Isle of Man Structure and Regulation of the Legal Profession
The Island's High Court judges are the two Deemsters, who have
jurisdiction over all the criminal and civil matters that in England
would fall under the High Court, Crown Court and County Court.
The Manx Appeal Court, consists of the Deemsters and the Judge
of Appeal, a part-time position filled by an English QC. The final
court of appeal is the Judicial Committee of the Privy Council in
The Island has its own lay magistrates (similar to their English
counterparts) and also two stipendiary magistrates (the High Bailiff
and Deputy High Bailiff) who also act as coroners of inquest and
preside over the licensing court.
Members of the Island's bar are called advocates; they are a fused
profession, combining the functions normally carried out by English
barristers and solicitors, and following professional standards
set by the Isle of Man Law Society.
It has been a long-standing practice for senior English barristers
to appear in Manx courts, after being granted a 'temporary advocate's
commission', but this trend is now in decline as local expertise
in complex litigation cases improves.
To be admitted as a Manx advocate, a person is required to have
successfully completed the academic training necessary for admission
as a solicitor in England and Wales and the Manx Law Examinations,
and to have completed a period of two years' articles (analogous
to the English training contract) with a local firm. Manx Advocates
may employ, but not enter into partnership with, lawyers qualified
in other jurisdictions. The Manx Law Society is, however, currently
considering the introduction of multi-qualified partnerships.
Legislation was passed in 1986 allowing law practitioners qualified
in other jurisdictions to practice as registered legal practitioners
and advise on commercial law and international taxation, but it
excludes them from conducting proceedings in Manx courts and certain
tribunals or to prepare documents relating to Manx real estate.
In effect, local firms have a monopoly on local litigation and property
work and as a result only a few foreign law firms have established
a presence in the Island, specialising in commercial and offshore
private client work.
The admittance and qualifications of lawyers is governed by the
Advocates Act 1995 (Part II) which replaces most parts of the Advocates
Acts 1826-1976. Further regulations were laid down under the Advocates
Regulations 1998, setting out qualification requirements. Sections
15-17 of the 1995 Act allow for the issue of a temporary advocate's
licence to non-Manx lawyers provided that:
he/she is a member of the Bar of England and
Wales, Scotland or Northern Ireland;
no Manx advocate is available for the proceedings;
he proceedings require knowledge and experience
of a nature not ordinarily available in the Island.
Notaries play an important role in the Manx legal
system and are regulated under Part III of the Advocates Act 1995.
Law firms are required to be licensed if giving investment advice.
As with the offshore jurisdictions, law firms tend to have associate
fiduciary companies and therefore it is common for legal advisers
to also act as investment advisers.
However, advocates are exempted from the requirement to be separately
licensed by the Financial Supervision Commission in the conduct
of investment business by virtue of membership of the Isle of Man
Law Society, provided they obtain an appropriate certificate from
the Law Society and comply with the Law Society's Investment Business
In 2008 there were 171 practising Advocates, 17 non-practising
Advocates, 4 associate members and 32 student members.
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Isle of Man Codes of Conduct and Disciplinary Proceedings
These are set out in the Advocates Disciplinary Rules 2009. The
Advocates Disciplinary Tribunal Guidance Notes have been produced
to provide general information regarding the procedures adopted
in dealing with formal complaints about advocates’professional
misconduct. Where the rules are silent, the Isle of Man Law Society
will tend to look for guidance from the equivalent English provision.
As with the Channel Islands, difficulties may arise where the rules
conflict. Additional information can be obtained from the Law Society.
As in other small legal markets, issues of conflict may arise during
the course of obtaining legal or investment advice. The rules relating
to conflict of interest are essentially the same as those applying
to solicitors in England, ie it is not acceptable to have lawyers
from the same firm acting for different parties to the same transaction.
With regard to confidentiality, there are no specific statutory
provisions. The position in the Isle of Man is basically the same
as that pertaining in England:
codes of practice affirming client confidentiality;
express/implied term of contract between advocate
and his client;
equitable duty of confidence;
legal professional privilege.
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Isle of Man Solicitors' Accounts' Rules
Professional indemnity insurance is mandatory in the Isle of Man.
There is no client compensation fund.
The holding of client money is regulated by the Isle of Man Law
Society's Advocates' (Accounts) Rules 1993, which are similar to
the English Solicitors' Accounts Rules and stipulate that client
money be held in a designated client account. Rules also cover a
client's entitlement to interest.
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Isle of Man Fees and Disputes
Notarial fees, where relevant, are included in the final bill
to the client. Neither percentage nor contingency fees apply.
Given the diversity of work and expertise in the Isle of Man,
billing rates differ widely depending on the nature of the work
undertaken, whether it is domestic or international or which firm
is acting. Leading firms advising on international transactions
charge approximately GBP225-GBP275 per hour for a partner, and GBP150
per hour for a fee-earner.
The Advocates Act 1995 introduced a new regime for the assessment
of Advocate's fees. Under Part III of the 1995 Act, advocates are
under a duty to provide all clients with a written estimate of fees
likely to be payable on an ongoing basis. Clients are also entitled
to a written detailed breakdown of the fees payable. New clients
may be asked to give money on account.
General complaints in respect of an advocate's professional conduct
are dealt by the Advocates Disciplinary Tribunal, a body set up
under the Advocates (Disciplinary) Rules 1997, updated by the Advocates
Disciplinary Rules 2009.
The Tribunal is unable to deal with matters of negligence (a matter
for the court), compensation claims or disputes as to fees (see
below). The Tribunal may dismiss the complaint or, if proved, reprimand
the advocate or order the advocate to pay the Treasury a penalty
not exceeding GBP2,000. Very serious breaches of professional conduct
may be referred to the Lieutenant Governor.
In the case of a dispute as to fees, the client may seek taxation
by the Taxing Master. The Taxing Master assesses a bill of costs
in accordance with the Advocates' Scale of Fees. Although the Taxing
Master acts within the framework of the court system, and the taxation
system is primarily used to assess litigation costs, theoretically
any bill of costs, contentious or non-contentious, may be taxed.
Accordingly, in the areas of international corporate and commercial
work, advocates tend to ensure that clients are aware that fees
will be charged on a time basis at an hourly rate.
