Annual Report 2012-13 - Financial Supervision Commission

Isle of Man Financial Supervision Commission Annual Report 2012/13 7is now in its thirtieth consecutive year of economic growth.The period since the mid-90s has seen a particularlyimpressive performance, with real growth averaging over6% pa. Even under recent trying conditions the Islandposted official growth of 3.4% in 2011 and expects tomaintain 3% for the next couple of years.The key primary sectors in generating this performance forthe Island over the last two decades have been financialand professional services. Despite continuous diversificationof the Island’s economic base, financial services activity stillaccounts for the largest single sector contribution. Bankinggenerates around one-sixth of the Island’s GDP, with therest of the finance industry producing a similar total. Oneof Government’s key objectives is to diversify its economicbase so as to reduce dependency on the finance sector. Asa result there are now greater contributions being recordedin areas as varied as aerospace engineering and e-business.Within the latter, the biggest area of growth in recent yearshas been in the e-gaming industry which now generatesalmost 10% of the Island’s £3.5bn national income (asmeasured in 2010/11 and now possibly approaching £4bn).Tough market conditions have coincided with reducedpublic sector revenues - something which led to the needfor a ‘fiscal rebalancing’ exercise to be initiated. The Isleof Man Treasury’s current objective in respect of the publicfinances is to balance income and spending by 2015/16,so as to reduce its reliance on reserves. In seeking toaddress its public finances the Treasury has sought to cut itsspending on a number of fronts, including personnel (witharound 400 posts having been removed since 2010), whilstbeing concerned not to deflate the domestic economy.Consistent with this approach, and also to maintain exportgrowth, the Island’s direct tax system retains its key featuresof a standard zero rate of tax on company profits (with theexceptions of deposit-taking, property development andlarge Isle of Man retailers where the rate is 10%), a standardrate of personal income tax of 10%, and a higher rate ofpersonal income tax of 20%. The maximum individualtax liability stands at £120,000 on personal incomes. TheIsle of Man remains aware of the need to meet its globalobligations in respect of tax co-operation, transparency,information exchange and other international standards.Unemployment has marginally increased over the last 12months. As at April 2013 the Island’s unemployment rate is2.5%. Job losses in the past year have occurred principallyin the construction and retail sectors, with the primary,export-earning sectors of the economy relatively unaffectedin net terms. The number in employment increased byaround 400 over the same period, reflecting an economy inwhich some areas are still expanding.Treasury’s 2012 Earnings Survey, showed that averageearnings from full-time employment had increased by just1.8% over the 12 months to June (compared with a risein the cost of living over the same time period of 2.5%, asmeasured by RPI).The Island’s inflation rate as measured by RPI stands at3.3% (April 2013) and at 1.9% under the Consumer PriceIndex. Both rates have been relatively stable since August2011 but with above average increases in importantcategories, including food. The Island is heavily reliant onthe UK for its imports of consumer goods, so if expectationsof low and stable inflation for the UK in 2013 are borneout then we can anticipate a similar situation for the Island.Global commodity prices will continue to be key.The Island’s property market remains relatively subdued,a product of tight credit conditions, lower real disposableincomes amongst buyers, and the absence of anyimperative to sell amongst prospective vendors. Theaverage house sale price fell from around £283,000 to£279,000 (or 1.5%) in the 12 months to March, on the backof historically low volumes. But this fall is significantly lessthan that of the previous year (when the average sale pricefell by 3.5%), suggesting that the house price correction,under current economic conditions at least, is close tohaving run its course.Global economic recovery, and a strong UK economy,can only benefit the Isle of Man’s open, export-orientatedeconomy. With one or two exceptions the Island’s primarysectors have continued to perform well and are ready totake full advantage of any upturn. Also ‘new’ sectors ofactivity such as in e-gaming, data hosting, clean technologyand aircraft registration have added substantially to theIsland’s employment and national income over recent yearsand are positioned for further growth.There are several, prospectively serious, destabilisingscenarios still troubling financial markets, not least thoseconcerning the euro and political instability in the MiddleEast, so any growth expectations must come with attendantcaveats. The Isle of Man Treasury is predicting that 2013/14will see continued growth in GDP in the local economy,perhaps of 3-4%, and it foresees that growth continuingto come from an ever-widening number of sources. Thisaugurs well for the future sustainability of the economy, thefinancial services sector and the Island’s public finances andit will also be the case that the economy will have beenrebalanced away from Government spending. Projectionssuggest that the Isle of Man’s ratio of Government grossspending to GDP will have fallen from 24.8% in 2010/11 toaround 22% in the current fiscal year.Employment costs on the Island have generally beencontained in the last year. The latest figures, from the

8 Isle of Man Financial Supervision Commission Annual Report 2012/13Hong KongThe Isle of Man is a jurisdiction of choice for companiesdesiring to access international capital markets. The Isle ofMan is an ‘approved jurisdiction’ by the Stock Exchangeof Hong Kong opening up opportunities for Isle of Mancompanies to access investors in Hong Kong and China.This important recognition was achieved on the basis that theIsland demonstrated equivalence in its standards of investorand shareholder protection to those available under HongKong law and that the Financial Supervision Commission is afull signatory to the IOSCO MMOU.

10 Isle of Man Financial Supervision Commission Annual Report 2012/13There were no meetings of the Complaints Committee,during this period.A range of policy, risk, case and operational matters werediscussed by the Board during its monthly meetings. Topicsincluded (in no particular order):• the draft Financial Services(Miscellaneous Amendments) Bill• material issues concerning specific licenceholders• current banking issues such as ring-fencingand resolution• mis-selling of financial products and theCommission’s RDR regime• an enhanced civil penalty regime• additions and updates to the Commission’ssecondary legislation• divisional periodic reports• AML/CFT developments• regular reviews of progress with implementingrecommendations following the latest IMF review.Under Schedule 1 to the Financial Services Act 2008 theCommission is required to submit to Treasury a report onits proceedings and activities for the previous year, togetherwith its accounts audited under the Audit Act 2006. ThisAnnual Report for 2012/13 is being submitted to Treasuryin fulfilment of this obligation. Under the FinancialServices Act 2008 the Annual Report must also belaid before Tynwald.The Commission’s Annual Report and Accounts for 2011/12were laid before Tynwald in October 2012 in fulfilmentof the requirement as set out in the Financial ServicesAct 2008.Corporate governanceand risk managementThe Chief Executive of the Commission is responsiblefor ensuring that its business is conducted in accordancewith the law and proper standards, and for developingand operating internal controls to ensure that publicmoney is safeguarded, properly accounted for, and usedeconomically, efficiently and effectively.In discharging this responsibility and reporting to the Board,the Chief Executive and senior officers of the Commissionare required to put in place adequate arrangements for thegovernance of the Commission’s affairs and the stewardshipof resources at its disposal. This is also embraced within theIsle of Man Government’s Corporate Governance Principlesand Code of Conduct. The Commission is required tosubmit to Government an annual Statement of InternalControl covering implementation of these arrangements.The Commission operates within a control environmentwhich includes the Government’s Financial Regulations,a framework of functions and responsibilities delegatedto individual officers via job descriptions and monitoredby a regular appraisal system, the staff handbook(including codes of conduct, etc.) and an internal reportingmechanism through the senior management team to theChief Executive and to the Board.The control environment sets the overall structure forinternal control and the exercise of the responsibilities ofthe Commissioners, Chief Executive, Directors, and Officersin regard to all matters, including such areas as the:• accomplishment of established goals and objectives• appropriate exercise of powers and delegatedauthorities within the Commission• compliance with policies, plans, procedures, the lawand other requirements• management of conflicts of interests• reliability and integrity of management information• economical and efficient use of all resources• safeguarding of all assets.Whilst responsibility and accountability for internal controlis vested with the Chief Executive, the Treasury has a rolein reviewing the adequacy of the Commission’s internalcontrols through a programme of internal audit work.The Commission’s RICC has now completed its seventh fullyear of operation. The RICC has defined published terms ofreference. Its purpose is to advise the Board on the qualityof the Commission’s financial management, corporategovernance and the adequacy of its systems of internalcontrol. Matters covered by the RICC at its meetingsduring the period included:• A meeting with the Commission’s external auditorsto consider any issues arising from the audit of theCommission’s Annual Report and Accounts for theperiod in advance of the Board’s consideration ofthe Audited Accounts. The auditors raised no issuesin relation to the audit and the audit opinion wasunqualified.• The Commission’s annual Statement of InternalControl. The auditors undertook a review of controlssupporting this statement and no issues were raised.• Delegations of authority from the Board to theChief Executive and others within the Commission.• Risk factors affecting the various Divisions ofthe Commission.

Isle of Man Financial Supervision Commission Annual Report 2012/13 11External communicationEffective communication with its stakeholders is veryimportant to the Commission. As a regulator, theCommission has a wide range of stakeholders, eachwith its own differing priorities.The Commission’s main stakeholders are as follows:The Manx publicTynwaldLicenceholdersLicenceholders’ customers and clientsTreasuryOther regulatory and law enforcement authoritieswithin and outside of the IslandIts own staff.In view of the importance to the Commission of relationswith all of its stakeholders, this subject is included as astanding item on all agendas for Board meetings.Communication takes place regularly as part of the dayto-daysupervision of licenceholders, but in addition to thisother forms of stakeholder communication take place andinclude:• consultation on Commission proposalsfor regulatory or legislative change• issuance of a regular Licenceholder News bulletin• seminars, workshops and briefings for the industry• issuance of relevant consumer information via‘Frequently Asked Questions’ documents availableon the Commission’s website• meetings between Commissioners and industrymembers and professional bodies• regular meetings with Treasury, and liaison withrelevant Government Departments• regular communication with other home/hostregulators, including locally the GamblingSupervision Commission, Insurance and PensionsAuthority and Office of Fair Trading• responding to consultations from other bodies,including those emanating from the FSA andHM Treasury as well as the European SupervisoryAuthorities such as ESMA• contact with the IMF and standard-settingbodies as appropriate• active participation in Government workingparties on particular topics such as FATCA• briefings for Members of Tynwald• participation in industry fora• co-operation in responding to requestsfor assistance through established gateways• liaison with the media.Actions linked to the above are referred to throughoutthis Report.In November 2012 representatives of the Board of theCommission met Board members of the Guernsey andJersey financial services regulators in London. Thesemeetings are usually held annually and they provide aforum to exchange views on international and domesticissues, discuss commonalities of approach and learnfrom each other’s supervisory experiences. At thismeeting discussions centred on the increasing effects ofinternational laws and policies on the domestic legislation,local regulatory changes, government relations andthe work of the Group of International Finance CentreSupervisors (GIFCS).Consultation with industry is the main way in which theCommission discusses and seeks comments on regulatoryproposals, and the Commission appreciates the time whichlicenceholders and practitioners set aside to make sure thisprocess works effectively.In conducting its work and communicating with stakeholdersthe Commission met regularly (usually quarterly) with thefollowing industry representatives and practitioners:Accountancy bodies and representativesAssociation of Corporate Service ProvidersFinancial Planners & Insurance Brokers AssociationIsle of Man Bankers AssociationIsle of Man Funds AssociationThe Commission remains a strong supporter of the SmallCountries Financial Management Programme, whichcontributes to the growth and prosperity of small countriesthrough capacity building in the government financialsector.Complaints against theCommissionMany of the decisions taken by the Commission in thecourse of exercising its regulatory functions are subject toreview in accordance with the Tribunals Act 2006, if theaffected person so requests. This is an important safeguardfor those who may be affected, and at the same timeensures that the Commission must be ready to justify itsactions and that it is accountable for the procedures whichit has followed.Sometimes a person may wish to lodge a formal complaintabout the Commission and how it has handled a matter.The Commission has published, on its website, itsprocedures for dealing with complaints made against it. Inshort this provides for a review of the matter and responseby the Chief Executive. If the complainant remainsunsatisfied, then that person may seek a further review bythe Board of the Commission.No complaints were made against the Commission duringthe period of this report.

12 Isle of Man Financial Supervision Commission Annual Report 2012/13StrasbourgStrasbourg hosts the European Parliament and also theCouncil of Europe. In October 2012 the Council of Europe’sCommittee of Ministers passed a resolution to authorise thedirect participation of the Isle of Man in MONEYVAL (theCouncil of Europe’s Committee of Experts on the Evaluationof Anti-Money Laundering Measures and the Financing ofTerrorism). This means the Island is now able to participate inMONEYVAL evaluations and follow up procedures.

Isle of Man Financial Supervision Commission Annual Report 2012/13 13CORPORATE PLANThe Commission prepares a medium term corporate plan which isintegrated within the wider plan of Government. The Governmentplan for 2012/13 was published earlier during the period.Corporate plan 2012/13This Annual Report describes how the Commissiondelivered under the corporate plan set for the period2012/13. Some longer term matters have been carriedforward into the plan for 2013/14, such as:• Basel III implementation• expansion of the Commission’s use of civil penalties• ICB report and UK banking legislation• Alternative Investment Fund Managers Directive(AIFMD) co-operation agreements with EEAcompetent authorities• Progression of SEPA membership application• AML/CFT monitoring of Designated Non-financialBusinesses and Professions• migration to SharePoint• online reporting system for funds andfunds database.Other matters have been wholly or fundamentallycompleted, such as the:• Retail Distribution Review• review of licence fees for 2013• review of deposit taker submissions relating tolarge intra-group exposures• issuance of updated guidance on capitaladequacy regime for deposit takers• implementation of enhanced supervisoroversight of payment service providers• production of the Financial Services(Miscellaneous Amendments) Act 2013• publication of additional statistical material• benchmarking of the Commission’s standardsagainst the updated IOSCO Principles andMethodology and revised Basel Core Principles.Corporate plan 2013/14The Commission’s corporate plan for 2013/14 is built around the regulatory objectives and also reflects the key messagesof international co-operation, risk mitigation and economic development. The items listed beneath each objective aresome of the measures that will be taken over the forthcoming period to meet these objectives.Objective: Secure an appropriate degree of protection for customersof persons carrying on a regulated activityInitiative Deliverables Lead Division Target DateDomestic SystemicallyImportant FinancialInstitutionsDevelop an approach to identify and regulateDomestic (including IoM) Systemically ImportantFinancial Institutions.Supervision 2014Implement retaildistribution review (RDR)Establish a relevant level 4 qualification andenhanced CPD mandatory for all persons givingfinancial advice to retail investors. Enhancedisclosure requirements to investors.SupervisionJanuary2014Continued overleaf

14 Isle of Man Financial Supervision Commission Annual Report 2012/13Initiative Deliverables Lead Division Target DateReview of Commission’ssecondary legislationReview of the Financial Services Rule Book,Exemption Regulations and Regulated ActivitiesOrder, issue for consultation, consider responsesand take new documents through Tynwald.PolicyJanuary2014Civil penaltiesExpansion of the use of civil penalties to encouragegood compliance – consider consultationresponses, review policy, consult on revisedpolicy and draft Regulations and bring into effect.PolicySeptember2014Structured deposits andpackaged productsBasel III implementationConsider how structured deposits and packagedproducts are sold and marketed, includingvisits to banks.In conjunction with other Crown Dependenciesconsider what changes in regulatory approach areappropriate, develop response and update industry.Supervision 2014Supervision 2013-2018Bank Special ResolutionRegime (including recoveryand resolution)ICB report andUK banking legislationReview Basel Core Principles and decide uponaction in response.Participate in Government working group whereobjectives and deliverables are set.Supervision 2014-2016Supervision 2014-2015Initiative Deliverables Lead Division Target DateDesk-based MONEYVALassessmentComplete desk-based questionnaire. Enforcement August 2013On-site MONEYVALassessmentPrepare for a full on-site assessmentby MONEYVAL.EnforcementSeptember2014National risk assessmentFormulate a national risk assessment in line withRecommendation 1 of the FATF methodology.EnforcementSeptember2014DNFBPs – AML/CFTmonitoringConsult on draft Bill, oversee passage of Billthrough Tynwald, implement regime.EnforcementOctober2014

