 billion, achieved
as at June 30, 2007, is the latest indication
of the rapid growth and success of the Island’s
funds industry, in which total funds more than
tripled between the years 2003 and 2006.
The
Financial Supervision Act 1988 governs financial
services in the Isle of Man, and established the
Financial Services Commission which exercises
regulatory powers. The legislation distinguishes
various types of fund:
Authorised
Collective Investment Schemes.
These
funds may be marketed to the public in the Isle
of Man, the UK, Ireland, Jersey, Guernsey and
Hong Kong. The island obtained designation under
Section 87 of the UK FInancial Services Act 1986,
and has equivalent arrangements with the other
countries mentioned. An authorised fund must have
independent Manx Manager and Trustee: the Manager
must himself be licensed, and the Trustee must
have a banking license.
Regulation
falls under section 3 FSA and there is a statutory
compensation scheme, similar to that in the UK.
Recognised
Collective Investment Schemes
These
are foreign funds which the Commission admits
for local marketing purposes if it is satisfied
that the level of supervision and regulation is
adequate. Recognised funds must maintain facilities
on the island where documents can be seen, and
payments in or out can be effected. Regulation
falls under sections 12 or 13 FSA.
Restricted
Collective Investment Schemes
All
other collective investment funds fall under this
heading. Restricted schemes (funds) may be marketed
only to Manx professional investors or to existing
fund members in some cases, or to overseas investors
(if permitted). They must have Managers with Manx
Section 3 licenses, and Trustees who are either
banks or are authorised to be Trustees in the
countries with which the Isle of Man has agreed
reciprocal arrangements (UK, Ireland etc as above).
Regulation falls under section 11 FSA.
Professional
Investor Funds
Unregulated
funds that are specially designed for the exclusive
use of institutional and professional investors.
Exempt
Schemes
Unregulated
private funds which cannot be marketed to the
public and are restricted to having no more than
49 participants.
Close-Ended
Funds
Strictly
speaking not classified as mutual funds and are
used for illiquid long-term investments.
All
investment business are expected to exercise a
"Know Your Customer" policy in order
to minimise the possibility of being used for
laundering the proceeds of drug trafficking or
other criminal activities.
Fees
Annual fees are as follows:
- Authorised
funds pay GBP850 per fund;
- Umbrella
funds pay GBP450 per sub-fund;
-
Recognised funds pay GBP1,050 per fund;
-
Section 13 Single Tier Funds pay GBP1,200 per
fund;
-
Section 13 Umbrella Funds pay GBP350 per sub-fund;
-
International Funds pay GBP1,000 per fund.
Professional
Investor Funds and Experienced Investor Funds
do not pay fees.
Fund managers require a business license: it costs
£6,600 for managers of authorised funds,
and £4,300 otherwise. See Law
of Offshore for further details of the regulatory
structure for investment funds.
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