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Isle of Man Recent Trends
The Advocates Act 1995 has not changed the current controversial
rule that advocates and registered legal practitioners cannot be
partners in the same firm. The rules are in effect contrary to EU
equal treatment provisions. Increasingly, local law firms are employing
English-qualified lawyers at below partner level.
In terms of the Island's legal market, leading advocates report
a continuing healthy domestic and international workload. In particular,
there has been an increase in all areas of substantive international
financial and corporate work including:
- asset finance (ships and aircraft)
- securities offerings;
- investment funds and asset management;
- ship management;
- corporate and banking transactions.
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Isle of Man Table of Statutes
This is a non-exhaustive list of the main Isle of Man statutes
affecting offshore and non-resident business. The statutes are listed
in alphabetical order – click on the statute for a fuller
description of the statute, the legal regime it forms part of, or
in some cases the text of the law.
Advocates Act 1995
Banking Act 1998
Banking Business Regulations 1991
Banking (General Practice) Regulatory Code
Collective Investment Schemes (Compensation)
Collective Investment Schemes Act 2008
Companies Act 1931
Companies Act 2006
Companies (Amendment) Act 2009
Companies, etc. (Amendment) Act 2003
Corporate Service Providers Act 2000
Employment Act 1991
Financial Supervision Act 1988
Financial Supervision (Restricted
Schemes) Regulations 1990
Financial Services Act 2008
Income Tax (Exempt Companies) Act 1984
Income Tax (Instalment Payments) Act 1974
Income Tax Act 1970
Insurance (Limited Partnership) Regulations 2004
International Business Act 1994
Investment Business Act 1991
Investment Business Order 1991
Investment Business Order 2004
Limited Liability company Act 1996
Merchant Shipping (Registration) Act 1984
On-Line Gambling Regulation Act 2001
Partnership Act 1909
Partnership Act 1890 (UK)
Perpetuities and Accumulations Act 1968
Protected Cell Companies (Collective Investment Schemes) Regulations
Purpose Trusts Act 1996
Recognition of Trusts Act 1988
Registration of Business Names Acts 1918 and 1954
Retirement Benefits Schemes Act 2000
Retirement Benefits Schemes (International Schemes) Regulations
Trade Unions Act 1991
Trustee Act 1961
Trusts Act 1995
Variation of Trusts Act 1961
Developments in Company Law
Responsibility for the Companies Registry was transferred to the
Financial Services Commission in 2000 as part of a package to reform
corporate conduct. However, as a result of the recently reported
re-organisation of Government Departments and associated functions,
responsibility for the Companies Registry moved from the Financial
Supervision Commission to the newly created Department of Economic
development on the 1st April 2010.
In March 2010, the FSC expressed some doubts about this decision
by the government, in particular "at the potentially serious
effect which the lack of a formal regulatory connection with Companies
Registry could have on the reputation of the Island as a respected
and well regulated financial centre."
"Companies Registry was transferred to the Commission in the
year 2000 expressly as part of a package to reform corporate conduct,
and for all matters concerning the oversight of companies to come
under the Commission. Companies continue to be perceived by international
standard-setters and evaluators as vehicles which can present considerable
reputational risks," the FSC stated, adding at the time that
as an independent regulator, it proposes to continue its dialogue
with Government on the matter.
The Companies, etc. (Amendment) Act 2003 came into partial effect
in December, 2003, allowing unlisted companies to re-domicile in
and out of the Isle of Man. Whilst companies conducting licensable
business, e.g. banking, investment, insurance or corporate service
provider business, will be subject to additional regulatory approvals,
they will also be able to re-domicile should they so wish.
In addition, the Act ushered in a number of other provisions including:
registration of prospectuses; the obligation to display a companys
name outside its premises; and procedures relating to a companys
ability to dispense with compliance with certain provisions of the
Companies Acts. A right of appeal against a decision of the Commission
to refuse to register documents under the Business Names, Industrial
and Building Societies and Limited Liability Companies Acts is also
Other provisions facilitate the electronic filing of documents
following the introduction of the FSCs Online Search Facility.
In addition, holders of corporate service providers licenses and
their key staff automatically qualify to act as secretaries of exempt
companies and international companies. Other provisions correct
anomalies and make minor amendments to the Companies Acts 1931
1993 and related legislation.
Also, with effect from April 1, 2004, no new bearer shares may
be issued by Isle of Man companies and the rights relating to existing
bearer shares may not be exercised until the shares are registered.
In August, 2005, the government published draft legislation for
the creation of a new type of business-friendly company. The new
Manx corporate vehicle, or ‘NMV’, is designed to be simple and inexpensive
to administer and to meet the Island’s obligations in terms of the
commonly adopted benchmarks of international standards.
The concept, developed following a study of company law around
the world, was originally scheduled for introduction early in 2006,
to coincide with the Isle of Man’s move to a zero rate of corporate
tax, but came into force on November 1. The first New Manx Vehicles,
or '2006 Act companies' as they became known, were incorporated
on the same day. Each 2006 Act company is allocated a number followed
by the suffix “V” to distinguish the new-style companies
from the more traditional companies, which may still be incorporated
under the Companies Acts 1931-2004.
Further amendments to companies legislation
entered into force on September 1, 2009, with the Companies (Amendment)
This law ushered in the following changes:
- Company prospectuses - The information contained
in a prospectus (for a company incorporated under the Companies
Act 1931) must include all matters that intended recipients could
reasonably expect to find, instead of the previous specific list
of information required under Schedule 4 to the Companies Act
1931 (which has now been repealed). A signed copy of the prospectus
must be delivered to the Companies Registry for registration prior
to its issue. Where the Companies Registry becomes aware of false
or misleading claims in the prospectus, it has the power to make
a direction to amend the prospectus. This direction will be placed
on the company’s public file.
- Registration of charges - Companies will be
permitted to file a certified copy of the charge instrument or
the original document. This will remove conflicts that existed
between the Companies Registry and Land Registry requirements.
- Changes to accounting provisions - The requirements
under the Companies Act 1931 are clarified to require (for newly-incorporated
companies) that the first financial statements must be prepared
for a period of no longer than 18 months from the date of incorporation.