Isle of Man Financial Supervision Commission Annual Report 2012/13 15Objective: Support the Island’s economy and its developmentInitiative Deliverables Lead Division Target DateAIFMDEstablish co-operation agreements with EU andEEA competent authorities as necessary to ensureIsle of Man alternative investment funds can bemarketed into the EU from July 2013 onwards.PolicyCompletedAssisted self-assessmentreviewFormulate action plan, consider response torecommendations and implement agreed changes.PolicyDecember2013Financial Services(MiscellaneousAmendments) ActConsideration of the fundsoffering (including reviewof closed ended investmentcompanies)Implement Act and internal procedures. Supervision December2014Consider options and consult with the industry. Supervision 2014SEPAProgress application with EPCto become SEPA member.PolicyEUdependentMIFID2/MIFIRMonitor proposed items for effect on Isle of Manand its financial services sector.PolicyEUdependentAlthough not a statutory objective, in order to maximise efficiency and ensure the most productive use of resources thefollowing tasks were also identified:Initiative Deliverables Lead Division Target DateOff-site storageReview paper files held off-site in line with agreedretention policies.OperationsCompletedReview of licence feesUndertake a review of the Commission’s policy onlicence fees, consult with the industry, makechanges to fees orders.Policy May 2013Online reporting system forfunds and funds databaseComplete development of funds database foronline submission of funds data and implement.OperationsSeptember2013Supervision databaseDevelop proposals to re-engineer existing systemto provide for a flexible framework to submit staticand annual compliance data online.OperationsNovember2013SharePoint 2010Migrate to SharePoint 2010, implementSharePoint within Supervision and Authorisations.Replace existing general intelligence system,establish physical and electronic recordsmanagement across the Commission.OperationsDecember2014Scope of GovernmentParticipate in efficiency reviews as partof Scope of Government review.OperationsTo beadvised byGovernment

16 Isle of Man Financial Supervision Commission Annual Report 2012/13Assisted self-assessmentIn early 2013 the Commission arranged for an independentperson to assist it in producing a self-assessment of itsadherence to the international standards of regulationregarding banking supervision, securities regulation anddeposit insurance. The report also examined the range ofother emerging global standards to which the Commissionand the Island should pay attention, particularly relating tocross border bank resolution, compensation schemes andthe evolving regime for systemically important financialinstitutions.The principal purpose of the review was to provide aninterim review (between those undertaken by bodies suchas the IMF) of the Island’s adherence to relevant standards.Many of these standards have been enhanced or alteredsince the last IMF review. The report produced as a resultof the review will be used to focus attention on actionsthat need to be taken before the next formal review isundertaken.The report shows that compliance with internationalstandards is generally high and that good progresshas been made in addressing issues identified in pastinternational reviews. There is inevitably still some workto do, however, not least as a result of the continuingenhancements to the standards themselves, and the reportcontains suggestions for further actions needed in orderto improve the Island’s adherence to these standards –especially in the area of bank resolutions and depositorcompensation.The assisted self-assessment intentionally did not coverAML/CFT compliance as this is being addressed separately.BeijingThe Isle of Man aims to forge strong political and economicrelations with China. His Excellency Liu Xiaoming, the ChineseAmbassador to the UK recently visited the Island. After theend of the period the Commission exchanged a Statement ofCo-operation with the China Banking Regulatory Commission,to foster co-operation on banking matters.

Isle of Man Financial Supervision Commission Annual Report 2012/13 17REGULATORY ANDSUPERVISORYAPPROACHThe guiding principle for the Commission’sregulation and supervision is to maintain anapproach which attracts reputable institutionsMichael WeldonDirector - Supervisionand allows them to enjoy long-term market access overseas througha combination of rigorous supervision and adherence to globalstandards. The licence application process, which is the first formalstage of the supervisory relationship, has a key role in establishinghigh regulatory standards at the outset and it has an importantinfluence on ensuring that the quality of business accepted bylicenceholders is high.In supervising licenceholders an important aim of regulatorsis to reduce the risk of loss. However, a regulator cannot,and should not, expect to prevent all failures – this is theresponsibility of the management of the regulated entities.Globally, especially since the financial crisis, the supervisoryphilosophy is strongly risk-based. This means that theCommission seeks to understand the risks posed by theinstitutions it supervises, to focus on the most significantof these and to ensure that management controls addressrisk effectively. This consideration of risks must begin at thelicence application stage.Risk toleranceThe Commission must consider various risks in orderto ensure its licensing regime, its regulatory approachand its own governance takes place at risk levels thatare appropriate for the current and anticipated futurecircumstances. A regulator cannot and should not aimto eliminate all risks to users of financial services. Risk willalways remain, but a risk-based approach allows a regulatorto take a measured and informed view, based partly on theextent to which risks can be mitigated, and the resourcesavailable to it. This informed view, and the resulting‘acceptable’ level of risk in even the best regulatedjurisdiction reflects the regulator’s risk tolerance. Since thefinancial crisis regulators have become less tolerant of riskin general and the focus has shifted towards theavoidance of systemic risk.Risk affects the Commission in many ways:• In considering licence applications and the businessplans of licence applicants, the Commission’stolerance of risk will determine whether and onwhat conditions a licence may be granted, and risksto the Commission’s statutory objectives, such as theappropriate level of protection for customers, andthe reduction in financial crime must be considered.• For a given risk tolerance on the part of the regulator,a willingness of licenceholders to embrace riskieractivities or methods of operation will inevitablyentail closer supervisory scrutiny. Often the wideracceptance of risks by a licenceholder, the moreregulatory interface is required. This is addressed bythe Commission’s risk-based approach to itssupervisory work.• The Commission’s risk tolerance is its own. Howeverthere is inevitable interplay between this and therisk tolerance of Government, for example inbusiness development. The importance to the Isle ofMan of maintaining and enhancing its reputation as atransparent jurisdiction in which to do business,means that it is important that the Commission’s risktolerance levels reflect this point.

18 Isle of Man Financial Supervision Commission Annual Report 2012/13AuthorisationsThe Commission has a General Licensing Policy whichis published on its website and which details the criteriaapplied by it when considering licence applications. Theaim of the General Licensing Policy is to ensure that firmsmeet and maintain the necessary standards, which in turnwill help to protect consumers and maintain the Island’sreputation. The General Licensing Policy makes sure thatapplicants are fully aware of the Commission’s expectations;such as the requirement for a business to have a realpresence on the Island, and for it to be operated by keypersons who are fit and proper with a demonstrable trackrecord. It also provides details of the different categoriesof regulated activity. With regard to Class 3 regulatedactivity – the provision of services to collective investmentschemes – there is a supplementary licensing policy.Having regard to the General Licensing Policy shouldensure that applicants are able to frame their applicationsappropriately, which can ultimately save time and resourcesfor both the applicant and the Commission.In addition to consulting the General Licensing Policy,the Commission encourages potential licence applicantsto contact the Commission’s Authorisations Division, todiscuss their plans at an early stage. The Commissionbelieves in a positive and welcoming, open-for-businessapproach to new business proposals wherever they meetthe Commission’s criteria. The Authorisations Divisionis very willing to talk applicants through the licensingprocedure, and it is the point of entry for new business tothe Island’s financial services sector.Over this year, the Division has handled an increasingnumber of enquiries from persons wishing to discuss thepotential regulatory implications for certain alternativefunding activities. These activities have included crowdfunding, angel investors and peer-to-peer lending. It isanticipated that such approaches will continue to featureover the forthcoming year.The Authorisations Division prepares applications forlicences and the applications are then considered byan internal committee made up of staff from across theCommission including the Supervision Division. Thisinternal committee conducts a preliminary review of theproposal.Ultimately, a final recommendation on the application issent concurrently to the Licence Application Committee ofthe Board for consideration, and to the applicant at least 14days ahead of the licence hearing. An applicant may attendthe licence hearing itself to make any representation.If an applicant is not satisfied with the decision of theCommission, an application for review can be made to theFinancial Services Tribunal.The following table shows the number of licenceapplications received and issued during the period. Thenumber of licence applications received during the periodis the same as that experienced for the period 2011/2012.The volume of applications for these last two years is lowerthan for earlier years, reflecting the challenging economicenvironment of the past few years.Regulated Activity Received IssuedClass 1 - Deposit taking 0 0Class 2 - Investment business 2 1Class 3 – Services to collectiveinvestment schemes5 3Class 4 – Corporate services 7 7Class 5 – Trust services 3 3Class 7 - Management& administrationClass 8 - Money transmissionservices1 01 0Total 19 14(Note: The number of licences issued differs from thenumber of those received because some applicationswere still outstanding at the end of the period, and someapplications have not progressed. Where an applicationcovered more than one class of regulated activity, theapplication has been recorded against the “principal”regulated activity of the applicant.)Where the necessary information required by theAuthorisations Division is provided in a timely manner,applications should be processed within a three monthperiod. This time-scale can be shortened particularly if thepersons involved are already undertaking regulated activityin the Isle of Man.Over the period of this Report, the Division concluded thehandling of those licence applications which emanatedfrom the introduction of the regulated activity of moneytransmission services (which includes payment services).Some of the challenges, linked to licence applications, thatarose during the period were:• The Commission received a number of enquiriesabout the regulatory implications for businesseswishing to provide alternative methods of funding.Various models have been presented including“angel investor networks”, “crowd-funding” and“peer-to-peer lending”, all of which couldpotentially include regulated (and licensable) activity.The discussions we have had with persons lookingto enter this space have been useful.

Isle of Man Financial Supervision Commission Annual Report 2012/13 19The Commission believes that in at least somecases, their proposed approach (as explained to theCommission) will lead to the submission of a licenceapplication covering investment business activities;in other cases it appears that the approach to betaken by the enquirer may not involve regulatedactivity. It remains important for those consideringactivities that may require a licence to takeappropriate legal advice on their situation.• The quality of some business plans received hasbeen variable. Whilst future business trends can bedifficult to forecast it is important that applicants candemonstrate viability against less favourable as wellas more optimistic scenarios. Applicants shouldbe able to justify the different assumptions theyhave made.The Commission has in place an arrangement wherebypersons who make a licence application are invited afterthe exercise to comment on how they feel the Commissionperformed. The feedback on licence applications receivedduring this period was largely positive. One existinglicenceholder suggested that it would be helpful if therewas more information on the process for extendingthe permissions held by an existing financial serviceslicenceholder and this is an area where more guidance willbe added to the Commission’s website.The number of individuals vetted by the Commissionduring the period was 406. In line with the reduction innumbers of licence applications over the last two years, thevolumes of key person appointments that require vettinghave also fallen when compared to earlier periods:Full 254Update 152Total 406SupervisionThe Supervision Division is responsible for theCommission’s core task of monitoring andsupervising licenceholders.The Division is split into four teams. Three teams havedirect responsibility for the supervision of specific regulatedactivities which are:• Banking (deposit takers and moneytransmission services)• Fiduciary services• Funds and investment servicesThe fourth team manages the Division’s Risk andCompliance matters (including licenceholder remediationand complaints, except those relating to banks) and alsoprovides administrative support to the remainder of theDivision.The following table identifies licenceholders by category:Regulated ActivityNumber of licenceholdersconducting the followingregulated activitiesAs at 31 March2013 2012Class 1 - Deposit taking 32 33Class 2 - Investment business 56 56Class 3 – Services to collective investment schemes 63 65Class 4 - Corporate services 183 182Class 5 - Trust services 131 129Class 7 – Management & administration 9 9Class 8 - Money transmission services 6 4

20 Isle of Man Financial Supervision Commission Annual Report 2012/13The number of licenceholders has remained fairly staticover this period, with slight reductions in Classes 1 and 3and slight increases in Classes 4, 5 and 8. The reductionshave arisen mainly as a result of consolidation occurringwithin the industry. The increase of two licenceholders inClass 8 relates to the completion of the licensing processemanating from the introduction of the regulated activityof money transmission services (which includes paymentservices).The Division is responsible for considering the acceptabilityof changes in the ownership structure of licenceholders.In undertaking this task it has become apparent that thereis a trend of venture capital firms acquiring licenceholdersor taking controlling interests in licenceholders’ parentcompanies. To date this trend has been seen in investmentbusiness, fund and fiduciary firms.Supervisory approachThe supervisory approach is contained in a publisheddocument which is available on the Commission’s websitethat sets out the Commission’s approach to the supervisionof the different elements of the financial services industrythat it regulates.The type and frequency of on-site visits continues to berelated to the size, activity and risk profile of the particularlicenceholder or its corporate group.The supervisory process is detailed and it includes acombination of the following:• Receipt and review of prudential returns, statisticalinformation and notifications• Use of general and themed questionnaires• On-site visits, with follow-up action plans• Formal and informal discussions with management• Provision of feedback and guidance tolicenceholders.The on-site oversight of licenceholders’ adherence toAML/CFT requirements is a constant theme within thesupervisory process. Another important theme, whichis linked to the regulatory objective of securing anappropriate degree of protection for the customers ofpersons carrying on regulated activity, is the focus on fairtreatment of customers and the identification of any missellingor other inappropriate business practices. Albeitrare, mis-selling does take place and the Commission’sstance is necessarily pro-active in order to protect clientsand potential clients.In January 2013 the Commission issued a consultationpaper asking for views on expanding its use of civilpenalties. The intention behind this expansion isto encourage good compliance. It will provide theCommission with an efficient and cost effective method forpenalising licenceholders who have seriously transgressedand by the non-compliance have acted in ways that, forexample, could otherwise put clients greatly at risk.There are focus visits planned for the coming year to reviewthe use of clients’ money bank accounts and the associatedrecord keeping and controls surrounding those accounts.In addition to on-site visits the supervisory approach utilisesthemed questionnaires. This useful tool is focussed, andcan save time and resource for licenceholders as well as forthe Commission. One questionnaire was issued during theperiod which related to the extent to which licenceholdersutilise eligible introducer certificates when taking on newbusiness. Feedback was provided to the industry.Supervision staff remain aware of current consumer issuesand there are gateways between the Commission and theOFT which enable it to keep abreast of the products andissues that are causing concern to clients of the Isle of Manfinancial services industry. The Commission holds regularmeetings with the OFT.The Commission has been very cognisant of the costs ofcompliance with regulatory regimes. In July 2012 it offeredlicenceholders with an annual turnover below £250,000(about 20% of the total number of licenceholders) theopportunity to apply for an exception from the requirementto have their financial statements audited, subject tospecific provisions. At 31 March twelve applicationshad been received of which seven were approved, onedeclined and the remaining four are being processed.In respect of banks, in addition to AML/CFT oversight, theCommission’s focus continues to be on prudential risks(such as liquidity, credit and large exposures), corporategovernance and risk management, and customerprotection.Annual Desk Based Reviews (ADBR) are also part of thesupervisory approach. The ADBR is a review of eachlicenceholder’s previous 12 months’ history and a time toensure that the forward-looking licenceholder specific riskassessment and risk mitigation programme are up-to-date.The review encompasses an examination of the annualreturn pack and audited financial statements, and anassessment of the licenceholder’s compliance with the RuleBook, any current issues or key events in the period, andthe licenceholder’s risk and impact ratings as well as its riskmitigation programme.One output of the supervisory process, both on and offsite,may be suggestions or requirements for licenceholderimprovement, or observations on shortcomings andrequired action in relation to regulatory compliance.Where this is the case the Commission will clearly detailits requirements to the licenceholder along with agreedtimescales for completion of the action. There may be the

