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Isle of Man: Offshore Business Sectors

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.

Until 2008, the Financial Supervision Act 1988 governed financial services in the Isle of Man. This legislation established the Financial Services Commission, which exercises regulatory powers. The Financial Services Act 2008 and the Collective Investment Schemes Act 2008 consolidated the main pieces of legislation which had hitherto regulated the Isle of Man's financial services industry.

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. Fund management activities are currently included in the Isle of Man's 0% corporation tax regime.

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, made 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.

However, in its 2010/11 Annual Report, the IoM Financial Services Commission observed that certain alternative investment fund performances had been stymied via continued tough trading where inter alia leverage, commercial property, credit squeeze and liquidity issues, leading to a reduction in assets under management and administration from the Isle of Man. The report continues: "Asset classes in more traditional assets, for example equities, have generally seen positive performance and net in-flows. The asset value of Qualifying Funds and Legacy EIFs increased during the year and the number of Isle of Man Funds also increased."


Custodian Policy

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".


Experienced Investor Funds

The Experienced Investor Fund has now been superseded by the Qualifying and Specialist Funds and so no new Experienced Investor Funds can be established; however, some existing funds are continuing (see below).

The Experienced Investor Fund structure was launched 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 was subject to a form of regulation 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.


Fund Manger Activities

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 are 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."


New Fund Structures Introduced

The Isle of Man Financial Supervision Commission welcomed the approval by the Tynwald of a series of orders that would 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 came 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 USD50.1bn was achieved as at June 30, 2007. Total funds more than tripled between the years 2003 and 2006. The jurisdiction's funds industry took a bit of a battering during the recent financial crisis however; assets under management on the island stood at at USD38.7bn at the end of December 2010, down from a high water mark of USD60bn in June 2008. This figure has continued to fall and at the end of June 2013, assets under management had a value of USD20.9.


AIFM Directive

A government report on the Manx economy noted that morale in the local funds industry had been affected by the departure of HSBC Securities and the announcement of a new Draft EU Directive on Funds. The Draft Directive proposed to ban all non-EU regulated funds from being promoted or distributed in the EU. The Fund Managers Association has been engaged in a consultation process on this as to appropriate actions it and the government may take.

Following approval of the Alternative Investment Fund Manager Directive by the European Parliament, the Isle of Man has confirmed that it welcomes the final Directive, and has said work is already under way to ensure its regime will meet key regulatory criteria under the Directive.

The AIFM Directive, as it became known, was first proposed in response to calls for greater regulation of alternative investment fund managers. Much uncertainty has surrounded the Directive as it has evolved over the past 18 months, but now that consensus has been reached, the investment fund management community can prepare for its implementation in 2013.

The Directive has been welcomed by the Isle of Man’s Fund Management Association, which anticipates that a harmonized regulatory framework will provide the opportunity for specific categories of Isle of Man schemes to be passported. John Aspden, Chief Executive of the Isle of Man Financial Supervision Commission, commented: “The Isle of Man regulatory regime is already aligned with many of the requirements of the AIFM Directive. As a well regulated jurisdiction, the Isle of Man will ensure that it meets the agreed criteria for ongoing market access into Europe.”


Regulatory Framework Reviewed

In October 2009, the Isle of Man Financial Services Commission announced a consultation on proposed amendments to the regulatory framework for Full International Schemes, Specialist Funds, Qualifying funds, and Experienced Investor Funds. The Commission also sought views on options for the future of Professional Investor Funds.

The review aims to update the legislation and bring it wholly into line with the Collective Investment Schemes Act 2008, to modernise the legislation and to build upon the Commission and industry’s experiences in implementing the new schemes framework in 2007.

As part of the review, the Commission proposes updating ancillary legislation which affects collective investment schemes.

As a result of this review, International Schemes have been superseded by the Regulated Fund. The Collective Investment Schemes (Legacy) Regulations 2010 means that no new International Schemes can be established, however existing funds may continue. The Regulations also expand the jurisdictions in which a trustee or fiduciary custodian of an international scheme can be located by including Ireland and Luxembourg.

Full details of regulated activities, exclusions and exemptions from licensing may be found in the Collective Investment Schemes handbook. A licenceholder is obliged to comply with any licence conditions that have been imposed by the Commission and which are shown on the licence.

The Collective Investment Schemes handbook also contains links to other legislation relating to licenceholders, including the Financial Services Rule Book 2008, explaining the detailed rules to be complied with by all licenceholders. Guidance on rules and on other regulatory matters may also be found in the handbook.