The financial statements of a company must be laid at least once
in every calendar year before the members in general meeting within
6 months of the financial year-end for a public company, and 9
months for a private company. This represents a reduction in the
current time limit. Accounting provisions under the Companies
Act 2006 permit accounting records to be held at a place other
than the Registered Agent’s office, provided the Registered
Agent is kept informed of where the records are held and further,
that copies are remitted to the Registered Agent on demand but
at least annually. The latest act, in addition to the aforesaid,
empowers any member or director of the company to require financial
statements to be prepared. Where the company fails to accede to
the request, a member will have the right to have sight of the
underlying accounting records. Also, the definition of who may
audit an Isle of Man company has been expanded.
- Limited Liability Companies Act 1996 - Changes
to the Limited Liability Companies Act 1996 remove the provision
that provides for the automatic winding up of the company within
60 days for failing to file a notice in the prescribed form on
the death, dissolution, resignation etc of a member.
- Treasury shares - The Act has added a new section
25A of the Companies Act 1992 and section 58A of the Companies
Act 2006. These sections give the Commission powers to make regulations
that could allow a company to create treasury shares. While the
Commission has underlined that it currently has no intention to
introduce treasury share regulations, it has asked that interested
parties present their views on the matter. Should there be sufficient
interest shown in this area, informed the Commission, consideration
will be given to consulting further on whether to make treasury
In fact, the Commission started consulting on whether to allow
treasury shares in July 2009. Interested parties were asked to give
details of the motivation and rationale for introducing treasury
Respondents indicated that treasury shares are vital in ensuring
that the Isle of Man remains able to compete as a premier offshore
financial centre. The responses also suggested a need for prompt
action. In acknowledging this commercial need the Commission released
draft legislation early in 2010, which is needed to introduce treasury
shares, for a limited period.
The Isle of Man government's February 2010 budget included a number
of changes to company registration rules.
The changes affect every Isle of Man incorporated and registered
company, business name and limited partnership. They also affect
those who conduct searches or request information from the Companies
Company registry fees were increased in the budget, as part of
the Isle of Man’s biennial review. The government increased
the fees to ensure they maintain their value against changes in
the annual rate of inflation, and also to provide the Isle of Man
government with much needed revenues.
In February 2010, the FSC consulted on plans to allow companies
whose shares are traded on a market to hold up to 10% of shares
in treasury, to help companies manage their share capital more efficiently.
Section 25A of the Companies (Amendment) Act 2009, gave the Commission
the power to make regulations to introduce treasury shares under
the Companies Acts 1992.
Financial Services Legislation Consolidated
In June, 2004, the Isle of Man Treasury confirmed that changes
would be made to the structure of the Island’s Financial Supervisory
Commission, including the replacement of a political figure as chairman
of the FSC, which would bring the Isle of Man into line with other
offshore jurisdictions and with the conclusions of the 1998 Edwards
report on the British dependent territories.
In June, 2006, the FSC issued a second consultation paper outlining
initial proposals for regulated activities, exclusions and exemptions
which will come into force under proposed new financial services
According to John Aspden, Chief Executive of the IoM FSC, the consultation
gave the jurisdiction's financial services community the opportunity
to identify areas where further legislative amendments are necessary
to improve the current framework.
“This consultation primarily consolidates the provisions contained
in existing legislation," Mr Aspden explained.
"However, the Commission anticipates that licenceholders and their
advisers, who have first-hand knowledge of the changes occurring
in their sphere of expertise, may identify areas where further amendment
would benefit the industry," he added.
The draft Regulated Activities Order consolidates the activities
previously encompassed by the Banking Act 1998, Investment Business
Acts 1991 – 93, Fiduciary Services Acts 2000 and 2005 and Building
Societies Act 1986, as amended, as well as incorporating certain
aspects of the Financial Services Act 1988 relating to the managers
and trustees of collective investment schemes.
In addition, the Order included a number of exclusions (activities
which fall outside the scope of the legislation) and definitions
of specific terms used within the Order.
The draft Financial Services (Exemption) Regulations consolidated
the existing exemptions granted under the Banking Act 1998, Investment
Business Acts 1991 – 93 and Fiduciary Services Acts 2000 and 2005,
with certain outdated exemptions being removed.
To assist licenceholders and other interested parties in reviewing
this draft secondary legislation, the Commission prepared a RoadMap
showing the destination of current provisions in the draft new legislation,
detailing any changes which are proposed and providing a brief rationale
for the change, and the impact to industry that is anticipated as
a result of such change.
"This consultation provides an opportunity to embrace developments
in the finance sector and to ensure that its needs are met," the
"Suggestions for the modernisation of the existing provisions or
proposed new activities will be welcomed from industry to ensure
that a meaningful and workable framework is developed," the regulator
Mr Aspden said that the proposals were to be developed both through
the consultative process, and in dialogue with the Legislative Liaison
This process has culminated in the Financial Services Act 2008,
which received Royal Assent on August 1, 2008. This Act consolidated
a number of separate pieces of financial services legislation, and
the following Acts have been repealed in whole or in part: The Financial
Supervision Act 1988; The Investment Business Acts 1991-1993; The
Banking Act 1998; The Fiduciary Services Acts 2000 and 2005; and
the regulations of the Industrial and Building Societies Acts 1892-1986.
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Isle of Man Trust Law
The Isle of Man law of trusts is based on English law and is to
be found in the following acts:
- Trustee Act 1961
- Variation of Trusts Act 1961
- Perpetuities and Accumulations Act 1968 (adoption of the Hague
- Recognition of Trusts Act 1988
- Trusts Act 1995
- Purpose Trusts Act 1996
In addition, being a common law jurisdiction, there is a considerable
amount of case law (mainly English) which is persuasive authority
for the Manx courts. The distinctions between English law and Manx
trust law arise principally from the fact that the Isle of Man has
not adopted certain provisions of English trust law, for example,
those relating to restrictions on accumulation of income.
Appeal from the Isle of Man courts is to the Privy Council in
Trusts do not need to be registered unless they involve real estate
on the island, when settlements inter vivos must be registered.
However, Unit Trusts (Collective Investment Schemes) are subject
to various special requirements under the Financial Supervision
Act 1988 (since consolidated into the Financial Services Act 2008).
There is no stamp duty.