Isle of Man Financial Supervision Commission Annual Report 2012/13 21need for follow-up visits to validate any remediation workor other necessary actions.The Commission has in place an arrangement wherebylicenceholders that receive an on-site visit are invited afterthe exercise to comment on how they feel the Commissionperformed.The feedback on visits received during this period waspositive. The Commission encourages suggestions fromlicenceholders on how on-site visits can be improved ormade more efficient and/or effective.Staff of the Supervision Division regularly meet with theIPA to share supervisory information, and they conductother ad hoc meetings as required. A number of theCommission’s licenceholders are linked to companiesauthorised by the IPA and regular dialogue between thetwo regulators is important.GatekeepersIn “securing an appropriate degree of protection for thecustomers of persons carrying on a regulated activity”,the Commission recognises that persons other thanlicenceholders help it to undertake its role - whetherthrough a formal route, an oversight function or informally.These persons are considered to be ‘gatekeepers’and include (but are not limited to) auditors, staff andindependent directors of licenceholders, members ofthe governing body of a fund, and other regulatory orgovernmental bodies.In many circumstances, the Commission expects thesegatekeepers to bring to its attention significant concernsthey have that indicate that a licenceholder or a collectiveinvestment scheme may be acting contrary to regulations,guidance or industry best practice. For example, formalcommunication protocols (backed up by statutoryprovisions) exist between the Commission and audit firmsto enable those firms to advise the Commission of materialconcerns. Auditors of schemes are also under a statutoryobligation to bring to the Commission’s attention anymaterial concerns arising from their audit work.In other circumstances, a less formal arrangement isin place, for example the whistleblowing programmethat enables staff of licenceholders to disclose to theCommission any matters that might be relevant to theCommission’s ongoing work.Risk and complianceThe Remediation Unit (part of the Risk and Complianceteam) dealt with a number of cases during the year.Two significant cases were ultimately referred to theEnforcement Division. There were monthly meetingsof the Remediation Panel, comprising individuals fromEnforcement and Supervision Divisions.The Risk and Compliance team is involved with themaintenance of the Commission’s ‘compliance support’section of its website, including the provision of templateregisters for optional use by licenceholders in respectof various matters. This section is intended to helplicenceholders, particularly smaller ones, comply with theirregulatory requirements.The team is also responsible for handling complaints aboutnon-bank licenceholders. Over the period of the report thetotal number of non-banking complaints reviewed was 35.Of these, nine complaints related to historic claims of missellingof products by a small number of financial advisers.The Commission has taken steps to address this in termsof its RDR project and enhanced guidance to financialadvisers.The Commission does not have a power to rule oncomplaints or make awards – this is the role of the FinancialServices Ombudsman. However, it will usually discuss thecomplaint with the licenceholder concerned, encouraginga resolution if possible and will take action if any regulatorybreaches have occurred.The following table sets out the remedial and other actionstaken during the period:Year ended 31 March2013 2012Directions 59 – of which 8were remedial40 – of which 8were remedialCivil penalties 26 26Section 11 warning notices 0 3Licences (or classes thereof) suspended or revoked 0 1

22 Isle of Man Financial Supervision Commission Annual Report 2012/13Banking and money transmission servicesThe following table outlines the number of visits to, and annual business meetings with, banking groups:Visits to and meetings with banksPeriodAnnualbusinessmeetingSupervisoryComplianceFocus/ThemedTotalActual for year ended 31 March 2013 20 0 17 37Planned visits for year ended 31 March 2013 22 0 22 44Actual for year ended 31 March 2012 20 0 20 40Planned visits to, and annual business meetings with theAIB Group were cancelled (due to the business beingwound down) and replaced with regular meetings. Othervisits planned were undertaken in April 2013.Banking businessOver the period of this Annual Report the Commission’ssupervisory work with banking groups gave priority to thefollowing key areas:AML/CFT visitsThe core visit theme for the year focused upon AML/CFTmatters, especially on areas such as the identification andmonitoring of higher risk relationships (including PEPs),the adequacy of screening systems (including relating tosanctions) and transaction monitoring.Structured products and depositsA detailed questionnaire was issued to banks during2012 to discover more about the way in which structureddeposits are designed, marketed and sold. Theresponses received have now been reviewed and areto be summarised for the industry. Some on-site work inrelation to this matter will take place over 2013 and it ispossible that some changes will be made to the regulatoryframework to address relevant matters. Any proposedchanges will be subject to consultation and will take intoaccount how this topic is treated by other regulators.Changes to large exposures and liquidityrules and guidanceThese changes were deemed necessary following theturbulence in the markets over recent years. The changesare now embedded (although it is likely that as a result ofinternational standards these may need to change furtherin due course).Building upon the work that took place in 2011/12, overthis period the transitional consent relating to existingpositions of large intra-group exposures, that had beenprovided until 30 June 2012 ceased, and banks wishing tocontinue to incur large intra-group exposures must submitan assessment to the Commission on at least an annualbasis and seek its consent.Where the Commission anticipates particular risks itpursues these with banks, and requires them to address therisks identified and the Commission will increase regulatoryrequirements should that be the appropriate response.ComplaintsDuring the year, 55 complaints about banks were received.The key themes for complaints against banks continueto be related to KYC requests/policies, service delays (forexample, account closing, payment instructions etc.) andproduct related.Integration and restructuringThe restructuring, integration and sale of some bankinggroups continued over 2012/13. Supervisory worklinked to this activity involves ensuring that any changein controller is acceptable to the Commission, relevantnotification requirements are adhered to, liaison takesplace with relevant regulatory authorities, and customercommunication is clear and dealt with in a timely manner.International developments andthe Isle of Man banking sectorBasel IIILast year we reported that the international changes tostandards to strengthen liquidity and capital standards ofinternationally active banks (Basel III) had been adoptedby regulatory authorities around the world and were inthe process of being implemented. The changes are

Isle of Man Financial Supervision Commission Annual Report 2012/13 23being introduced on a protracted timetable which meansthat implementation will be underway for a considerabletime. In January 2013 the Basel Committee on BankingSupervision announced a relaxation to the planned liquidityrules (the Liquidity Coverage Ratio) and banks weregiven until 2016 to be in compliance with the new capitalrequirements.The Commission is still working with its counterparts inGuernsey and Jersey to determine how Basel III maybe implemented in the Crown Dependencies. A jointdiscussion paper with the other Crown Dependencies wasissued to banks in September 2012, and industry feedbackwas requested by mid-December 2012. The responseshave been analysed and the Crown Dependencies are inthe process of considering how best to move forward withBasel III in the Islands, and expect to undertake furtherformal consultation with the industry in 2013/14.UK’s Independent Commissionon Banking (ICB) ReportThe primary recommendation of the ICB Report, nowaccepted as UK policy, is the ring-fencing of certain retailoperations of UK banks from their wholesale/investmentactivities. The rationale is to provide the ring-fenced bankswith ‘economic independence’ and to assist financialstability and orderly resolution. The Commission madea joint response to the HM Treasury UK White Paperalongside counterparts in the other Crown Dependenciesin September 2012. In February 2013 the CrownDependencies met together with representatives of theFSA and HM Treasury to progress matters, and in March2013 a meeting took place with the Bank of England.It is certain that the actions taken in the UK as a result of theICB Report will have significant implications for the businessmodels of banks operating in the Isle of Man and changeswill be required as a result. The Commission thereforecontinues to work closely with deposit taking licenceholdersto establish the effects of ring-fencing on the localoperations of UK banking groups, their corporate structureand the role which they have hitherto been undertakingin providing funding to parent banks. Additionally, aformal steering group has been established in the Islandconsisting of representatives from the Commission, relevantGovernment Departments, the IOMBA and affected banks.Banks wishing to operate traditional models of raisingand upstreaming retail funds will clearly face a number ofchallenges if Isle of Man licenceholders are outside thering-fence. However, many deposit takers are in the processof identifying potential new strategic directions whichcould become available once the UK regime is introduced.The Commission is of course considering the regulatoryimplications of these in conjunction with the industry.Core Principles for Effective Banking SupervisionThe assisted self-assessment considered how theCommission’s standards address the revised “CorePrinciples for Effective Banking Supervision” and associatedmethodology that was ratified in September 2012.Financial Stability Board – recoveryand resolutionFollowing the issuance of “Key Attributes of EffectiveResolution Regimes for Financial Institutions” by theFinancial Stability Board, and the revised Core Principlesreferred to in the previous paragraph, the Commission isconsidering how the issues raised will impact the Island.Basel III and the work underway on institutions judged tobe systemic is also of relevance here. Key matters that willrequire increased focus include:• how Isle of Man branches and subsidiaries will fitinto group based recovery and resolution plans• whether the Island needs to strengthen itspowers and tools to facilitate recovery andresolution of banks• the role of the depositors’ compensation scheme• how bail-in and deposit preference measures inother jurisdictions may impact on operationsin the Island• the scope and detail of the EU’s proposed Recoveryand Resolution Directive.FATCAFATCA is principally a taxation matter rather than aregulatory one. It will, nonetheless, affect the banking andother sectors of the finance industry. Commission staff takepart in regular meetings of the Government’s working partythat is considering this topic and its impact on the Island.Looking ahead: 2013/2014Planned visit themes for 2013/14Our visit programme in 2013/14 is being undertaken onan individual bank basis. Each visit will be tailored to areaswhere we consider there may be risks to the Commission’sobjectives, where an area of activity has materially changedsince our last review and to cover matters pertinent to othersupervisory work (for example structured deposits).Lending dataProposals to improve quarterly data on banks’ lendingportfolio are being considered and we expect to release

24 Isle of Man Financial Supervision Commission Annual Report 2012/13proposed enhancements to the industry for discussion thisyear, for implementation in 2014.Domestic Systemically Important Banks (D-SIBs)In October 2012 the Basel Committee on BankingSupervision published a paper titled “A framework fordealing with domestic systemically important banks”.The D-SIB framework focuses on the impact that thedistress or failure of banks (including by internationallyactive banks) will have on the domestic economy. Theprinciples promulgated by the Basel Committee havebeen developed to apply to consolidated groups andsubsidiaries, but jurisdictions may also apply them tobranches. We will be considering the framework for D-SIBsduring 2013/14 and aim to work with Guernsey and Jerseyin developing our approach.Money transmission servicesOver the period of this Report the Commission’ssupervisory work with licenceholders providing moneytransmission services gave priority to the business ofbureaux de change, agency services and cheque cashing. Itcovered the following key areas:AML/CFT visitsThe core visit theme for the year focused upon AML/CFTmatters, to ensure that these businesses understood therequirements of the legislation and to review their AML/CFT systems and controls. Four visits were undertakenin the year to 31 March as planned. A visit to the Isle ofMan Post Office Authority was also made to review itscompliance with AML/CFT legislation.Sector guidanceFollowing the visits, it was considered that it would bebeneficial to provide more specific AML/CFT sectorguidance for certain money transmission business. This is tobe completed and published in 2013/14.Looking ahead: 2013/2014The Commission will be undertaking visits to businessesacting as principals in money transmission activity inorder to review their compliance with the core regulatoryrequirements, and AML/CFT obligations. This mayresult in more guidance being provided to this class oflicenceholder, or refinement of rules.Fiduciary servicesThe Isle of Man has licensed CSPs since 2001 and TSPssince 2006. The Island’s embracing of a fully transparentand fair ethos, as demonstrated by its desire to enter intoan Inter-Governmental Agreement (IGA) with the USA aspart of FATCA and also a similar agreement with the UKmeans that the Island, with a credible and stable position,should be a jurisdiction of choice for bona fide business.Indeed, the Commission considers that aggressive taxmitigation is not part of a prudent business strategy.The total number of companies and trusts underadministration remained broadly stable during 2012/13.Companies showed a modest increase (3%) whilst trustsand private trust companies reduced by 9%.The turnover of trust and corporate service providersincreased by approximately 5%, although profitabilityremained static.The following table outlines the number of visits to, andannual business meetings with, fiduciary companies andprofessional officers:PeriodAnnualbusinessmeetingSupervisoryComplianceFocus/ThemedProfessionalTotalActual for year ended 31 March 2013 50 24 18 1 93Planned visits for year ended 31 March 2013 61 29 15 4 109Actual for year ended 31 March 2012 52 39 11 0 102

Isle of Man Financial Supervision Commission Annual Report 2012/13 25The Commission sent out 30 themed visit questionnairesduring the year, which were all reviewed by Commissionofficers and subsequently 11 themed visits and fourbusiness meetings were undertaken. In addition, theCommission also undertook two themed visits that hadbeen due to be undertaken in the previous year.The Fiduciaries team undertook 50 on-site annualbusiness meetings of the 61 planned. Of the meetings notundertaken, the majority of these related to licenceholderswho had either completed a themed visit questionnaire(and a visit was not considered necessary), surrenderedtheir licence or were in liquidation.Over the period of this Annual Report the fiduciaryservices team completed a full cycle of themed pre-visitquestionnaires, having used this type of questionnaire forthree years. The team now intends to address in moredetail the findings to date and it will therefore return to aprogramme based around on-site visits for 2013/14.During the year, the Commission issued an onlinequestionnaire to gather further information in respect ofservices provided by TCSPs to public companies, listedcompanies, or those with over 50 shareholders that are“hosted” by licenceholders. This information has beenused to further refine the visit programme to reflect theactivities and risks of licenceholders.The team has provided detailed feedback on its visitfindings over this period through the ACSP and industrypresentations given in March 2013.Themed visits have been a useful tool when consideringspecific matters of regulatory concern, and continue tobe an efficient use of resources. Themes in 2013/14 willinclude sample checks on client money transactions,remediation from previous visits, PLCs and companies with50+ shareholders, collective investment schemes, andservices to private trust companies.In 2013/14 the fiduciary team will seek to emphasise thepurpose-based examination of licenceholders’AML/CFT risk assessments, and to look at how thefindings from these assessments have been usedproactively by licenceholders in order to mitigate the risksthey have identified. In addition, we will continue ourliaison and communication with the TCSP industry and itsrepresentative bodies.Investment and funds servicesThe following table outlines the number of visits to, andannual business meetings with, investment and fundsservices businesses during the period:Visits to and meetings with investment and funds services businessesPeriodAnnualbusinessmeetingSupervisoryComplianceFocus/ThemedTotalActual for year ended 31 March 2013 54 0 47 101Planned for year ended 31 March 2013 55 0 48 103Actual for year ended 31 March 2012 82 35 10 127Consolidation within the industry, together with a revised method of recording visits to licenceholders that have multipleregulatory permissions, impacted the number of recorded visits when compared to the previous year. At the same time theapproach to investment and funds services businesses has been realigned with a greater emphasis on focus and themedvisits compared to annual business meetings and standard supervisory visits. This approach means that there is morescrutiny in areas identified as being of a higher risk.