The 2008 regime for collective investment funds distinguishes various types of fund:


Authorised Collective Investment Schemes

Any scheme established in the Island which is promoted to the general public in the Island (or the UK by virtue of the Island's designated territory status) must be authorised by the Commission under Schedule 1 to the CIS Act.. Authorised Schemes are subject to detailed regulation concerning their structure and operation. With regards the investors compensation scheme the Authorised Collective Investment Schemes (Compensation) Regulations 2008 only applies to investors in Authorised Schemes.


International Schemes

N.B. It should be noted that the International Scheme has been superseded by the Regulated Fund. No new International Schemes can be established although existing funds may continue. Specialist Funds, Qualifying Funds and Experienced Investor Funds are now categorized as Registered Funds.

Any scheme established in the Isle of Man which is not an Authorised Scheme or an Exempt Scheme, is an International Scheme under Schedule 2 to the CIS Act. International Schemes may not be promoted to the general public in the Isle of Man.

  • Full International Schemes. The Commission does not prescribe the types of schemes which can be full international schemes. The Commission aims to provide a flexible regulatory framework which meets the needs of the market place operators. Full international schemes are not subject to any direct approval or authorisation process, however the manager of such a scheme must have the Commission’s permission to act, and persons comprising the Governing Body of the scheme must be fit and proper persons. The manager and trustee/fiduciary custodian of a full international scheme must be Authorised Persons. In granting permission for the manager to manage the scheme, the Commission reviews the constitutional documents of the scheme. The Commission does not, and is not required to, comment on the investment objectives or strategy of the scheme or its suitability for any investor or any class of investor. Investors in such funds are not protected by any statutory compensation arrangements in the event of the fund’s failure.
  • Specialist Funds. The Specialist Fund (SF) is a sub-category of International scheme which is available only to specialist investors who are generally institutional investors and high net worth individuals. The minimum investment in a SF is USD100,000. A SF is not subject to approval in the Isle of Man and investors in such funds are not protected by any statutory compensation arrangements in the event of the fund’s failure. 
  • Qualifying Funds. The Qualifying Fund (QF) is a sub-category of International scheme which is available only to qualifying investors who are non retail investors. A QF is not subject to approval in the Isle of Man and investors in such funds are not protected by any statutory compensation arrangements in the event of the fund’s failure.
  • Professional Investor Funds. The Professional Investor Fund (PIF) is a sub-category of International scheme which is available only to professional investors who are generally market professionals and who have net assets in excess of USD1m. The minimum investment in a PIF is USD100,000. A PIF is not subject to approval in the Isle of Man and investors in such funds are not protected by any statutory compensation arrangements in the event of the fund’s failure.
  • Experienced Investor Fund. The Experienced Investor Fund (EIF) is a sub-category of international scheme aimed at the “Experienced Investor”. From November 1, 2007 no new Experienced Investor Funds can be established. An EIF is not subject to approval in the Isle of Man and investors in such funds are not protected by any statutory compensation arrangements in the event of the fund’s failure.


Exempt Schemes

Exempt schemes (as defined in Schedule 3 to the CIS Act) are Isle of Man schemes that must have less than 50 investors and their relevant constitutional documents must expressly prohibit the making of an invitation to the public to subscribe in any part of the world. Exempt International Schemes are regarded as private arrangements and are not subject to regulation.


Recognised Schemes

Collective Investment Schemes which are managed in or authorised under the law of another country or territory outside the Island may not be promoted to the general public in the Island unless they have been granted recognition by the Financial Supervision Commission under Schedule 4 to the CIS Act. Once granted recognition, a Recognised Scheme may be promoted to the general public in the Island.



Under the Collective Investment Scheme (Fees) Order 2013 annual fees are as follows:

  • Authorised funds pay GBP1,900 per fund;
  • Umbrella funds pay GBP1,750 per fund plus GBP700 per sub-fund;
  • Section 13 Single Tier Funds pay GBP3,250 per fund;
  • Section 13 Umbrella Funds pay GBP2,550 per fund plus GBP550 for first 10 sub-funds, GBP400 per sub-fund for 11 or more;
  • International Funds pay GBP1,100 per fund.

Recognised Funds, Professional Investor Funds and Experienced Investor Funds do not pay fees.

Fund managers require a business license: the annual fee costs GBP8,950 for managers of authorised funds, and GBP6,750 for Managers of International Collective Schemes (including professional and experienced investor & overseas funds). See Law of Offshore for further details of the regulatory structure for investment funds.



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