There are no statutory accounting or auditing requirements and
there is no need to file tax returns. It is possible to obtain an
advance clearance from the relevant registry based on a draft trust
deed so that the identity of the settlor and the beneficiaries can
be kept totally confidential.
The maximum perpetuity for Manx trusts is 80 years. There are no
provisions for non-recognition of foreign judgements; asset protection
trusts are not available.
Recent legislation in the form of the Trusts Act 1995 has secured
the position of trusts established in the Isle of Man in the face
of challenges in the applicable governing law by other jurisdictions,
particularly in the area of 'forced heirship'.
Until 2005, trustees were not licensed or supervised by the Financial
Supervision Commission, unless the fiduciary carried on business
in investment, banking or insurance, in which case licences were
required under those headings.
The Fiduciary Services Act, 2005, extended the Corporate Service
Providers Act 2000 to require persons who, by way of business, provide
certain services to trusts and partnerships or act as nominee holders
of units in unit trusts, to hold a fiduciary licence.
The licensing of fiduciaries brought the Isle of Man into line
with similar arrangements already established in other offshore
jurisdictions such as Bermuda, Guernsey and Jersey and an external
review of the proposals by London law firm Stikeman Elliot found
the bill compares favourably with legislation in these places.
Alongside the Fiduciary Services Act, the Isle of Man Financial
Supervision Commission updated its Fiduciary Services Regulatory
The Fiduciary Services Acts 2001 and 2005 were consolidated into
the Financial Services Act 2008, which sought to simplify the licensing
regime for the Isle of Man's financial services providers.
As in other jurisdictions whose trust law follows the English
pattern, a beneficiary of the trust may apply to the court to stop
a trustee from dealing with trust assets in an unauthorised manner.
Loss as a result of an authorised conduct will result in the trustee
being responsible for making the loss good. The asset value of the
trustee is therefore an important consideration.
Where a breach of trust is committed by a corporate trustee, every
person who at the time of breach was a director of the trustee may
be deemed, in certain circumstances, to be guarantor of the trustee
(ie personally liable) in respect of damages awarded by the court.
Principles of constructive trusteeship also apply.
For the taxation of trusts in the Isle of Man see Offshore
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Isle of Man Banking Law
Banks are regulated by the Financial Services Commission
under the Financial Services Act 2008. This new legislation,
which came into force on August 1, 2008, consolidated
several pieces of financial services legislation, including
the Financial Supervision Act 1988 and the Banking Act
1998, into one Act and simplified the licensing regime.
The underlying regulations remain largely unchanged however,
although the term 'banking' has been reclassified as 'deposit
A licence to carry on the Class 1 regulated activity
of Deposit Taking permits a business operating in or from
the Isle of Man (with certain specified exclusions) to
accept deposits of money, where:
The money received by way of deposit
is lent to others; or
Any other activity of the person accepting
the deposit is financed wholly, or to a material extent,
out of the capital of or interest on the money received
by way of deposit.
Prior to the new legislation, banks operated under either
a full or restricted banking licence. The Financial Supervision
Commission regulated the banking and investment industry
under the powers created by the Financial Supervision
Act 1988 and the Investment Business Act 1991.
An unrestricted banking licence permitted a bank to conduct
investment business without holding a separate investment
business licence. However, unless otherwise agreed with
the Commission, all businesses which held banking licences
and were conducting investment business are now expected
to hold licences to conduct Class 2 Investment Business.
A Managed Bank employs the services of another licensed
bank in the Isle of Man, the "Approved Manager",
to provide the day to day management and administrative
functions to it. The Managed Bank may not employ any staff
in the Island without the consent of the Commission and
it must operate from the premises of the "Approved
Manager". Unless otherwise agreed with the Commission,
all banks that were approved under the old legislation
to manage another bank or building society are expected
to hold licences to conduct Class 7 Management or Administration
The Commission’s General Licensing Policy provides
guidance for banking licenceholders. A licenceholder and
its key staff are required to be 'fit and proper' persons.
The Commission’s licensing policy is to apply a
test of fitness and propriety in the key areas of integrity,
competence and solvency.
The fit and proper test is both an initial test at the
time of granting a licence and a continuing test in relation
to the conduct of regulated activities. The test takes
into account integrity, solvency and competence. The licensing
policy provides guidance on the key requirements, such
Real Presence - the Commission will
not licence a mere shell; the company’s management
and control must be in the Isle of Man.
Track record - a licence applicant must
demonstrate a proven track record in the successful
conduct of the regulated activity for which it seeks
a licence, either by being part of a group that already
undertakes the activity in another jurisdiction or by
key persons having operated at a senior level in a relevant
- Staffing – for most classes of business, the applicant
should be managed by two “resident officers” who are
supported by staff with suitable experience to fulfil the key
Unlicensed banking operations remain a problem and have become
known as 'brass plate' companies. These 'rogue' operations are,
when reported, investigated by the Enforcement Division of the FSC.
The Banking Act (as amended) recognised the contractual duty of
a banker to keep the affairs of his customer confidential and the
customers' entitlement to confidentiality. There were very few limited
exceptions to these principles, set out in the Financial Supervision
Act 1988, and these included circumstances where disclosure was
required to assist criminal proceedings or to enable the FSC to
discharge its statutory functions.
All banking licence holders are required to participate in the
Depositors Compensation Scheme. The FSC is the Scheme Manager. The
Banking Business (Compensation of Depositors) Regulations 1991 extends
to all licensed banking institutions, except those listed by name
in the Schedule. Under the Compensation of Depositors Regulations
2008 as amended by Tynwald on October 23, 2008, the DCS compensates
people who have money in current and deposit accounts in the Isle
of Man with up to GBP50,000 of net deposits per individual depositor
or GBP20,000 for most other categories of depositor. Cover is calculated
per depositor, per deposit taker, if this bank fails.
Prior to the 2008 regulation, deposits were protected up to 75%
of the first GBP20,000 per depositor and the Scheme extends to the
sterling equivalent of foreign currency deposits.
The Scheme was successfully operated in respect of the default
of BCCI which had a branch in the Isle of Man.
The government announced in July 2001 that it would become the
first Crown Dependency with a financial ombudsman which means that
customers worldwide will have access to an independent dispute-resolution
scheme covering Isle of Man-based financial institutions. The 'Financial
Services Ombudsman Scheme' covers complaints about financial advice
and products across the range of personal finance such as banking,
credit, insurance and investments. The scheme is open to individuals
with a financial complaint against an Isle of Man firm that the
firm has been unable to resolve.