26 Isle of Man Financial Supervision Commission Annual Report 2012/13Investment businessesRetail Distribution Review (RDR)The RDR is a UK initiative concentrating on financialadvice to the retail public which, inter alia, has enhancedqualification requirements for advisers and prevented thepayment and receipt of commissions. The Commissionhas considered the UK approach against the local businessprofile and noted that certain elements of UK RDR wouldbe beneficial in the Isle of Man context.Other elements, such as the acceptance of commissionpayments, were not seen as necessary at this time becausethe Commission’s requirement is for advisers to provide fulland transparent disclosure of all remuneration to clients,and also because there is a concern that those personsmost in need of financial advice may hold back fromseeking it if they need to pay up-front fees to obtain thatadvice.The main elements that the Commission is adopting relateto increasing the minimum qualification level of financialadvisers, statements of professional standing and disclosureof material matters to clients, including remuneration.The Isle of Man requirements will come into effect from1 January 2014 when all financial advisers who advisethe retail public will be required to demonstrate that theymeet the compliance Level 4 standard with a relevantprofessional body. This implementation increases the levelof competency required of advisers, and will further protectclients from mis-selling.Most advisers affected by this consumer protectioninitiative on the Island are well on track to achieve, oralready meet, the enhanced requirements.As mentioned in last year’s Annual Report, the Commissionis not prepared to ‘grandfather’ advisers into the newregime. It does, however, recognise an AlternativeAssessment route developed with the Chartered Institutefor Securities and Investments for persons meeting specificcriteria, including a requirement to have had at least 20years of experience in the industry, a good compliancerecord (in terms including breaches of regulatoryrequirements and complaints) and a good record of CPD.Candidates who meet the tight criteria are then required toundertake a detailed competency assessment conductedindependently by the CISI rather than sit examinations.These assessments are predominantly based on a writtensubmission, formal interview and case study and arebenchmarked at a standard at least equivalent to aLevel 4 qualification. They have a focus on Isle of Manspecific requirements and the actual nature of businessto be undertaken by the relevant person.Suitability of adviceOver this period the Commission has issued guidanceon a number of matters relating to the fair treatmentof consumers and the provision of suitable advice.These documents include a pensions advice guidancenote (October 2012), a guidance note on advertising,distribution and promotional of financial services(November 2012) and a public statement on the provisionof advice, arrangement of a deal or exercise of discretionin relation to higher risk investments for retail investors(December 2012). This action is necessary because missellingof financial products and the provision of unsuitableadvice is still found from time to time during supervisoryvisits or is otherwise brought to the Commission’s attention.Indeed, a press release to the general public was issued inAugust 2012 in relation to the Commission’s expectationsregarding financial advice and suitability, as well asfeedback from its visit findings.Visit programmeDuring 2012/13 supervisory visits continued to considerthe suitability of advice on investments together withAML/CFT issues. We also carried out a number of visitsfocusing specifically on the suitability of pension advice.In 2013/14 visits will continue to focus on the suitabilityof advice, and also client money, AML/CFT, corporategovernance and risk management.Looking forward, the Commission is working on thefollowing areas in relation to investment business:• the preparation of further consumer protectioninformation, including guidance notes on structuredinvestments and advice to those who may bevunerable in connection with investments• upgrading the half yearly statistical informationreceived by the Commission relating toinvestment business.Fund administratorsand managersThe funds industry continues to face many challenges,however the aggregate value of funds under managementwas relatively stable throughout the year. The Commissioncontinues to work with IOMFA to consider initiatives thatmight encourage the industry to use Isle of Man structures.Additional pressures facing the industry stem from theAIFMD, the changes to private placement regimes in theEU, and the UK’s move to individual recognition of fundsdirected at the UK retail investor as opposed to its previousregime of granting designated territory status to certainfund regimes in specified jurisdictions.The funds on-site visit programme over this period focusedon regular items such as AML/CFT, corporate governanceand compliance arrangements. The team also sought andconsidered further information in relation to suspended

Isle of Man Financial Supervision Commission Annual Report 2012/13 27funds. There has been a trend for property funds to gointo suspension particularly following the UK downturn incommercial property values. A number of funds have beenin suspension since 2008. The review exercise afforded theopportunity to look at these suspended funds to betterunderstand the specifics of their situation. The key findingsdiscovered were that commercial property funds withbank lending had issues regarding the loan to value ratiofor the properties, which has had a resultant effect to thevalue of the funds. Strategies to secure investor returnsin this situation have been reliant upon movement in theunderlying property values. The Commission continues tomonitor this situation.Where funds are in liquidation, the funds and investmentbusiness team continues to work with the liquidators ofsuch schemes in order to keep updated on any issuesarising which may impact on the fitness and propriety ofkey persons, including the governing bodies of such funds.The Commission’s fund legislation has also been updatedover this period. The Financial Services (MiscellaneousAmendments) Act has received Royal Assent and cameinto effect on 1 June 2013. The new legislation amendsthe Collective Investment Schemes Act 2008 and providesthe Commission with power to issue warning notices topeople involved with funds. This power will be used wherethe Commission believes such persons ought to be put onformal notice that, should their performance in the relevantrole not improve, they could be faced with a “not fit andproper” notification from the Commission. The Act alsointroduces the ability to make prohibition orders and civilpenalties.The Commission also continues to promote the principlesof good corporate governance for funds, including thetimely issue of investor updates and audited financialstatements. A guidance note for the governing bodies offunds is being progressed and will be issued later in 2013.Commission staff have engaged with the industry membersand the IOMFA on the challenges and opportunities posedby the AIFMD, the implementation date of which is July2013.During the year, the Commission successfully petitioned ofthe High Court of Justice in the Isle of Man for the windingup of Louis Group Structured Fund Plc, an experiencedinvestor fund, and five other associated companies,namely, Louis Group (IOM) Limited, the holder of aCSP/TSP licence, Louis Group Structured Capital Limited,LG SP Investments Limited, Louis Group International(Europe) Limited and Louis Group SLN Limited. Thepetition was made in the public interest following receipt ofa report by Inspectors in relation to Louis Group StructuredFund Plc. The Inspectors were appointed by the High Courtto investigate and report on the affairs of Louis GroupStructured Fund PLC as a result of an earlier petition by theCommission.Looking forward, the Commission is working on thefollowing areas in relation to funds:• Completion of the guidance document on corporategovernance for the governing bodies of funds.• The implementation of the funds database whichwill enable electronic notification of funds andchanges to funds, annual compliance declarationsand the supply of statistical information. Thedatabase will streamline the administration of fundsinformation for the Commission and licenceholders,provide electronic reminders in advance of regularreporting dates and act as a source of reference tolicenceholders for their submissions to theCommission in respect of funds.• Updating and simplifying Isle of Man’s funds structureand related legislation and guidance, andconsidering whether or not some closed endedinvestment companies should be regarded ascollective investment schemes in future.Depositors’ and Investors’Compensation SchemesThe Isle of Man has both Depositors’ and Investors’Compensation Schemes. Further information and detailsof the coverage which they provide are set out on theCommission’s website.The schemes only come into operation when a relevantdefault has been triggered, and no claim has ever beenmade against the Investors’ Compensation Scheme, whichcovers investors only in authorised collective investmentschemes.The Depositors’ Compensation Scheme and Investors’Compensation Scheme are separate from the Commissionand are administered under specific legislation. The DCS,which has previously been activated, produces its ownreport and audited financial statements.It is important to note that neither scheme is pre-funded,both schemes are funded by participants (i.e. the relevantlicenceholders), and in the case of the DCS also byGovernment, up to maximum levels set down in therelevant legislation. The Scheme Manager, which is thebody responsible for managing the DCS, also has a powerto borrow.Broadly, the DCS compensates persons that have money incurrent and deposit accounts in the Isle of Man with 100%of their qualifying deposit subject to a maximum £50,000of net deposits per individual depositor or £20,000 of net

28 Isle of Man Financial Supervision Commission Annual Report 2012/13deposits for most other categories of depositor.Because of the cap which the DCS legislation placeson total contributions (paid by the Government andparticipating banks) to the DCS, and the fact that borrowingis discretionary and subject to availability, it is possible thatthere may be insufficient funds available to pay the full levelof compensation to depositors at a particular time. Thisespecially applies if a large bank fails and/or there is morethan one failure within a short period of time.Banks and financial advisers should take account ofthe DCS’ limitations in any references they make to it.Depositors should also take into account the limitations ofthe DCS when deciding where to place their money. Thisis made clear in the consumer information section of theCommission’s website.The DCS was previously activated (on 27 May 2009) inrespect of the insolvency of KSFIOM and (on 16 January1992) in respect of the failure of BCCI which had a branchin the Island. The DCS Regulations applying at these timesdiffered in respect of the amount of compensation availableto depositors.The Commission, as Scheme Manager at the time of theKSFIOM and BCCI failures, has devoted considerableresources to ensure the effective operation of bothschemes and publishes its own separate Annual Report andAccounts which refer to the events in greater detail.In relation to KSFIOM, the Joint Liquidators are currentlyestimating a total dividend to all KSFIOM creditors ofbetween 97.9p and 99p in the £, although this will takea few more years to complete. To date the dividendsdeclared have reached 91p in the £ and a further dividendof at least 4p in the £ is expected to be made in the firsthalf of 2013, which would take the total declared to date toat least 95p in the £.In relation to BCCI, a final meeting of creditors was heldon 17 May 2012, at which it was noted that the globalliquidators of BCCI have resolved to pay a minimum finaldividend of 3.5586% to ordinary admitted creditors whichwould give an aggregate dividend of just over 90%. Thefinal dividend was paid in August 2012 and payments ofsurplus funds due to claimants of the DCS re BCCI S.A.were made. The Commission as Scheme Manager, iscurrently considering what steps should be put in place toenable the closure of the scheme that was created.Compensation payable is as follows: 100% of the first£30,000, 90% of the next £20,000 with a maximumcompensation of £48,000.Complaints about licenceholdersThe Commission itself does not have any formal powers toundertake dispute resolution or make awards in relation tocomplaints about licenceholders. If a complaint is receivedthe Commission will review it to see whether any breachesof regulatory requirements have occurred. This can alsogive the licenceholder an opportunity to take a fresh lookat the issue.Often the Commission finds that a dispute is of acommercial (rather than regulatory) nature for example,involving contractual issues. In other cases the relationshipbetween client and service provider may have deterioratedover time, such that a parting of ways becomes inevitable.The Island has a Financial Services Ombudsman Scheme.The Ombudsman Scheme is a free, independent disputeresolution service for customers with a complaint againstsome Isle of Man financial firms such as a bank, insurancecompany or financial adviser which the firm has beenunable to resolve. The Ombudsman Scheme does notcover complaints regarding corporate or trust services.The role and powers of the Ombudsman Scheme are setdown by law and the adjudicators are appointed by the Isleof Man OFT.The Isle of Man Courts operate a small claims procedurewhich is available for claims up to £10,000.International relationsInternational co-operationThe importance of co-operation agreements cannot beunderestimated in an interlinked global financial world.Financial services are increasingly sourced across borders,and financial services groups have a presence in multiplejurisdictions. The need for co-operation agreements,and their effectiveness, is not only relevant to globallysystemically important financial institutions, but also othermatters of regulatory or business significance.As an example, both the AIFMD and MIFID2/MIFIR requireco-operation agreements between third country regulatorsand each of the competent authorities of the EuropeanUnion and the EEA. In May 2013 ESMA announced theapproval by EU securities regulators of the co-operationagreements it has negotiated with 34 regulators, includingthe Commission.In addition to specific agreements for particular topics, theCommission seeks to further extend its communicationwith home regulators. In many cases these relationships areunderpinned by MOUs signed between the Commissionand relevant authorities. While these are not formal legalagreements, they can assist mutual understanding bysetting down how the various parties will interact andco-ordinate action.For various reasons not all jurisdictions are willing or ableto enter into MOUs. Where this is the case it does not

Isle of Man Financial Supervision Commission Annual Report 2012/13 29mean that there is an absence of co-operation – liaison anddialogue between the regulators can often still proceed inan acceptable manner.The Commission is a member of IOSCO and a fullsignatory to the IOSCO MMOU. An account is given inthe “Assistance with investigations and insider dealing”section of this Report of the assistance provided by theCommission in respect of requests made under the IOSCOMMOU.The Commission also writes to the home supervisors oflicenceholders at least annually updating on any prudentialconcerns which either party may have; and it meetsface-to-face with home supervisors as necessary.During the year, one overseas regulator came to the Islandto undertake an on-site visit to part of a financial servicesgroup of which it is home regulator.The Island is a member of Group of International FinanceCentre Supervisors (GIFCS) and the Commission’s ChiefExecutive is its Chairman.A meeting of the Enlarged Contact Group of CollectiveInvestment Fund Supervisors took place in Luxembourg inSeptember 2012 during which a wide range of issues werediscussed including:• complexity of funds and products andtransparency of information• risk management and on-site inspections• management charges and quality of services –responsibilities of the governing body to ensurethat these are reasonable• implementation of the AIFMD• retail versus non-retail schemes• suspension, winding-up and liquidation of funds.International regulatory liaisonWhere a licenceholder is part of a cross-border group,the Commission’s reports following its on-site visits areforwarded to that licenceholder’s home regulators for theirinformation and inclusion in the consolidated supervision ofthe group.Over the period of this Report, the Commission sent 191letters to other supervisors for regulatory purposes, andreceived 66. These included standard letters to home andhost regulators in relation to high impact licenceholders,requests for information, the passing of information toinform other regulators (including the sharing of visit reportswhere there is a home supervisor) and replies to otherregulators’ requests for assistance.The Commission continued to participate in ‘college’meetings and teleconferences arranged by homesupervisors (primarily the UK FSA and the Central Bank ofIreland). This enables the Commission to better understandthe financial position of the group and any supervisoryissues being addressed by the parent supervisor, andprovides opportunity to discuss any local concerns it mayhave as host supervisor.

30 Isle of Man Financial Supervision Commission Annual Report 2012/13LondonMany Financial Supervision Commission licenceholders arepart of groups with strong UK ties. Co-operation between theregulators in the Isle of Man and London is of vital importance.This year has seen a change to the UK regulatory structure,with the Financial Services Authority’s remit splitting betweentwo new regulators based in London – the Financial ConductAuthority and the Prudential Regulation Authority.

Isle of Man Financial Supervision Commission Annual Report 2012/13 31PREVENTION OFMONEY LAUNDERINGAND COUNTERINGTHE FINANCINGDirector - EnforcementOF TERORISM, ANDENFORCEMENT ACTIONThe fight against money laundering, and countering the financingof terrorism is ongoing. The Commission’s Enforcement Division istasked with ensuring that the Commission’s AML/CFT requirementsare maintained in line with international expectations, and theDivision is also empowered to deal with those who undertakeregulated activities without the necessary licence and to pursueenforcement action with licenceholders as necessary.Prevention of moneylaundering and counteringThe international standard for AML/CFT requirementsis the FATF Recommendations. The revised FATFRecommendations were published in February 2012. Theeffect of the changes can only be fully determined once therevised FATF Methodology has been fully reviewed. Therevised FATF Methodology was published in February 2013and is currently being reviewed in order to determine ifthere are any necessary updates required to Island law, andthe Commission’s guidance document for licenceholders.One consequence is the need for the Island to conducta formal assessment of its AML/CFT risks – known as aNational Risk Assessment. This will come to form a centralpart of the Island’s AML/CFT strategy, and is being coordinatedacross all key stakeholders on the Island.The FATF has reviewed the structure of evaluations that willtake place on jurisdictions in future. The FATF has reviewedthe current assessment procedures and it is envisaged thatassessments will now take place in two parts. The two partsof the assessment will then result in an analysis of how thecountry complies with FATF standards and how successful itis maintaining its AML/CFT system.The first part of the evaluation will be a desk-basedtechnical compliance assessment of a country against thespecific requirements of the Recommendations. Principallyhow the Recommendations have been implemented in thelegal and institutional framework of the country and thepowers and procedures of the competent authorities.The second part is an assessment of effectiveness andinvolves a physical visit to the jurisdiction to assessthe adequacy of the implementations of the FATFRecommendations. This part involves 11 outcomes, andthe extent to which a country achieves these outcomeswill be assessed. This part of the assessment therefore

