Isle of Man: Offshore Business Sectors
This page was last updated on 24 January 2020.
Although the number of banks established in the Isle of Man has fallen slightly over recent 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 island in the last few years and Nat West has ring-fenced its offshore business by moving to the island.
In March 2018, there were 14 class 1(1) banks. Total deposits at the end of March 2018 were GB£36.5 billion, a fall of more than GBP4bn since March 2014. Some of the recent decreases in the value of deposits can be explained by movements in exchange rates.
Several international banks with branches on the island offer global payment processing, and Manx Telecom offers an island-based secure e-payment platform which can take multi-currency and sterling-based transactions, enabling Manx businesses to market their products globally.
The Manx banking industry mostly consists of subsidiaries or branches of the main UK clearing banks and some foreign banks. Most banks in the Isle of Man provide private banking services to UK expatriates and 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 are regulated by the Isle of Man Financial Services Commission (IOMFSC) under the Financial Services Act 2008. This legislation, which came into force on 1 August 2008, simplified the licensing regime and consolidated several pieces of financial services legislation, including the Financial Supervision Act 1988 and the Banking Act 1998, into one Act. The underlying regulations remain largely unchanged however, although the term 'banking' has been reclassified as 'deposit taking.'
A licence to carry on the class 1 regulated activity of deposit-taking permits a business operating in or from the Isle of Man (with certain specified exclusions) to accept deposits of money, where the money received by way of deposit is lent to others or any other activity of the person accepting the deposit is financed wholly, or to a material extent, out of the capital of or interest on the money received by way of deposit.
A managed bank employs the services of another licensed bank in the Isle of Man, the approved manager, to provide the day to day management and administrative functions to it. The managed bank may not employ any staff on the island without the IOMFSC’s consent and must operate from the premises of the approved manager. Unless otherwise agreed with the IOMFSC, all banks that were approved under the old legislation to manage another bank or building society are expected to hold licences to conduct class 7 management or administration services.
The IOMFSC general licensing policy provides guidance for banking licence holders. A licence holder and its key staff are required to be 'fit and proper' persons. The Commission’s licensing policy is to apply a test of fitness and propriety in the key areas of integrity, competence and solvency.
The fit and proper test is both an initial test at the time of granting a licence and a continuing test in relation to the conduct of regulated activities. The test takes into account integrity, solvency and competence. The licensing policy provides guidance on the key requirements, such as:
- Real presence - the Commission will not licence a mere shell; the company’s management and control must be in the Isle of Man.
- Track record - a licence applicant must demonstrate a proven track record in the successful conduct of the regulated activity for which it seeks a licence, either by being part of a group that already undertakes the activity in another jurisdiction or by key persons having operated at a senior level in a relevant licensed business.
- Staffing – for most classes of business, the applicant should be managed by two resident officers, who are supported by staff with suitable experience to fulfil the key roles.
Unlicensed banking operations remain a problem and have become known as 'brass plate' companies. These rogue operations are, when reported, investigated by the IOMFSC’s Enforcement Division.
All banking licence holders are required to participate in the depositors’ compensation scheme (DCS). The IOMFSC 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. Under the Compensation of Depositors Regulations 2008, as amended, , the DCS compensates people who have money in current and deposit accounts in the Isle of Man with up to GB£50,000 of net deposits per individual depositor or £20,000 for most other categories of depositor. Cover is calculated per depositor, per deposit taker, if a bank fails.
Basel II required the Commission to make some changes to the Banking (General Practice) Regulatory Code 2005, as amended (the Code). It was expected that these changes would be minor and focus on capital, risk management, and reporting forms (which are specified in the schedule to the Code). In addition, the Commission anticipated that guidance notes would be utilised to supplement the Code to ensure compliance with Basel II principles contained within pillars 1 and 2.
In mid-2018, the Isle of Man Bank was acquired by the Royal Bank of Scotland group. From September 2018, the bank changed the name of it legal entity to ‘RBS International Limited trading as Isle of Man Bank’. The bank is based in Jersey.