In June, 2005, the Isle of Man's Financial Supervision Commission
announced that a project was underway to update the Banking (General
Practice) Regulatory Code 1999. The key drivers for this project
were to update the Banking Code in line with current requirements
whilst taking into account the recommendations made by the International
Monetary Fund (“IMF”) inspection team following its visit in 2002.
As a result, the Banking (General Practice)
Regulatory Code 1999 was replaced by the Banking (General Practice)
Regulatory Code 2005 on July 1, 2006.
The Commission published its approach to Basel II adoption in February
Says the Commission: 'The EU has issued the Capital Requirements
Directive (“CRD”) which all regulators of member states
must implement. Although this encouraged adoption from January 1,
2007, the CRD contains a qualification that, where a bank has committed
to the standardised approach by 1st January 2008 it can continue
to report under Basel I during 2007.
'The Isle of Man is not part of the EU and is not under any legal
obligation to require locally incorporated banks to report under
Basel II from 1st January 2007 or 1st January 2008.'
However, the Commission says it understands that locally incorporated
banks which are subsidiaries of banks in countries requiring Basel
II reporting in 2007 may wish to begin similar reporting to the
Commission, whether under standardised or more advanced approaches
(re parallel runs). With this in mind the Commission intends to
have available the necessary reporting forms and guidance during
2007 but may require these banks to also continue reporting under
The Commission says it will require locally incorporated banks
to report under Basel II with effect from 1st January 2008 for the
standardised approaches, with some degree of flexibility on a case
by case basis for later adoption.
Basel II will require the Commission to make some changes to the
Banking (General Practice) Regulatory Code 2005, as amended (“the
Code”). It is expected that these changes will be minor and
will focus on capital, risk management, and reporting forms (which
are specified in the schedule to the Code). In addition, the Commission
anticipates that guidance notes will be utilised to supplement the
Code to ensure compliance with Basel II principles contained within
Pillar 1 and Pillar 2.
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Isle of Man Investment Management Law
With effect from May 1, 2010, the Isle of Man Financial Supervision
Commission again permits the establishment of Regulated Funds in
the Isle of Man, with Specialist and Qualifying Fund types both
being relaunched as Registered Funds.
According to the Commission, the move is in response to the new
market environment and recognizes the importance of appropriate
regulatory oversight for funds.
On the basis of the proposed regulatory structure, the Irish Stock
Exchange has confirmed that funds which are Isle of Man Regulated
Funds under the Collective Investment Schemes (Regulated Fund) Regulations
2010 are suitable for listing on the Irish Stock Exchange without
the imposition of a EUR100,000 (USD133,000) investment threshold
Commenting, John Aspden, Chief Executive of the Commission, said:
”I am delighted that, following discussion with industry
and a review of our fund range, we have developed a modern flexible
Regulated Fund. I view this as a flagship product underlining the
quality of the fund range that the Isle of Man can offer. We have
already had interest shown in the new fund type and look forward
to its future success.”
“I am also pleased to announce that we have relaunched the
Specialist and Qualifying Fund types as Registered Funds. In doing
so we have taken the opportunity to review the regulations and introduce
“I believe that the Island’s fund offering is first
class, balancing appropriate regulatory requirements with the commercial
flexibility needed in the modern financial environment.”
Licensing of investment management, including that of collective
investment funds, was introduced by the Investment Business Acts
1991 to 1993, with a definition of activities to be licensed contained
in the Investment Business Order 1991. The regulatory regime for
collective investment funds is now governed by the The
Collective Investment Schemes Act 2008 (CIS Act) which came
into force on August 1, 2008, having been previously established
by the Financial Supervision Act 1988.
Subordinate legislation made under the Financial Supervision Act
1988 continues to have effect as if it was made under the relevant
provisions of the CIS Act.
Under the Investment Business Acts, the list of activities requiring
a license included: brokerages offering life, pension and investment
products; portfolio investment management; captive insurance management;
and collective investment fund management. Futures and options were
included in the definition of 'investments'; land and cash were
not. Exemptions from the licensing regime included banks, building
societies, and Manx and UK legal and accountancy professional firms.
Investment Business Order 2004
In October, 2004, the FSC announced Tynwald’s
approval of the Investment Business Order 2004. The 2004 Order replaced
the Investment Business Order 1991.
The government, in partnership with the finance industry, reviewed
the 1991 Order to ensure that the definition of investment remained
relevant to the current and future business and investment situation
on the island.
The following changes appear in the 2004 Order:
- The position of UK and other overseas persons has been refined
to allow only UK FSA authorised persons to ‘legitimately’ solicit
investment business on the Island;
- The distinction between when non investment-business professionals
act in their professional capacity and when they hold themselves
out as providing investment business has also been clarified;
- The circumstances in which custody services constitute investment
business have been clarified;
- The exclusion relating to introductions has been refined to
apply only to introductions made to ‘independent’, permitted persons;
- Relevant CSP activities, regulated under the Corporate Service
Providers Act 2000, have been expressly excluded; and
- The definition of futures has been updated and brought in line
with the UK approach to achieve greater consistency.
The 2004 Order came into operation on December 1, 2004.
The Companies (Private Placements) (Prospectus Exemptions)
New provisions to the 1931 Companies Act were approved by Tynwald
in 2000 and came into operation on January 1, 2001. Known as The
Companies (Private Placements) (Prospectus Exemptions) Regulations
2000, the regulations allow for the exemption of certain private
placements of shares or debentures from the provisions of the Act.
The exemptions in the regulations apply inter alia under three
1) Where the shares or debentures are offered to a restricted circle
of fifty or less persons who are acquiring the securities for investment
purposes and not for imminent resale
2) To persons who are sufficiently knowledgeable to understand
the risks involved in accepting the offer
3) Or to persons whose ordinary activities as principal or agent
involve them in the acquisition, disposal, holding or management
of shares or debentures.
Applicants for an Investment Business License must have a 3-year
profit record, and the Commission vets ownership and management
arrangements. There are detailed regulatory codes; and substantial
reporting requirements. All investment businesses need to have explicit
policies directed against laundering of illicit proceeds.