32 Isle of Man Financial Supervision Commission Annual Report 2012/13considers the extent to which the legal and institutionalframework is producing the expected results.Of particular note, as a result of the Island’s admittance intoMONEYVAL, is that MONEYVAL will be the body which willundertake any future assessments of the Island’s AML/CFTregime.When the Island is reviewed against international standards,the effectiveness of its AML/CFT regime is one of the mostimportant determinants of its reputation as a responsibleand well-regulated jurisdiction. The standing of the Islandin relation to the FATF Recommendations is reviewedfrom time to time by international bodies, but it is also afundamental matter when the Island is being reviewed orassessed by other jurisdictions in relation to topics such asthe setting up of new MOU agreements, or maintainingopen access to trade in other jurisdictions. As an example,the AIFMD contains various ‘transparency’ requirementsfor third countries, and one of these is that the thirdcountry where any non-EU Alternative Investment Fundis established must not be listed as a non-co-operativecountry or territory by the Financial Action Task Force onanti-money laundering and terrorist financing.During the period of this Report 19 convictions for moneylaundering were obtained by the Attorney General underthe Proceeds of Crime Act 2008 and further cases areknown to be under review. The majority of the convictionsrelate to localised cases of drug use and supplying,involving relatively low values.The threat of money laundering and financial fraudschanges according to current circumstances andinternational developments. During the period theCommission was especially conscious of the followingtrends in fraudsters’ methods:Cybercrime fraudsCriminals have long been at the forefront of thedevelopment of new technology. The advent and globalspread of personal computers and the increasing reach ofthe internet has opened opportunities for the criminal toreach victims, whilst remaining at ‘arm’s length’. Whetherit be identity theft and the trawling of social network sitesfor personal data, or the more sophisticated service denialattacks on commercial entities, cybercrime continues tobe an alarming growth area. The pace of development ofnew technology and platforms continues unchecked andthe rapid uptake of it by the general public means that newopportunities for fraudulent activity are arising on a regularbasis. The Enforcement Division has good access toinformation regarding developing frauds in this areaand uses this knowledge to assist potential victims whohave concerns.Green fraudInterest in eco-friendly projects continues to growand ‘green’ issues have not escaped the notice of thecriminal fraternity. In the past there have been some welldocumented frauds involving matters such as carbontrading. At present, an emerging trend, developing fromland banking frauds in the recent past, involves the allegedpurchase of land in remote places which it is claimed willbe developed for green, eco-friendly profit. Fraudulentschemes have ranged from teak growing in Costa Rica tobio-fuel production in Indonesia.Fraudulent investment opportunitiesThe continuing general low rate of return on investmentsprovides an opportunity for fraudulent operators to attractvictims by quoting returns which are only slightly above thenorm. These (being less obvious) are harder for potentialvictims to spot than those which have traditionally reliedon quoting quite obviously unrealistic rates of return.Although no recent examples have come to light with agenuine Isle of Man connection, we continue to monitorthe perimeter. Examples have come to light where an Isleof Man presence is being falsely claimed. In such cases,where remedial action in the Island is, clearly, limited orimpossible, the Commission has used its powers to issuerelevant Public Warnings in order to alert potential victims.The implementation and monitoring of AML/CFTmeasures in the Island are not the sole responsibility ofthe Commission. The primary and secondary legislationis the responsibility of the Department of Home Affairs.Other agencies are involved such as the law enforcementauthorities, other regulators, and Government agencies.The Chief Secretary chairs a cross-Government AML/CFT Strategic Group which meets regularly to considerthe Island’s commitment to the prevention of moneylaundering and the financing of terrorism and proliferationand also to review progress in meeting recommendationsof the IMF and progress in meeting AML/CFT standards. Inthis period four meetings of the Chief Secretary’s StrategicGroup were held. Decisions made by the Strategic Groupand actions resulting are filtered to the Government’sAML/CFT Technical Group. Members of the EnforcementDivision also attend and chair these monthly meetings –11 of which have taken place over the period of this Report.One of the key areas that the AML/CFT Technical Groupconsidered over this period was the merging of theProceeds of Crime (Money Laundering) Code 2010 and thePrevention of Terrorism Code 2011. The Money Launderingand Terrorist Financing Code 2013 came into effect on1 May 2013.Looking forward, one of the main tasks for 2013/14 will beto consider whether any further changes are needed to

Isle of Man Financial Supervision Commission Annual Report 2012/13 33the Island’s AML/CFT legislation to take into account therevised FATF Recommendations (issued February 2012)and the corresponding Methodology (issued February2013). Also the groups must begin work on the Island’sNational Risk Assessment in order to identify, assess andunderstand money laundering and terrorist financing risksto ensure the AML/CFT regime in place is commensuratewith those risks. The results of this risk assessmentshould provide useful information to financial institutionsand DNFBPs to support the conduct of their own riskassessments.Industry co-ordination of AML/CFT matters takes placethrough the Joint Anti-Money Laundering Advisory Group(JAMLAG). JAMLAG is a key group comprising industryrepresentatives and most other AML/CFT stakeholders,and was established to advise and comment on proposedAML/CFT related legislation and issues. The subjectscovered at JAMLAG meetings included:• amalgamation of the AML and CFT legislation• development of legislation to address theissue of DNFBPs• revision of the FATF Recommendationsand Methodology• tax evasion as a predicate offence formoney laundering• progress against the IMF’s recommendationsfrom the Island’s latest evaluation• the Isle of Man’s application to join MONEYVAL• the need for a National Risk Assessment.The Commission has issued an AML/CFT Handbook whichis publicly available via its website. During the period threeupdates to that Handbook were issued.In September 2012 the Enforcement Division ran anAnti-Money Laundering and Financial Fraud conferencefor the benefit of industry participants. Off-island speakersincluding speakers from Newcastle University’s CybercrimeUnit and New Scotland Yard’s National Terrorist FinancialInvestigation Unit attended.Certain Commission staff have been specifically trained viaFATF courses to conduct assessments of other jurisdictions’compliance with the FATF Recommendations. TheCommission also assisted the OSCE at a training workshopin Kazakhstan. The presentation given by the Commissionfocussed on regulatory structures and DNFBPs.The Commission attended one MONEYVAL Plenarymeeting as the GIFCS representative. GIFCS has observerstatus within MONEYVAL. MONEYVAL is the Europeanregional FATF-like body for Member States of the Councilof Europe that are not members of FATF itself. In October2012 the Council of Europe’s Committee of Ministerspassed a resolution to authorise the direct participation ofthe Isle of Man in MONEYVAL. This means the Islandis now able to participate in MONEYVAL evaluationsand follow-up procedures. There will be a desk-basedassessment in relation to AML/CFT undertaken byMONEYVAL on the Island in 2013, this will assess theprogress made since the Island was last evaluatedby the IMF in 2008.The Crown Dependencies of the Isle of Man, Guernseyand Jersey constitute one delegation to MONEYVALand each jurisdiction may send one representative to theMONEYVAL plenaries which are held three times per year.This is a useful forum to attend as it allows the Island tokeep up-to-date with AML/CFT developments inEurope, and also to be aware of other individualcountries’ progress and evaluations. During this periodthe Commission attended one plenary as therepresentative for the Isle of Man.businesses and professions(DNFBPs) and the AML/CFT UnitThe Island’s IMF inspection in 2008 highlighted a deficiencyin the area of DNFBPs as there was not a suitable AML/CFToversight regime in place. Currently, certain GovernmentDepartments have responsibility for AML/CFT oversight inrelation to some businesses; however other businesses arenot subject to any form of oversight. In order to addressthis, prior to a further inspection, it was subsequentlyagreed by Government that AML/CFT oversight would becentralised and the Commission be empowered to take onresponsibilities in this area.Therefore, following the approval of the Council ofMinisters in March 2012 for the Commission to seek thenecessary powers to enable it to undertake AML/CFTmonitoring work in relation to non-profit organisations,moneylenders and some DNFBPs, Commission staff havebeen liaising with the DHA and affected parties in orderto introduce the new primary legislation that is necessaryto put this into effect. At the time of writing, a draft of theproposed Bill has been issued for consultation and wehope this legislation will come into force in early 2014.In order for the Commission to commit the necessaryresources to this new role, in addition to continuing withthe other AML/CFT activities within the Commission, aseparate AML/CFT Unit has now been established. TheUnit currently consists of two individuals and during 2013 itshould expand to include a third person.The work of the unit involves working on the Island’sAML/CFT policy to ensure it continues to comply with

34 Isle of Man Financial Supervision Commission Annual Report 2012/13international requirements, ensuring the Commission’sAML/CFT guidance is kept up-to-date in line with anywider legislative changes, representing the Island wherenecessary at local and international forums such asMONEYVAL and the AML/CFT Technical and StrategicGroups and in due course bringing in the new oversightregime on the Island in relation to DNFBPs.The Unit has commenced work in liaising with differentprofessional bodies and sectors on the Island to discusshow the registration and oversight in relation to DNFBPswill develop in practice.Assistance with investigationsand insider dealingIn order to be considered to have an internationallyacceptable anti-money laundering and countering of thefinancing of terrorism regime, a jurisdiction must haveeffective co-operation and co-ordination of intelligencewhich can be shared with other regulators and lawenforcement authorities globally.The Island has in place important provisions to enable itto co-operate in cross-border enquiries and investigations.Criminal matters are dealt with by the Attorney General’sChambers while regulatory matters are dealt with by theCommission within its remit. As an example, six requestswere received during this period under the IOSCO MMOUfrom two different countries including the United Kingdom.The Commission also made one proactive spontaneousdisclosure under the MMOU to a Caribbean jurisdiction.Furthermore, to assist other regulators, the Commissionmaintains a list of regulators and law enforcementagencies to which it can circulate public warnings, as wellas publishing these warnings on its own and IOSCO’swebsites. In this period 20 public warnings were issued.These warnings tend to relate to instances where overseaspersons falsely claim to have a presence on the Island inorder to mislead the public.Where suspected instances come to light they are firstlyinvestigated by the Enforcement Division in order toestablish whether any criminal or regulatory proceedingsare called for or possible. In many cases the Division isable to establish categorically that there is no genuine Isleof Man connection. In such cases the Division is limited inthe action that it can take to stop the false claims howeverthe Commission does have a power under the FinancialServices Act 2008 to publish relevant information to protectthe public.Although the Island does not have a stock exchange,regrettably there may be occasions when alleged insiderdealing transactions are routed through the Island. Underthe Insider Dealing Act 1998 the Commission may appointinspectors to investigate such cases. Such inspectors aretypically appointed from within the Commission.Enforcement actionProgression of escalating regulatory actionThe Commission’s range of regulatory powers to enable itto secure change and necessary improvement in the wayin which regulated activities are managed and conductedhave recently been expanded. The Financial Services(Miscellaneous Amendments) Act came into force on1 June 2013, which introduced prohibition powers for thefirst time, as well as strengthened the powers available inrelation to the governing bodies of collective investmentschemes.The Commission’s powers can be considered to be aspectrum of powers varying in severity. Many mattersare dealt with within the Supervision teams or the newRemediation Unit however on occasion cases maybecome more problematic and escalate. In extreme casesthey require formal action or Court action, and in somecases severe action is warranted from the outset, whereremediation is not suitable.The Enforcement Division is responsible for handlingthese serious cases, and has various avenues for possibleaction. Under the Financial Services Act 2008 it can takeprohibition action under section 10A, it can issue a directiondeclaring that a person is deemed not to be fit and properto hold a key person position with a licenceholder undersection 10 and it can also issue a warning to a person undersection 11 of that Act. A warning under section 11 canhave effect for a period of up to three years, and is not apublic matter. It is not a declaration of lack of fitness andpropriety; it is instead notice to the relevant person that inthe Commission’s opinion, it has grounds to believe thatperson’s activities (which must be specified in the notice)are prejudicial to their fitness and propriety. With effectfrom 1 June 2013 the Division has become responsible forhandling prohibitions under the newly inserted section 10Aof the Financial Services Act 2008. Prohibitions will stoppersons (whether key persons or otherwise) who are not fitand proper from being involved with some or all regulatedactivity. Any prohibitions will be public.In all of the above procedures reasons for the Commission’sactions have to be clearly explained, and the actions aresubject to appeal. One case involving the issue of threesection 11 warnings was appealed against over this period.The decision of the Financial Services Tribunal was thatthe warnings were appropriate but that they had run for asufficient length of time and that the period for which theyshould remain in force would be reduced to end on thedate of the Tribunal decision.

36 Isle of Man Financial Supervision Commission Annual Report 2012/13POLICYDEVELOPMENTThe role of the Commission’s Policy and LegalDivision includes the monitoring of evolvinginternational standards and best practice,together with the maintenance of theRoxanne OldhamDirector - Policy and LegalCommission’s regulatory and legislative framework so as to remain inline with those changing standards. This activity assists in maintainingthe Island’s position as an internationally recognised, well regulatedjurisdiction and enhances the development of appropriate business.International mattersNew standards and the changing laws of other jurisdictionscontinue to have an effect on the Island. The Island is partof a global financial community and it must play its part inthe improvement of global standards, and the avoidancethereby, of further financial crisis and instability. TheFinancial Services (Miscellaneous Amendments) Act 2013introduced a requirement for the Commission to alwaysconsider, when undertaking its functions, the impact of itsdecisions on the stability of the financial system.Because of the global nature of financial services andother business undertaken in or from the Island, it is veryimportant to maintain a close watch on internationalmatters. The Policy and Legal Division has focussedon matters including Directives and Regulations fromthe European Union, legislation emanating from theUSA, changing standards issued by the internationalstandard setting bodies such as the Bank for InternationalSettlements and IOSCO. Often matters are not onlyregulatory in nature, but are of wider impact and affect theregulated community and regulators.The financial and business world is intrinsically interlinked,and legislative matters in one jurisdiction will tend to spillout across national boundaries and affect other jurisdictions– sometimes by design, and sometimes not.Over this period, the AIFMD has been a good example ofthis wide effect. The Directive has, since December 2012been supplemented by an EU Regulation. The Regulationand national AIFMD implementing legislation take effectin July 2013. The Island is not part of the EU, and yet itsbusiness is affected by these matters. This is becausethe provisions include detailed requirements concerningwhich third country firms and which alternative investmentfunds, subject to which conditions, can be marketed toprofessional investors in the EU.The Division has been closely involved in monitoring theprogress of these measures, and also responding to thenumerous consultation documents from ESMA, the FSAand also HM Treasury on this topic. The Division has alsoliaised with the local industry to ascertain its readinessfor the impending changes, and has provided speakersat various industry training events. In May 2013 ESMAannounced the approval by EU securities regulators of theAIFMD co-operation agreements it has negotiated with 34regulators, including the Commission.In connection with MIFID2/MIFIR the Division hasmaintained a watching brief over the draft provisions andthe various compromise texts that have been producedwithin the EU. These measures also affect the business thatcan be conducted by third country persons with clients inthe EU.Staff of the Policy and Legal Division take part in an Isle ofMan Government Working Group which is currently taskedwith dealing with the Island’s response to both the USFATCA measures, and also with similar automatic sharing ofinformation with the UK. The measures are not regulatory;however they rely on the regulated sector for effectiveimplementation.The Policy and Legal Division is responsible for monitoringand co-ordinating the Commission’s progress with therecommendations made by the IMF in its last FSAP report.

Isle of Man Financial Supervision Commission Annual Report 2012/13 37The Division ensures that the Board of the Commissionreceives a report at least every six months on progress withthe agreed action plan. Many of these recommendationshave been addressed by changes contained within theFinancial Services (Miscellaneous Amendments) Act 2013.LegislationThe main secondary legislation made under the FinancialServices Act 2008 has not been updated over this periodin order to provide a period of stability for licenceholders.However, it is being reviewed currently, and it will beamended and in effect from 1 January 2014.Legislation which has been made over this period istherefore confined to three orders that designate certaincollective investment schemes authorised in Guernsey,Jersey and the United Kingdom, as recognised schemes.Additionally, the Division has been instrumental inpreparing the drafting instructions for the DNFBPlegislation, reviewing and commenting upon draftsreceived and preparing and issuing the current publicconsultation on the draft Bill.In this period important consultations have taken place orare taking place with regard to the following:• Revisions to licenceholder fees – in order tobetter reflect the cost of supervision• The expansion of the use of civil penalties – in orderto encourage good compliance, and provide theCommission with an efficient and cost effectivemethod for dealing with serious matters ofnon-compliance – which would otherwise putlicenceholders’ clients greatly at risk. The expansionis not intended to deal with petty matters that arebetter dealt with in other ways, but instead toprovide a new disciplinary tool that can beused in material cases.The Financial Services(Miscellaneous Amendments)Act 2013Following industry consultation, the Financial Services(Miscellaneous Amendments) Act 2013 was finalised and,during this period, progressed through the Branches ofTynwald. It was pleasing to see that the Act received thesupport of Tynwald, and it finished its progress through thebranches of Tynwald in January 2013.The Act received Royal Assent and was brought into forcefrom 1 June 2013. Meanwhile the Division is leading aninternal team that is responsible for ensuring that theCommission’s internal procedures and other mattersrelating to the changes brought about by the Act are put inplace in a timely manner.Other activitiesThe Division is responsible for reviewing and commentingupon the relevant consultations of other bodies. A veryimportant consultation for the Isle of Man that is currentlybeing undertaken by Treasury is on a draft Companies Bill toconsolidate and update the Companies Acts 1931-2004. Aworking group is taking a close interest in this consultationand preparing comments for submission. The draftCompanies Bill is particularly important for the Commissionin part due to its links to the TCSP licenceholders and thefact that many company law provisions are relied on forcompliance with some IOSCO principles.In addition to its international and own legislative remit,the Policy and Legal Division also has involvement in anumber of other areas. The Division has continued in itsliaison with authorities in Guernsey and Jersey, the UK’sProfessional Oversight Board (part of the UK’s FinancialReporting Council), its Audit Inspection Unit and the ICAEWin relation to the EU 8th Directive on Statutory Audits. Thejoint application of the three Crown Dependencies’ AuditorOversight systems is still before the relevant EU authoritiesand their response is expected shortly.The Division continues to handle requests from overseasauditors seeking to audit Isle of Man companies where thoseauditors do not meet the requirements of the CompaniesAct 1982. Section 14E of the Companies Act 1982 providesthe Commission with specific power to authorise suchauditors, subject to their meeting certain criteria.Work continues, in conjunction with the Attorney General’sChambers and a Working Group with industry participants,to prepare for entrance to SEPA. The Island was ready tomake an application to the European Payments Councilfor membership of SEPA, but resources and competingpriorities at the EPC have had an impact upon this. Over thisperiod, alongside colleagues from counterparts in Guernseyand Jersey, representations have been made regarding thismatter to the EU Commission, the ECB and the EPC – theoutcome of which is awaited.The Commission is a member of IOSCO and a full signatoryto the IOSCO MMOU. Policy staff took an active part inthe IOSCO MMOU Screening Group meetings during theperiod of this report as well as being involved in one of theVetting Teams reviewing the applications for signatory statusof certain jurisdictions.The Division handles data protection issues for theCommission, as well as the administration of any complaintsmade about the Commission.

38 Isle of Man Financial Supervision Commission Annual Report 2012/13DubaiMany Isle of Man firms are part of groups that undertakebusiness from various global locations. Dubai is one ofthese and the Commission has in place a Memorandum ofUnderstanding with the Dubai Financial Services Authority.

Isle of Man Financial Supervision Commission Annual Report 2012/13 39OPERATIONSThe Operations Division’s activities fall underthe principal headings of: finance, humanresources and technology. The Division hasresponsibility for the regular administration andrunning of the Commission. It also provides aSecretariat function for the Board.Anne DorlingDirector - OperationsFinance and administrationThe Commission’s statement of Income and Expenditurefor the year ended 31 March 2013 and the Report of theAuditors are set out in Appendix F. The Commission is partof the centralised Government accounting system, andits income and expenditure is part of the Government’sgeneral revenue account and as such all fees are receivedby Government. Expenditure is drawn against a budgetapproved by Tynwald.In line with Government the Commission is audited underthe Audit Act 2006 which sets out the requirements foraccounting and reporting under the Act.The Commission continues to ensure that its budgetingand finances are managed effectively. All costs are criticallyreviewed to ensure that value for money is obtained and,where possible, reductions in expenditure are made.During the year a re-organisation of resources withinthe Operations Division resulted in a reduction of staffheadcount totalling 1.5 full-time equivalents.The key operational project of co-ordinating the reviewand destruction of archived documents, held at an externaldocument storage facility, in line with the Commission’sapproved document retention policy is on track to becompleted well ahead of the previously anticipated projectend date.Human resourcesIn January 2013 Mr Paul Heckles, who had served as theDirector of the Enforcement Division for over 11 years, lefthis employment with the Commission. The Commissionwishes him well with his career, and is pleased to welcomeMr David Griffin who has taken over this important role.The Commission has enjoyed continued relative staffstability, with staff turnover for the twelve months toMarch 2013 being 6%. When recruiting, the Commissionhires staff mainly from the private sector which helps to addto the Commission’s commercial experience.The Operations Division, and line management, closelymonitors the levels of sickness absence within theCommission. During this period the average sicknessabsence per employee fell to 4.2 days – at a total averagecost per annum of £44,478.Investors in PeopleThe Commission’s Business Improvement Group wasestablished comprising staff from across the Commissionwith objectives to:• review the Commission against the IIP framework• identify areas where organisational improvementscould be made within the Commission in relationto maintaining or enhancing its position against theIIP framework and to make recommendations to theChief Executive’s Committee of the Executive inrelation to these• communicate with all staff and obtain feedbackon initiatives being undertaken by the BusinessImprovement Group, encouraging forward thinkingin order to enhance the Commission as a vibrantplace to work• be ambassadors for improving and enhancing theCommission’s performance and productivity• champion IIP by sharing and promoting goodbusiness and people practice both internallyand externally.A number of initiatives were undertaken during the yearincluding employee engagement, a staff satisfaction surveyand progressing a programme of continuous review underthe overarching IIP principles.

40 Isle of Man Financial Supervision Commission Annual Report 2012/13The Personnel Committee of the Executive met on threeoccasions during the period of the Annual Report. Keyitems discussed were:• HR statistics• retirement policy• learning and development• talent management• anti-fraud and corruption strategy• implementation of a new time recording system• employment law update• performance reviews.The Commission participated in the Government’sEmployment Skills event in November 2012.For the first time in 2012, the Commission hosted threework placement students from the Island’s secondaryschools. This provided a good opportunity for students togain some valuable work experience.Learning and developmentAn internal target of 80 hours training per employeeper annum is included in the Commission’s learning anddevelopment strategy. The average over this periodamounted to 30 hours per employee. The average actualtraining spend per employee in 2012/13 was £659.The Commission has an extensive programme of internaltraining sessions. These are given by staff and haveincluded subjects such as:• FATCA• annual desk-based review process• conflict of interest• the work of the Financial Crime Unit• outsourcing• MLRO responsibilities and reporting• advertising, distribution and promotionof financial products and services• bomb threats and suspicious packages.The Commission supported eight staff in their studiestowards professional qualifications. During the period fivestaff successfully completed their studies achieving thefollowing qualifications:• ICSA Professional Programme• ICA International Diploma in Compliance• CISI Diploma in Investment Compliance• Institute of Leadership and Management - Level 3Three staff are progressing with the following qualifications:• ACCA Professional Programme• Certified Accounting TechnicianStaff also attend a number of external managementand technical development programmes. This includedattendance at the UK FSA’s International Regulatorsprogramme, the Isle of Man Government’s MiddleManagement Development Programme and variousprogrammes run by the Financial Stability Institute in Basel.Subjects have included liquidity risk, crisis management,risk management and risk-focused supervision.To ensure that its staff has full knowledge of the Island’santi-money laundering requirements, Supervision Divisionstaff are required to undertake an online e-test to reviewtheir level of knowledge and identify specific training gaps.The Commission has in the past run a series of soft skillsprogrammes for staff. During 2012 the Executive identifiedeffective communication, planning and organising (timemanagement), building relationships/managing conflict,and motivating and influencing as key areas whererefresher training would be helpful across all staff.With the assistance of an external facilitator theCommission delivered this refresher training through anexperiential approach. This involved staff undertaking aparticular task and therefore learning by experience ratherthan simply receiving knowledge, facts and theory. Sixteams of staff from across the Commission were assigneda live business issue and were required to review and makerecommendations on it. The task provided each team toutilise and develop their soft skills and to identify areasfor further improvement. The initiative provided a goodopportunity to learn via practical work rather than through aclassroom based “chalk and talk”.Information technologyInitiatives in the information technology area continue tohave an overarching focus of maximising efficiency in theuse of the Commission resources. Technology initiativesduring the period have resulted in the development andenhancement of staff skills to assist in their ability to supportboth internal and external users.The Commission supports 332 users on its online reportingsystem and work during the year has focused on extendingthis system to enable statutory returns to be submitted inrelation to collective investment schemes. Internal testingand quality assurance work has been undertaken, anindustry pilot conducted and implementation is currentlybeing planned.The Commission has been working with ISD to upgradeits SharePoint site to 2010 and work is continuing on this.

Isle of Man Financial Supervision Commission Annual Report 2012/13 41Detailed specification work was undertaken on customisingSharePoint for use within the Commission’s Supervisionand Authorisation Divisions, to address management of theCommission’s records held on and off-site in line with theapproved retention policy and to replace the Commission’slegacy intelligence system. This work is currently underwaywith implementation due to take place shortly.An upgrade to Microsoft Office 2013 was also completedin March 2013.The Commission’s business continuity plan and riskregister is reviewed on a quarterly basis. Testing at theCommission’s off-site business continuity location takesplace six-monthly.An upgrade to the Commission’s flexible working IT systemhas been completed. This has extended the automationof absence recording and provides improved automatedmanagement information. As a result manual operations inthis area have reduced, thus saving resources.The IT team within the Operations Division handled 261internal user calls for support and assistance over thisperiod, along with a total of 115 support calls generated byexternal online system users.SingaporeIn September 2012 the Isle of Man continued its programmeof developing closer economic and taxation co-operationwith other countries by signing a Double Taxation Agreement(DTA) with the Republic of Singapore. Such new agreementsaugment many others that exist and support the OECDinternational standard on tax co-operation and transparency.

42 Isle of Man Financial Supervision Commission Annual Report 2012/13APPENDIX AFINANCIAL SUPERVISION COMMISSIONAND ITS FUNCTIONSThe Financial Services Act 2008 sets out the Commission’sregulatory objectives which are as follows:• securing an appropriate degree of protection for the customersof persons carrying on a regulated activity• the reduction of financial crime, and• supporting the Island’s economy and its development as aninternational financial centre.These regulatory objectives are supported by thefollowing which the Commission must have regard towhen discharging its functions:• the need for the regulatory, supervisory and registrationregimes to be effective, responsive to commercialdevelopments and proportionate to the benefits whichare expected to result from the imposition of anyregulatory burden• the need to use its resources in the most efficient andeconomic way• the desirability of implementing and applyingrecognised international standards• the desirability of co-operating with governments,regulators and others outside the Island• the need to safeguard the reputation of the Island• the responsibilities of those who manage the affairs ofpermitted persons• the international character of financial services andmarkets and the desirability of maintaining thecompetitive position of the Island• the desirability of facilitating the development of thefinancial services industry.The Commission’s functions are set out in theFinancial Services Act 2008 as follows:• the regulation and supervision of persons undertakingregulated activities• the maintenance and development of the regulatoryregime for regulated activities• the oversight of directors and persons responsiblefor the management, administration or affairs ofcommercial entities• participation in consultative bodies, working groupsand other arrangements• the functions conferred on it under the FinancialServices Act 2008• the regulation and supervision of collectiveinvestment schemes within the meaning of theCollective Investment Schemes Act 2008• the functions conferred on it under:• the Building Societies Act 1986• the Collective Investment Schemes Act 2008• the Industrial and Building Societies Act 1892• the Companies Acts 1931-2006• the Company Officers (Disqualification) Act 2009• the Companies (Transfer of Domicile) Act 1998• the Credit Unions Act 1993• the Income Tax Act 1970• the Incorporated Cell Companies Act 2010• the Insurance Act 1986• the Insider Dealing Act 1998• the International Business Act 1994• the Limited Liability Companies Act 1996• the Online Gambling Regulation Act 2001• the Terrorism (Finance) Act 2009• the functions conferred on it under anyother statutory provision.

Isle of Man Financial Supervision Commission Annual Report 2012/13 43MEMBERSHIP OF THE FINANCIALSUPERVISION COMMISSIONGeoff Karran MBE (Chairman)Appointed in July 2007 and became Chairman on1 April 2012. Admitted to the Manx Bar in 1969 and duringhis time as an Advocate he became Senior Partner in DickinsonCruickshank and served for three years as President of the IOMLaw Society. Retired from practising Law in February 2007.Appointed Deputy Police Complaints Commissioner in March2008 and Police Complaints Commissioner in March 2009.Awarded the MBE in the New Year’s Honours List 2009.Bryan Stott (Deputy Chairman)Appointed in June 2001. Initially his career focused mainlyon the Island’s property business. In 1973 he was appointedto the Board of the Isle of Man Bank Limited and becameChairman in 1980. Has 28 years’ banking experience with theIsle of Man Bank and subsequently NatWest Offshore Limited.Retired as Chairman of NatWest Offshore Limited in 2000. MrStott has extensive experience in the investment and insurancefield. He was also involved in the development of the spaceand satellite business for the Island and is now focusing onrunning the family office.Tim CullenAppointed June 2001. Spent 21 years with the World Bank,where he served inter alia as Chief Spokesman of the Bankand, latterly, as Senior Advisor for External and United NationsAffairs. He is Executive Director of the Small Countries FinancialManagement Centre and an Associate Fellow of the SaïdBusiness School at the University of Oxford, where he directsthe Oxford Programme on Negotiation. He is a trustee ofthe Institute of Business Ethics and heads a small internationalconsulting firm that focuses on issues of governance, integrityand negotiation. He also teaches negotiation at OxfordUniversity and throughout the world.Sir David LewisAppointed April 2012. Practised as a corporate andfinancial services solicitor in London and the Far East withthe international law firm Norton Rose since 1969. Served asSenior Partner and Chairman, now a consultant. Presidentof the City of London Law Society 2009-10. Served asSheriff of London and then Lord Mayor of London 2007-08.Knighted in 2009.APPENDIX BJohn AspdenAppointed as Chief Executive of the Commission in August1998. Commenced his career for 15 years with the Bankof England including three years on secondment to theCouncil for the Securities Industry. Then became adviser tothe Commissioner of Banking in Hong Kong. Subsequentlymoved to become Deputy General Manager at InternationalBank of Asia Limited, and then Managing Director ofMatheson InvestNet Limited, both also in Hong Kong.John was appointed Chairman of the Group of InternationalFinance Centre Supervisors in November 2011.Roger ButlerAppointed April 2012. Since 1998 Roger Butler has beenchairman and non-executive director of, and consultantto, several companies in varied industries. Between 1996and 1998, he was Chief Executive of Newton InvestmentManagement, a major UK fund management company, untilits sale to Mellon Bank. Previously, he was a Senior Advisor toMorgan Stanley, where he was involved in advising both thefirm and its investment banking clients on corporate structuringand taxation matters. Prior to this, Roger was with Arthur Young(now Ernst & Young) where he was latterly Regional ManagingPartner in London and Chairman of the global tax practice,having previously been UK National Director of Taxation.Alan SmithAppointed July 2007. Initial career with Lloyds Bank TrustDivision and then spent seven years as Manager of Bank ofBermuda’s Cayman operations. Moved to the Isle of Manin 1987 and was appointed Managing Director of Bank ofBermuda in 1994. Appointed to the Global Board of the Bank’sFund Services Division in 2001 as Global Head of Marketingand Strategy and subsequently of HSBC’s Alternative FundServices Division up to his retirement in 2005. He has over 40years’ experience in Trust Administration, Corporate Services,Banking, Custody and Fund Administration.Paul WrightAppointed in May 2012. Spent much of his career with theBank of England in a variety of economics and internationalroles before taking supervisory responsibility for internationalbanks. He was UK Alternate Director at the IMF 1990 to 1992and headed the division of the UK FSA responsible for themajor overseas financial institutions in the UK. He was closelyinvolved in developing the FSA’s supervisory framework andsubsequently had responsibility for global and EU strategythere. From 2009 to 2012 he was Senior Director at theInstitute of International Finance in Washington DC. Paul is theCSFI/Swiss Re Fellow in Global Insurance Issues. He teachesand advises extensively on regulatory practice.