Collective Investment Schemes Act 2008
Under the Collective Investment Schemes Act 2008 (CIS Act), a licence
to carry on the Class 3 regulated activity of Services to Collective
Investment Schemes permits a business operating in or from the Isle
of Man (within certain criteria and with specified exclusions) to
provide the following services to collective investment schemes:
act as a manager, administrator, trustee, fiduciary custodian, custodian,
promoter, asset manager or investment adviser.
The CIS Act sets out the statutory framework for the regulation
of Collective Investment Schemes (“schemes” or “funds”),
more commonly known as unit trusts, mutual funds or open-ended investment
companies. The CIS Act sets out 3 classes of scheme:-
- Authorised Schemes under Schedule 1 to the CIS Act;
- International Schemes (including full international schemes
and other prescribed classes of scheme) under Schedule 2 to the
CIS Act; and
- Recognised Schemes under Schedule 4 to the CIS Act.
Regulatory Framework Reviewed
In October 2009, the Isle of Man Financial Services Commission
announced a consultation on proposed amendments to the regulatory
framework for Full International Schemes, Specialist Funds, Qualifying
funds, and Experienced Investor Funds. The Commission also sought
views on options for the future of Professional Investor Funds.
The review aims to update the legislation and bring it wholly into
line with the Collective Investment Schemes Act 2008, to modernise
the legislation and to build upon the Commission and industry’s
experiences in implementing the new schemes framework in 2007.
As part of the review, the Commission proposes updating ancillary
legislation which affects collective investment schemes.
As a result of this review, International Scheme have been superseded
by the Regulated Fund. The Collective Investment Schemes (Legacy)
Regulations 2010 means that no new International Schemes can be
established however existing funds may continue. The Regulations
also expand the jurisdictions in which a trustee or fiduciary custodian
of an international scheme can be located by including Ireland and
Full details of regulated activities, exclusions and exemptions
from licensing may be found in the Collective Investment Schemes
handbook. A licenceholder is obliged to comply with any licence
conditions that have been imposed by the Commission and which are
shown on the licence.
The Collective Investment Schemes handbook also contains links
to other legislation relating to licenceholders, including the Financial
Services Rule Book 2008, explaining the detailed rules to be complied
with by all licenceholders. Guidance on rules and on other regulatory
matters may also be found in the handbook.
The 2008 regime for collective investment funds distinguishes various
types of fund:
Authorised Collective Investment Schemes
Any scheme established in the Island which is promoted to the general
public in the Island (or the UK by virtue of the Island's designated
territory status) must be authorised by the Commission under Schedule
1 to the CIS Act. Authorised Schemes are subject to detailed regulation
concerning their structure and operation. With regards the investors
compensation scheme the Authorised Collective Investment Schemes
(Compensation) Regulations 2008 only applies to investors in Authorised
N.B. It should be noted that the International Scheme has been
superseded by the Regulated Fund. No new International Schemes can
be established although existing funds may continue. Specialist
Funds, Qualifying Funds and Experienced Investor Funds are now categorized
as Registered Funds.
Any scheme established in the Isle of Man which is not an Authorised
Scheme or an Exempt Scheme, is an International Scheme under Schedule
2 to the CIS Act. International Schemes may not be promoted to the
general public in the Isle of Man.
- Full International Schemes. The Commission does not prescribe
the types of schemes which can be full international schemes.
The Commission aims to provide a flexible regulatory framework
which meets the needs of the market place operators. Full international
schemes are not subject to any direct approval or authorisation
process, however the manager of such a scheme must have the Commission’s
permission to act, and persons comprising the Governing Body of
the scheme must be fit and proper persons. The manager and trustee/fiduciary
custodian of a full international scheme must be Authorised Persons.
In granting permission for the manager to manage the scheme, the
Commission reviews the constitutional documents of the scheme.
The Commission does not, and is not required to, comment on the
investment objectives or strategy of the scheme or its suitability
for any investor or any class of investor. Investors in such funds
are not protected by any statutory compensation arrangements in
the event of the fund’s failure.
- Specialist Funds. The Specialist Fund (SF) is a sub-category
of International scheme which is available only to specialist
investors who are generally institutional investors and high net
worth individuals. The minimum investment in a SF is USD100,000.
A SF is not subject to approval in the Isle of Man and investors
in such funds are not protected by any statutory compensation
arrangements in the event of the fund’s failure.
- Qualifying Funds. The Qualifying Fund (QF) is a sub-category
of International scheme which is available only to qualifying
investors who are non retail investors. A QF is not subject to
approval in the Isle of Man and investors in such funds are not
protected by any statutory compensation arrangements in the event
of the fund’s failure.
- Professional Investor Funds. The Professional Investor Fund
(PIF) is a sub-category of International scheme which is available
only to professional investors who are generally market professionals
and who have net assets in excess of USD1m. The minimum investment
in a PIF is USD100,000. A PIF is not subject to approval in the
Isle of Man and investors in such funds are not protected by any
statutory compensation arrangements in the event of the fund’s
- Experienced Investor Fund. The Experienced Investor Fund (EIF)
is a sub-category of international scheme aimed at the “Experienced
Investor”. From November 1, 2007 no new Experienced Investor
Funds can be established. An EIF is not subject to approval in
the Isle of Man and investors in such funds are not protected
by any statutory compensation arrangements in the event of the
Exempt schemes (as defined in Schedule 3 to the CIS Act) are Isle
of Man schemes that must have less than 50 investors and their relevant
constitutional documents must expressly prohibit the making of an
invitation to the public to subscribe in any part of the world.
Exempt International Schemes are regarded as private arrangements
and are not subject to regulation.
Collective Investment Schemes which are managed in or authorised
under the law of another country or territory outside the Island
may not be promoted to the general public in the Island unless they
have been granted recognition by the Financial Supervision Commission
under Schedule 4 to the CIS Act. Once granted recognition, a Recognised
Scheme may be promoted to the general public in the Island.
Taxation of Investment Products
In December 2009, the Isle of Man Treasury released a consultation
paper on proposed changes as part of a review on the taxation of
investment products, following talks with a number of private sector
The consultation document outlined proposals for the introduction
of a new taxation regime for certain investment products in the
Isle of Man, and was primarily concerned with the taxation of insurance
bonds and roll-up funds.