44 Isle of Man Financial Supervision Commission Annual Report 2012/13APPENDIX CORGANISATION CHARTBoard of CommissionersGeoff Karran MBE (Chairman) Bryan Stott (Deputy Chairman)Roger Butler Tim Cullen Sir David Lewis Alan SmithChief ExecutiveENFORCEMENT &AUTHORISATIONSDavid GriffinDirector - Enforcementand AuthorisationsOPERATIONSAnne DorlingDirector - OperationsOperational Services:Finance HR ITOperational ManagementPOLICY & LEGALRoxanne OldhamDirector - Policy & LegalAnti MoneyLaunderingEnforcementAuthorisationsDeputy DirectorShirley CorlettDeputy DirectorPaul MylchreestDeputy DirectorDave HodgsonManager - OperationsTrish CainBrenda DoughertyPolicy AdviserSusan WoolardManagersKathryn CainAshley WhyteManagerNeil RawlinsonManagerSuzie BiddulphManager - ITDonna ShimminSystemsOperationsOfficerSarah DavidsonAssistantPolicyAdviserAndrew KnivetonSecretaryEnforcementOfficer/Secretary tothe CEOCarolyn DavisJanet MooreReceptionistsSue ClagueSue FreemanBeverley Williams

Isle of Man Financial Supervision Commission Annual Report 2012/13 45John AspdenPaul WrightSecretary to the BoardAnne DorlingAPPENDIX CJohn AspdenSUPERVISIONMichael WeldonDirector - SupervisionFiduciaryServicesBanking and MoneyTransmissionServicesFunds andInvestment ServicesRisk andComplianceDeputy DirectorPaul de WeerdDeputy DirectorAndrew KermodeDeputy DirectorsClaire WhiteleggHazel GawneDeputy DirectorHazel GawneManagersLynda CainJean DickSue FerrarioPat BroganKieran TomlinsonManagersDavid ClucasElaine McCormackManagersNigel BoydeJayne CorlettJohn CorlettBobby KeigVictoria LiddleMark LongManager(Analyst)Nicola QuinnAssistantManagerDaniel JohnsonAssistantManagerNicola IgoeaSupervisionOfficersSamanthaChappellJoyce JacksonLaura MuscuttSupervisionOfficerRuth BaxendaleSupervisionOfficersEmma CuddyDebbie Kelly-BanksComplianceOfficerGraham ConnorManagementInformationOfficerCarolyn Williams

46 Isle of Man Financial Supervision Commission Annual Report 2012/13APPENDIX DHOW THE COMMISSION OPERATESThe purpose of this Appendix is to describe how the Commissionoperates through a structured approach to its operations.Statutory BoardThe Commission is an independent Statutory Boardestablished under the Financial Supervision CommissionOrder 1983. As a Statutory Board the Commissionoperates under the Statutory Boards Act 1987, asamended.The Commission’s Regulatory Objectives are:• securing an appropriate degree of protection for thecustomers of persons carrying on a regulated activity,• the reduction of financial crime, and• supporting the Island’s economy and its developmentas an international financial centre.The Commission’s regulatory and supervisory role extendsto the banking, investment, funds and fiduciary sectors.Members of the CommissionAppointments to the Board of Commissioners are made byTreasury and are subject to the approval of Tynwald.Commissioners are appointed for a five year term.Government issues a public invitation for persons to applyto be appointed as Members of Statutory Boards includingthe Commission. The remuneration paid to Members ofStatutory Boards is set down by Order.The Board of Commissioners currently comprises aChairman, a Deputy Chairman, the Chief Executive and afurther five Non-Executive Commissioners. The quorumof the Board is a minimum of three persons. Furtherbackground details of Members of the Board as at31 March 2013 are set out in Appendix B.The Board has established Sub-Committees onRemuneration, Risk and Internal Control, and Complaints.The Board of Commissioners benefits from havingmembers who have broad, up-to-date commercial andcompliance experience. Inevitably this means that fromtime-to-time conflicts of interest may arise in dealing withparticular issues. A Code of Conduct has been drawn upto cover these situations. The Code provides for the priordisclosure of interests and sets down how they should behandled. Commissioners are required to absent themselvesfrom decisions where they may be conflicted. Staff alsohave to disclose their conflicts of interests. The Code ispublished on the Commission’s website together with a listof current directorships.Meetings of the BoardRoutine meetings of the Board are held monthly, generallyon the last Thursday of a calendar month. In addition aquorum of the Board meets monthly as necessary to hearlicence applications. The Board additionally meets on anad hoc basis as required.During the period the Board met for:12 routine monthly meetings13 licensing meetings (quorum)A number of other ad hoc meetings including with industryand other regulators.Attendance at board meetings is set out below:G Karran 12B Stott 11J Aspden 12R Butler 12T Cullen 9D Lewis 11A Smith 12P Wright 11Delegated authoritiesThe Board has delegated certain powers to the ChiefExecutive. These include:• changes in licence conditions attached to a licence• extensions to licences to include new schemes etc.• surrender of lapsed licences• restructure of organisations/sale or merger oflicenceholdersThe Chief Executive in turn delegates certain matters withinthe Executive.

Isle of Man Financial Supervision Commission Annual Report 2012/13 47The ExecutiveThe Executive Management Team is structured as follows:The Chief Executive, also a CommissionerDirectorsDeputy DirectorsManagersThere are five Divisions within the Commission comprisingAuthorisations, Enforcement, Operations, Policy, andSupervision. An organisation chart is set out in Appendix C.Accountability and scrutinyA Memorandum of Understanding between theCommission and Treasury sets out the arrangements whichhave been established to ensure that the Commissionis accountable to Treasury for its actions and clarifies thecircumstances in which sensitive information might flow.The division of responsibilities is based on four guidingprinciples:• Clear accountability: each authority must beaccountable for its actions, so each must haveunambiguous and well-defined responsibilities.• Transparency: Tynwald, the financial services industryand the public must know who is responsible for what.• Avoidance of duplication: each authority must havea clearly defined role, to avoid second guessing,inefficiency and the unnecessary duplication of effort.This will help ensure proper accountability.• Regular information exchange: this helps each authorityto discharge its responsibilities as efficiently andeffectively as possible.The MOU is available from the Commission’s website.The Commission is subject to scrutiny in the followingareas:• Tynwald: appointment of Commissioners,Corporate Plan, new legislation• Government and Treasury: strategic objectives,legislative policy and proposals, budgeting andfunding, establishment headcount• Industry: consultation on regulatory andsupervisory proposals• Home regulators of licensed institutions.In addition the Commission’s regulatory and supervisoryapproach is subject to ongoing review by standard-settingorganisations including the International Monetary Fundand the FATF.Appeals against decisions of the CommissionThe key decisions of the Commission, including inrelation to licensing, are subject to review by a committeeestablished by the Council of Ministers. Tynwald hasapproved the Financial Services Review Regulations 2001governing this committee and a panel of persons has beennominated by the Council of Ministers from which it mayselect individuals to hear a particular case.FinanceThe Commission operates within a budget agreed withTreasury, and within a headcount restriction set downcentrally within Government. The Commission’s revenueand expenditure is audited annually by the Government’sexternal auditors, and the Commission is subject to reviewby the Government’s internal audit department. Furtherdetails of the Commission’s financial position are setout in Appendix F.APPENDIX D

48 Isle of Man Financial Supervision Commission Annual Report 2012/13APPENDIX EINDUSTRY STATISTICSLicenceholdersNumber of licencesAs at 31 March 2013, a total of 267 institutions held a licence issued by the Financial Supervision Commission undersection 7 of the Financial Services Act 2008. The Classes of regulated activity which these institutions were permitted toconduct were as follows:Deposit Taking (Class 1)(excluding Kaupthing Singer & Friedlander (Isle of Man) Limited, in liquidation)31Investment Business (Class 2) 56Services to Collective Investment Schemes (Class 3) 63Corporate Services (Class 4) 183Trust Services (Class 5) 131Money Transmission Services (Class 8) 6Some licenceholders are permitted to conduct more than one Class of regulated activity; hence the total of the above(470) exceeds the number of licenceholders.

Isle of Man Financial Supervision Commission Annual Report 2012/13 49The Banking industryThe data below is taken from the year-end (unaudited) prudential returns for all year-ends up to and including 31 March2013 (current year) and 31 March 2012 (prior year). The data includes figures relating to overseas branches of Isle of Manincorporated banks.APPENDIX ECurrent Year(year-ends between 1 April 2012and 31 March 2013)Prior Year(year-ends between 1 April 2011and 31 March 2012)Income £’m £’m £’m £’mNet interest income 393 393Other banking income (including FX income,fees, commissions and charges)124 130Total banking income 517 523Total non-banking income 50 25Total income 567 548ExpensesTotal operating expenses 242 252Total other expenses 2 3Total expenses (244) (255)impairment (bad debts)323 293Impairment (bad debt) charge (52) (24) 271 269

50 Isle of Man Financial Supervision Commission Annual Report 2012/13APPENDIX EAssets and liabilities of licensed banksAssets 2013£’bnMoney market assets, due frombanks and building societiesLoans, advancesand assets leased*As at 31 March2012£’bnLiabilities 2013£’bn53.9 52.8 Deposits due to banks andbuilding societies**As at 31 March2012£’bn12.8 11.69.3 9.1 Deposits due to customers 47.8 47.6Investments 0.3 0.1 Other deposits (held as securityand interest payable) includingdeposits due to public sectorbodies0.3 0.4Other assets 0.7 0.7 Other liabilities 0.6 0.6Capital and reserves 2.7 2.5Total assets 64.2 62.7 Total liabilities 64.2 62.7* At 31 March 2013, 64.4% of loans, advances and assets leased were classified as being secured on residential property (31 March 2012:66.5%). The above figures relating to loans and advances are net of impairment charges.** Includes deposits/loans received from other Isle of Man banks of £1.08bn (2012: £2.05bn).Geographical source of non-bank depositsCountry 31 March 2013 31 March 2012 31 March 2011Isle of Man 29% 29% 28%United Kingdom 36% 35% 36%European Union (excluding UK) 6% 7% 7%Europe (non-EU) 7% 7% 8%Middle and Far East 5% 5% 5%North America 5% 5% 5%Other 12% 12% 11%Sector analysis of deposits* including inter-Isle of Man banks as at 31 March 2013Corporate / trust / fiduciary deposits 37%Retail deposits 37%Group deposits 19%Other bank deposits 6%Other deposits 1%*These figures represent deposits withIsle of Man offices of licensed banks only

Isle of Man Financial Supervision Commission Annual Report 2012/13 51Ultimate country of origin of banking and building society groups* operating in the Isle of ManThe ultimate country of origin is that used for definitions of reporting information to the Bank of International Settlementsand relates to the country of incorporation of the ultimate parent / controlling party.As at March 2013Total Subsidiaries BranchesUnited Kingdom 16 8 8APPENDIX EIreland 4 3 1Spain 2 1 1South Africa 3 2 1Switzerland 1 1 0France 1 0 1Belgium 1 1 0Cayman Islands 1 1 0USA 1 0 1Sub total 30 17 13Isle of Man 131* excluding Kaupthing Singer & Friedlander (Isle of Man) Limited, in liquidationDistribution of locally incorporated banks by risk asset ratioThe capital adequacy of Isle of Man incorporated banks is measured on a risk-weighted basis in accordance with Basel IIinternational standards. The higher the ratio, the greater is the level of capital adequacy relative to risk rated assets. Thestatutory minimum risk asset ratio is 8%.At the end of March 2013 all Isle of Man incorporated banks held more than the minimum risk asset ratio.The actual risk asset ratios are in the following ranges:Number of locallyincorporated banksNumber of locallyincorporated banksMinimum prescribedrisk asset ratio:Actual risk asset ratio:Less than 10% 6 Less than 10% 0From 10% to less than 15% 9 From 10% to less than 15% 4From 15% to less than 20% 3 From 15% to less than 20% 920% and over 0 20% and over 5Total 18 Total 18

52 Isle of Man Financial Supervision Commission Annual Report 2012/13APPENDIX ECollective Investment Schemes and services to schemesTypes of scheme and asset valuesCategory of collectiveinvestment schemeNumber ofschemesNet asset valueof funds undermanagement/administrationUS$’mGross asset valueof funds undermanagement/administrationUS$’mAuthorised Schemes 6 1,021 1,017Full International Schemes 7 1,702 1,702Regulated Funds 2 66 67Professional Investor Funds 3 17 19Specialist Funds 18 608 635Qualifying Funds 18 418 732Experienced Investor Funds (‘EIF’):• Qualifying EIF 8 674 833• Legacy EIF 15 1,029 1,698• Closed EIF 16 240 269Exempt Schemes 181 5,367 6,759Overseas Funds 65 4,562 4,720Closed Ended Investment Companies* 40 4,732 7,232Inward Outsourcing 8 1,244 1,256Total all schemes: 31/03/13 387 21,680 26,939Total all schemes: 31/03/12 418 22,650** 33,594**% change: 2012-2013 -7.7% -4.3% -19.8%As at 31 March 2013 the Commission also had 25 Recognised Schemes from a designated territory under Schedule 4paragraph 1 to the Collective Investment Schemes Act 2008 and 2 Individually Recognised Schemes under Schedule 4paragraph 2 to that Act.*Statistics are only collected in relation to services provided to Closed Ended Investment Companies that are listed vehicles or with aminimum NAV of USD$50 million**As notified in our quarterly bulletin, the NAV figures for March 2012 have been restated from $25,128 (000) to $22,650 (000) and theGAV figures for March 2012 have been restated from $36,184 (000) to $33,594 (000). This restatement corrects an over reporting by oneadministrator for the period.

Isle of Man Financial Supervision Commission Annual Report 2012/13 53Types of Isle of Man schemes (percentage breakdown by NAV)As at 31 March 2013Authorised Schemes 4.7%Full International Schemes 7.9%Regulated Funds 0.3%Professional Investor Funds 0.1%Specialist Funds 2.8%APPENDIX EQualifying Funds 1.9%Qualifying EIF 3.1%Legacy EIF 4.8%Closed EIF 1.1%Exempt Schemes 24.8%Overseas 21.0%Closed Ended Investment Companies 21.8%Inward Outsourcing Arrangements 5.7%Asset classes of schemesTraded Life Policy/Traded Endowment PolicyInvestment HoldingSecurities SchemeYachting/AviationFeeder FundOtherMixedLitigation FundingDerivatives/HedgeEquity/DerivativesPrivate EquityDebtEquityPropertyFund of FundsMoney MarketUmbrella Fund0 20 40 60 80 100 120 140 160Number of FundsGeographical origin of schemesDomicile of collective investment schemes adminstired in the IslandOther: pensions;power projects;artwork;non-correlatedassets; or, other(alternativeinvestments),sustainablebiological assetsMixed: Equities/Derivatives/Hedge; Equities/Derivatives/Options;Bonds/Shares;and, Cash &Absolute ReturnInvestmentsNon Isle of ManIsle of Man0 50 100 150 200 250 300 350Number of FundsOrigin of non-Isle of Man schemes:Cayman 54 Bermuda 3BVI 20 Guernsey 3Jersey 3 Delaware 2Ireland 1

54 Isle of Man Financial Supervision Commission Annual Report 2012/13APPENDIX ELegal constitution of schemes administered in the Isle of ManLegal constitution of Collective Investment SchemePCCPLCLtd CompanyLLCLLPLPUnit Trust0 20 40 60 80 100 120Number of FundsCorporate and Trust ServicesCompanies, trusts and partnerships under administrationCompanies, partnerships and foundations 2012/13 2011/12 Movement1931 Act Companies 12,174 13,509 -10%2006 Act Companies 5,952 5,637 +6%Isle of Man public limited companies 152 180 -16%Public companies incorporated elsewhere 14 15 -7%Non-public limited companies withmore than 50 shareholdersOverseas companies not registered under Part XIof the Companies Act 1931Overseas companies registered under Part XI ofthe Companies Act 1931 (a.k.a. ‘F-Registered’)25 20 +25%14,341 11,862 +21%695 755 -8%Limited Liability Companies 481 506 -5%Partnerships 529 575 -8%Foundations 76 66 +15%Trusts 2012/13 2011/12 MovementTrusts 19,569 21,411 -9%Private Trust Companies 292 347 -16%

Isle of Man Financial Supervision Commission Annual Report 2012/13 55STATEMENT OF RESPONSIBILITIES INRESPECT OF THE CHIEF EXECUTIVE’SREPORT AND THE ACCOUNTSAPPENDIX FThe Commission is responsible for preparing the Accountsin accordance with applicable law and regulations.The Audit Act 2006 requires the Isle of Man FinancialSupervision Commission (“the Commission”) to prepareaccounts for each financial year, which meet therequirements of the Accounts and Audit Regulations 2007(as amended) to 2008 made under the Audit Act 2006.In addition, the Commission has elected to prepare theaccounts in accordance with UK Accounting Standards.The accounts are required by law to give a true and fairview of the state of affairs of the Commission and of theprofit or loss of the Commission for that period.In preparing these accounts, the Commission is required to:• select suitable accounting policies andthen apply them consistently;• make judgements and estimates that arereasonable and prudent;• state whether they have been prepared inaccordance with UK Accounting Standards; and• prepare the accounts on the going concernbasis unless it is inappropriate to presume that theCommission will continue in operation.The Commission is responsible for keeping properaccounting records that are sufficient to show andexplain the Commission’s transactions and disclose withreasonable accuracy at any time the financial position ofthe Commission and to enable them to ensure that theaccounts comply with the Accounts and Audit Regulations2007 (as amended) to 2008 made under the Audit Act2006. The Commission has general responsibility for takingsuch steps as are reasonably open to them to safeguard theassets of the Commission and to prevent and detect fraudand other irregularities.