The proposed new regime aims to remove this uncertainty by:
- Defining which products will be subject to income tax and which
will fall outside the charge; and
- Defining when and how an income tax charge will be raised.
The Isle of Man Financial Supervision Commission (FSC) on March
1 launched another consultation, this time on amendments to Authorised
Collective Investment Schemes Regulations, which have been drafted
in order to maintain equivalence with the UK Financial Services
Authority’s (FSA's) requirements. Equivalence will allow the
island to retain its Designated Territory status, allowing the Isle
of Man to market Authorised Schemes to the UK public.
While the FSC notes that amendments to the UK Authorised Schemes
regime have tended to be minimal in recent years, as a result of
the European Union UCITS III regime the UK has materially updated
its regime for authorised type schemes. The Isle of Man FSC therefore
considers that a full review of the entire Authorised Schemes Regime
is needed in order to update the regime and to assist in preserving
the existing business being undertaken in the jurisdiction.
In order to maintain equivalence, the Regulations have generally
adopted most of the UK FSA’s requirements but with amendments
to take account of the Island’s Collective Investment Schemes
Act 2008. According to the consultation document, of the latest
revision, the noteworthy points are:
- As the existing UK requirements are significantly different
from the Commission’s current Regulations, there has been
a major re-write of the requirements and therefore the FSC has
said that it has not been possible to produce a “Road Map”
- Following informal consultation with existing market participants,
it would appear that the view of the industry is that, whilst
welcoming any initiative to enhance disclosure of key information
to potential investors, the UCITS Simplified Prospectus regime
is viewed as being of limited success in achieving its aim of
improving investor disclosure. The Committee of European Securities
Regulators and the EU Parliament appear to have accepted this
by proposing a new regime, the Key Information Document, as part
of the package of changes for UCITS IV although this has not been
finalised by them. It has therefore been decided to introduce
an optional simplified prospectus regime rather than require it
in all cases.
- The UK FSA is considering whether to permit Authorised Schemes
to be structured as protected cell companies (PCCs). If such arrangements
are permitted in the UK, the Commission has said it would be keen
to allow this. Therefore, as part of the review, the opportunity
has been taken to include reference to PCCs to ensure that, if
the UK does decide to extend its legislation, it will be possible
to maintain equivalence with them. The Commission will be liaising
with the FSA on developments in this area and should they not
be progressed, then all references will be removed.
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Isle of Man Betting and Gaming Law
During 2001 the Department of Home Affairs progressed first the
primary and then the secondary legislation to legalise the operation,
from the Isle of Man, of well regulated on-line gambling sites.
The primary legislation, the On-line Gambling Regulation Act, came
into force in May. Four sets of Regulations were approved by Tynwald
in June. The first three licenses under the regulations were issued
The application fee was set at GBP1,000 and the licence fee at
GBP80,000 per annum; in addition licence holders were required to
deposit GBP2m as a guarantee for the payment of customers and to
establish a formal reserve for gaming based on a stated formula.
These terms were somewhat softened in 2003.
In January, 2005, the Isle of Man reversed its four-year-old policy
prohibiting e-gaming firms based in the jurisdiction from accepting
online casino bets made by US residents.
The US authorities have sought to maintain domestic restrictions
on gambling by banning US residents from placing bets with e-gaming
firms whose servers are located in foreign jurisdictions, as illustrated
by its legal fight with Antigua & Barbuda which has contested that
ban through the WTO.
Tim Craine, the Isle of Man’s head of electronic business, said:
"There's a lot of business looking to relocate to a reputable, regulated
jurisdiction," adding: "We're hoping to capitalize on that business."
However, Mr Craine pointed out in the report that the new policy
applies only to online casino and poker games, and the ban on accepting
sports bets from US residents remains in place.
John Gilmore, eGaming ambassador to the Isle of Man’s Department
of Trade and Industry (DTI), said that the decision was motivated
by the government’s desire not to contravene any US federal laws.
“We will not extend the policy to sports betting, because the Wire
Act prohibits sports betting across states in the US,” Gilmore explained.
“But as there is no federal law against poker or casinos we will
accept those types of bets from US citizens,” he added.
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Isle of Man International Agreements
In June 2000 the Isle of Man government wrote a 'Letter of Commitment'
to the OECD's Financial Action Task Force (FATF) in which it promised
to comply with international standards of transparency and mutual
assistance. The government did not revealed what specific legislative
consequences would follow, but some changes to company law followed,
as did a strengthening of international treaty obligations, which
are reflected in domestic law.
In September 2000, an inter-governmental report was published by
the Offshore Group of Banking Supervisors and the FATF which praised
the Isle of Man authorities for their successful endeavours in countering
money laundering and related criminal activities with a 'robust
arsenal' of pro-active initiatives. The report examined the effectiveness
of the island's legislation, regulations and administration activities
directed against money laundering. The authors were particularly
impressed with plans to strengthen company sector regulations, saying
that these enabled the Island to be "at the forefront of international
efforts to prevent the abuse of company structures for criminal
The report also welcomed the creation of a new financial crime
unit which draws on the combined efforts and expertise of the police,
customs and regulators with a pro-active enforcement strategy. And
financial professionals and institutions on the island have also
been praised by the report - it says that the financial sector has
a 'good compliance culture' which allows it to quickly highlight
potentially suspicious transactions.
In October, 2002, the Isle of Mans Treasury Minister, Allan
Bell, signed a bilateral agreement with the United States of America
which provides for the exchange of information on tax matters between
the two countries. The agreement provides for exchange of information
by specific case request.
Allan Bell said: Today co-operation between governments is
more important than ever as we work to ensure that no safe haven
exists - either onshore or offshore - for funds associated with
activities such as money laundering, terrorist financing or tax
Equally the Isle of Man believes that the expansion of the
global economy depends on both onshore and offshore international
financial centres combining highly competitive entrepreneurial environments
for business with a quality of regulation and stability.
The Isle of Man sets out to be a well regulated and responsible
jurisdiction and is financially strong, as evidenced by its Triple
A rating with Moodys and Standard & Poors. It has been
recognized by the FATF as being "at the forefront of international
efforts to prevent the abuse of company structures for criminal
Allan Bell continued: The ability to exchange information
in relation to criminal matters already exists between our countries
via the Department of Justice in the United States and the Attorney
General in the Isle of Man.