56 Isle of Man Financial Supervision Commission Annual Report 2012/13APPENDIX FREPORT OF THE INDEPENDENTAUDITORS, KPMG AUDIT LLC,TO THE ISLE OF MAN FINANCIALSUPERVISION COMMISSIONKPMG Audit LLCChartered AccountantsHeritage Court41 Athol StreetDouglasIsle of Man IM99 1HNWe have audited the accompanying Income andExpenditure Account of the Isle of Man FinancialSupervision Commission (“the Commission”) for the yearended 31 March 2013 and notes, comprising a summaryof significant Accounting policies and other explanatoryinformation (together “the Accounts”). The Accountshave been prepared for the purpose of the Commission’sobligations in accordance with the Audit Act 2006.This report is made solely to the Commission, as a body,in accordance with Section 4 of the Audit Act 2006. Ouraudit work has been undertaken so that we might state tothe Commission those matters we are required to state tothem in an auditor’s report and for no other purpose. Tothe fullest extent permitted by law, we do not accept orassume responsibility to anyone other than the Commissionfor our audit work, for this report, or for the opinions wehave formed.Commission’s Responsibility for the AccountsThe Commission is responsible for the preparation andfair presentation of the Accounts in accordance with therequirements of United Kingdom Accounting Standardsand the Accounts and Audit Regulations 2007 (asamended) to 2008 made under the Audit Act 2006, to theextent relevant to preparing an Income and ExpenditureAccount, and for such internal control as managementdetermines is necessary to enable the preparation of theAccounts that are free from material misstatement, whetherdue to fraud or error.Auditors’ ResponsibilityOur responsibility is to express an opinion on the financialstatement based on our audit. We conducted our audit inaccordance with International Standards on Auditing. Thosestandards require that we comply with ethical requirementsand plan and perform the audit to obtain reasonableassurance about whether the financial statement is freefrom material misstatement.An audit involves performing procedures to obtainaudit evidence about the amounts and disclosures inthe Accounts. The procedures selected depend on ourjudgement, including the assessment of the risk of materialmisstatement of the Accounts, whether due to fraudor error. In making those risk assessments, we considerinternal controls relevant to the entity’s preparation andfair presentation of the Accounts in order to design auditprocedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on theeffectiveness of the entity’s internal control. An audit alsoincludes evaluating the appropriateness of accountingpolicies used and the reasonableness of accountingestimates, if any, made by the Commission, as well asevaluating the overall presentation of the accounts.Opinion on the accountsIn our opinion the accounts:• give a true and fair view of the Commission’s incomeand expenditure for the year ended 31 March 2013in accordance with UK Accounting Standards; and• have been properly prepared in accordance with theprovisions of the Accounts and Audit Regulations2007 (as amended) to 2008 made under the AuditAct 2006, to the extent relevant to preparing anIncome and Expenditure Account.

Isle of Man Financial Supervision Commission Annual Report 2012/13 57Matters on which we are requiredto report by exceptionWe review whether the Statement of Internal Controlprepared by the Commission reflects compliance withthe Accounts and Audit Regulations 2007 (as amended)to 2008 made under the Audit Act 2006. We report ifthe statement is misleading or inconsistent with otherinformation we are aware of from our audit of the accounts.We are not required to consider, nor have we considered,whether the Statement on Internal Controls covers all risksand controls.We have nothing to report in this regard in respect of theStatement of Internal Control.INCOME AND EXPENDITURE ACCOUNTFOR THE YEAR ENDING 31 MARCH 2013APPENDIX FIncome Note 2013 2012£ £ £ £Licence & Scheme FeesFees income 2 1,641,113 1,716,263Other income 14,192 24,540Total Income 1(b) 1,655,305 1,740,803ExpenditureSalaries 4 2,424,317 2,506,815Commissioners’ Remuneration 141,617 101,033Premises 321,355 302,781Training 42,369 40,561Travel 42,348 56,456Professional Fees 372,442 164,353Operating Expenses 39,681 43,228Information Technology 108,250 257,873Other expenses 23,320 5,318Total Expenditure 1(c), 3 (3,515,699) (3,478,418) (1,860,394) (1,737,615)The notes on pages 58 to 59 form part of these accounts.The income and expenditure account was approved by the Financial Supervision Commission on 30 May 2013and signed on its behalf by Mr Bryan Stott (Deputy Chairman) and Mr John Aspden (Chief Executive).

58 Isle of Man Financial Supervision Commission Annual Report 2012/13APPENDIX FNOTESTO THE ACCOUNTS FOR THE YEAR ENDED 31 MARCH 20131 Accounting policiesa) Basis of accountingThe Isle of Man Financial Supervision Commission(“the Commission”) is constituted under theFinancial Supervision Commission Order 1983as a Statutory Board of Tynwald. The Incomeand Expenditure Account is part of the generalrevenue account of the Isle of Man Government.Accordingly, any deficit or surplus for the yearforms part of general revenue and any surplusis not retained by the Commission. The Isle ofMan Government is committed to funding anyshortfall of the Commission on an on-going basis,in accordance with section 52(1) of the FinancialServices Act 2008.The Accounts are prepared in accordance with theAccounts and Audit Regulations 2007 (as amended)to 2008, made under the Audit Act 2006 to theextent relevant to an Income and ExpenditureAccount. They are also prepared in accordancewith UK Accounting Standards, and in accordancewith the Isle of Man Statement of RecommendedPractice 2007 on accounting for entities subjectto the Audit Act 2006 (“the SORP”), to the extentapplicable to the Commission.b) IncomeIncome is accounted for on an accruals basis.c) ExpenditureExpenditure is accounted for on an accruals basis.Amounts properly incurred during the year but notyet paid are included within expenditure.d) PensionsThe Commission’s employees, with the exceptionof the Chief Executive, are members of the Isle ofMan Government Unified Pension Scheme whichis administered by the Public Service PensionsAuthority. Employees contribute to the schemewith employer’s contributions being funded fromcentral Treasury and Government reserves.e) Balance sheetThe Commission is a statutory board of the Isle ofMan Government and does not hold any assets orliabilities in its own name other than accruals andprepayments which may occur at period ends dueto timing of receipts and payments. Accordingly,an independent Balance Sheet does not formpart of the Accounts. A statement of accruals andprepayments attributable to the normal operationsof the Commission is included in the notes to theAccounts (note 5).2 Licence and scheme fees incomeLicence and scheme fee income comprises licence feeincome due in relation to Deposit Taking, InvestmentBusiness, Services to Collective Investment Schemes,Corporate Services, Trust Services, E-money and MoneyTransmission Services and fee income due in relation toCollective Investment Schemes.3 Auditors’ remunerationAuditors’ remuneration is paid by the Isle of ManGovernment and is therefore not included within theexpenditure of the Commission.The Commission has elected to include withinexpenditure, rather than capitalising, the cost offixed assets not being made from the ConsolidatedLoans Fund of the Isle of Man Government. TheCommission, as a Statutory Board, does not holdassets in its own name. Any assets purchased are ofimmaterial value with limited useful lives therefore apolicy of non-capitalisation is adopted.

Isle of Man Financial Supervision Commission Annual Report 2012/13 594 SalariesRemuneration of members, officers and employeesof the Commission, earning more than £50,000 perannum, are payable within the following bands:2013Number2012Number£50,000 - £74,999 5 6£75,000 - £99,999 3 4£100,000 - £124,999 1 -£125,000 - £149,999 - -£150,000 - £174,999 - -£175,000 - £199,999 - -£200,000 - £224,999 - -£225,000 - £250,000 - 1£250,000 + 1 -7 Segmental reportingNo segmental analysis has been provided as theCommission has only one business activity andoperates in only one geographical area, being theregulation of relevant entities in the Isle of Man.8 Related party disclosuresThere were no related party transactions requiringdisclosure in the accounts other than paymentsto Commissioners as disclosed in the Income andExpenditure Account.9 Commitments and contingenciesThe Commission has committed to expenditure of£44,311 in relation to Information and CommunicationsTechnology improvements (2012: £68,687).APPENDIX FIncluded within salaries are pension contributionsof £nil (2012: £17,200).5 Accruals and prepaymentsThere were no significant accruals or prepayments inboth the current and previous year.6 Operating lease commitmentsRental lease commitments in respect of the premisesoccupied by the Commission expire as follows:2013£2012£Within 12 months 243,020 245,220Between 1 and 5 years 972,080 980,880After 5 years 1,002,069 1,256,3442,217,169 2,482,444The lease on the premises occupied by the Commissionis held in the name of Isle of Man Government.The commitments due to Isle of Man Governmentfrom the Commission are disclosed above.

60 Isle of Man Financial Supervision Commission Annual Report 2012/13APPENDIX GLEGISLATION COMING INTOFORCE BETWEEN1 APRIL 2012 AND 31 MARCH 2013All recent Isle of Man legislation is now accessible via: http://www.gov.im/infocentre/acts/Secondary legislationSD no 273/12 effective 01/07/12 - Collective Investment Schemes (Recognised Schemes) (Guernsey) Order 2012.This Order designates certain collective investment schemes authorised in Guernsey as recognised schemes.SD no 274/12 effective 01/07/12 - Collective Investment Schemes (Recognised Schemes) (Jersey) Order 2012.This Order designates certain collective investment schemes authorised in Jersey as recognised schemes.SD no 275/12 effective 01/07/12 - Collective Investment Schemes (Recognised Schemes) (United Kingdom)Order 2012. This Order designates certain collective investment schemes authorised in the United Kingdomas recognised schemes.

Isle of Man Financial Supervision Commission Annual Report 2012/13 61CONSULTATIVE DOCUMENTSISSUED BETWEEN 1 APRIL 2012AND 31 MARCH 2013Title of consultationDate consultationpublishedDate consultation closedAPPENDIX HICB implementation 2 August 2012 31 August 2012Variation to definition of ‘controller’ inFinancial Services Act – as part of FinancialServices (Miscellaneous Amendments) Bill10 August 2012 21 September 2012Basel III in the Isle of Man 12 September 2012 12 December 2012Regulatory Fees 18 December 2012 15 January 2013Civil penalties – expansion of use 25 January 2013 8 March 2013OTHER INFORMATIONThe Commission’s website www.fsc.gov.im containsuseful information including an outline of the regulatoryrequirements covering all areas of its responsibility.The Rule Book provides legislation and guidance forlicenceholders together with downloadable PDFs of thevarious legislation and regulations.Further publications relating to Fiduciaries, Funds,Insurance and Pensions, Tax, and Business Relocation areavailable from the Department of Economic Development,St George’s Court, Upper Church Street, Douglas,Isle of Man, IM1 1EX or can be downloaded fromhttp://www.whereyoucan.im/resourcesThe Isle of Man Government Insurance and PensionsAuthority also provides copies of legislation on its websitewww.gov.im/ipa, including:• The Insurance Act 2008 and attendantregulations and guidance• The Retirement Benefits Schemes Act 2000and attendant regulations• The Insurance (Anti-Money Laundering) Regulations2008 and associated guidance notes.Telephone calls made to or from the Commission may berecorded or monitored.APPENDIX I

62 Isle of Man Financial Supervision Commission Annual Report 2012/13GLOSSARYACCA The Association of CharteredCertified AccountantsACSP Association of Corporate Service ProvidersADBR Annual Desk Based ReviewAIFMD Alternative Investment Fund ManagersDirectiveAML Anti-money LaunderingBCCI Bank of Credit Commerce International S.A.BRICS Brazil, Russia, India, China and South AfricaCFT Countering the Financing of TerrorismCISI Chartered Institute for Securities &InvestmentCommission The Financial Supervision CommissionCODA Company Officers Disqualification Act 2009CPD Continuing Professional DevelopmentCSFI Centre for the Study of Financial InnovationCSP Corporate Service ProviderDCS Depositors’ Compensation SchemeDHA Department of Home AffairsDNFBPs Designated Non-Financial Businessesand ProfessionsD-SIBS Domestic Systemically Important BanksDTA Double Taxation AgreementECB European Central BankEEA European Economic AreaEPC European Payments CouncilESMA European Securities and Markets AuthorityEU European UnionFATCA Foreign Account Tax Compliance ActFATF Financial Action Task ForceFSA UK Financial Services AuthorityFSAP Financial Sector Assessment ProgrammeGDP Gross Domestic ProductGIFCS Group of International FinanceCentre SupervisorsICA International Compliance AssociationICB Independent Commission on BankingICAEW The Institute of Chartered Accountantsin England and WalesICSA Institute of Chartered Secretariesand AdministratorsIGA Inter-Governmental AgreementIIPInvestors in PeopleIMFIOMIOMBAIOMFAIOSCOIPAISDIslandITJAMLAGKSFIOMKYCMIFID2MIFIRMMOUInternational Monetary FundIsle of ManIsle of Man Bankers AssociationIsle of Man Funds AssociationInternational Organisation of SecuritiesCommissionsInsurance and Pensions AuthorityIsle of Man Government’s InformationSystems DivisionIsle of ManInformation TechnologyJoint Anti-Money LaunderingAdvisory GroupKaupthing Singer & Friedlander(Isle of Man) LimitedKnow your CustomerDraft Markets in Financial InstrumentsDirectiveDraft Markets in Financial InstrumentsRegulationMultilateral Memorandum of UnderstandingMONEYVAL Committee of Experts on the Evaluation ofAnti-money Laundering MeasuresMOU Memorandum of UnderstandingOECD Organisation for EconomicCo-operation and DevelopmentOFT Office of Fair TradingOSCE Organisation for Security andCo-operation in EuropePDF Portable Document FormatPEP Politically Exposed PersonsPLC Public Limited CompanyRDR Retail Distribution ReviewRICC Risk and Internal Control CommitteeRPI Retail Price IndexRule Book The Financial Services Rule BookS&P Standard and Poor’sSEPA Single Euro Payments AreaSORP Statement of Recommended PracticeTCSPs Trust and Corporate Service ProvidersUK United KingdomUSA United States of AmericaVAT Value Added Tax

Isle of Man Financial Supervision CommissionP.O. Box 58Finch Hill HouseBucks RoadDouglasIsle of ManIM99 1DTTelephone: +44 (0)1624 689300Facsimile: +44 (0)1624 689399E-mail: fsc@gov.imwww.fsc.gov.imdesigned and produced by bridson-horrox.com