The Islands early commitment to OECD has permitted
us to play an active role with the United States and other member
countries in the development of a model agreement on which the agreement
being signed here today is based. This provides an alternative route
to obtain information in relation to criminal tax matters and also
provides for a timetable for this to be extended to include civil
The development of a network of such agreements between member
states and committed jurisdictions, whether on a multilateral basis,
or a bilateral basis as adopted by the Isle of Man, will in due
course evidence the existence of a new and truly international standard
on Exchange of Information.
The Isle of Man will continue to support the development
of such international standards and seek to foster business relationships
with other countries based on those standards and we look forward
to participating in the ongoing discussions with the United States
to further develop and establish closer economic and fiscal ties.
The IOM's agreement with the US forms part of the jurisdiction's
efforts to implement its commitments to the OECD, given in early
2001, which included a commitment to develop effective exchange
of information. Over the following 12 months the Isle of Man, together
with other jurisdictions, negotiated a Model Tax Information Exchange
The Model being adopted provides for exchange of information based
upon a formal request being received by the Competent Authority
in the Isle of Man. A request must be made on an individual case
basis and the subject of the request must be under investigation
in the requesting jurisdiction. Other safeguards are included to
prevent fishing expeditions for example, the requesting
party must first take all means available in its own jurisdiction
to obtain the information. All information that is exchanged may
not be passed on to third parties and there are strict confidentiality
The US Treasury Department announced in September, 2006, that
the Tax Information Exchange Agreement had entered into force.
According to the Treasury: "An exchange of letters between the
United States and the Isle of Man was completed on June 26, 2006,
thus bringing into force an agreement that allows for the exchange
of information on tax matters between the United States and the
Isle of Man."
In October, 2007, an association of Nordic countries concluded
a package of Tax and Information Exchange Agreements (TIEA) with
the Isle of Man, providing for the exchange of information between
governments on a case-by-case basis, as the Manx government seeks
to reinforce its global reputation as a well-regulated financial
The Nordic countries started joint negotiations in July 2006 to
conclude tax information exchange arrangements with jurisdictions
that have made a commitment to apply the OECD standards on transparency
and exchange of information in the tax area. The taxation and economic
co-operation agreements have been signed with the seven members
of the Nordic Council, namely Norway, Sweden, Finland, Iceland,
Denmark, Greenland and the Faroe Islands. The package of 28 agreements
was signed at a ceremony in Oslo. The package include tax information
exchange agreements based on the OECD model of exchange of information
on request on a case by case basis, and shipping and aircraft taxation
agreements ensuring that a relevant business based in the Isle of
Man will not be taxed in the Nordic countries so long as it is conducting
international trade. By the end of 2008, all 28 of the agreements
had been ratified and become operational.
In March 2009, the Isle of Man signed a Tax Information Exchange
Agreement with France. This agreement was signed 7 years after the
island signed its first TIEA with the USA. At the time, the island
currently holds a quarter of the 51 TIEAs in existence globally.
The Isle of Man was one of the first nations to make a clear commitment
to OECD standards on tax co-operation in 2000 and was recognised
by the OECD as a ‘committed jurisdiction’ in 2001.
Minister Bell said: “We are delighted to announce the signing
of our 14th TIEA, a significant milestone in our ongoing commitment
to international tax co-operation. For nine years the Isle of Man
government has been dedicated to achieving OECD standards, and this
latest TIEA is part of our continuing work and mutual co-operation
with not only France, but all other countries we have agreements
Minister Bell commented: “In addition to our agreement with
France and the recent one with Germany, we are at advanced stages
of negotiation with several other countries and will continue to
strive for effective co-operation based on agreed international
standards by developing, signing and ratifying further TIEAs.”
Also signed at the ceremony was an agreement for the avoidance
of double taxation with respect to enterprises operating ships in
international traffic. This builds on the Isle of Man’s network
of shipping taxation agreements, and will further enhance opportunities
for the island’s highly regarded shipping sector.
The Isle of Man government on April 3, 2009, released a statement
welcoming the island’s inclusion on the OECD ‘white
list’ of countries complying with the global standard for
tax co-operation and exchange of information.
The list, produced following the G20 summit in London, places the
Isle of Man in the top tier of jurisdictions – along with
nations such as the UK, USA, Germany, France, Sweden and Ireland
– that have ‘substantially implemented the internationally
agreed tax standard.’
Welcoming the Isle of Man’s recognition as a cooperative
jurisdiction, Chief Minister Tony Brown said:
"The OECD white list provides recognition at the highest level
of the Isle of Man’s place in the mainstream of economies
that comply with the global standard on tax. This is a defining
moment for us, confirming our position amongst the most responsible
and co-operative countries of the world.”
Treasury Minister Allen Bell added:
“The OECD lists are a significant step forward in the debate
about tax, as countries are now being judged and separated on the
basis of agreed international criteria – not just size. The
Isle of Man has always supported an objective, global approach to
this issue and the G20 summit has confirmed this as the way forward.”
“Inclusion on the white list represents a major endorsement
of the Isle of Man and of our long-term strategy of positive engagement
with the OECD. This can only reinforce the island’s reputation
and confidence in our future as an international business centre
“The island has long been committed to the international
standards of tax transparency developed by the OECD in 2000. We
are at the forefront of small nations in delivering on that commitment.”
“Over the past seven years we have signed more tax information
exchange agreements than any of our counterparts, including agreements
with the UK, France and Germany. We have concluded a total of 14
so far, 12 with OECD countries, and there are several more in the
“The island also has a strong track record of complying with
international standards of financial regulation, as assessed by
the IMF and others. A series of independent, external reviews over
the past decade have enhanced our reputation as a well regulated
centre for international finance,” noted Bell.
The Chief Minister, meanwhile, stressed that the Island would continue
to work with the OECD and other bodies promoting international standards
on tax and financial regulation.
“The Isle of Man has a long-term policy of positive engagement
with international initiatives and of supporting international standards,”
declared Brown, adding: “At a time of global economic crisis
this responsible, co-operative approach is particularly relevant
and vitally important.”
“The G20 summit is clearly more of a beginning than an end.
As work continues towards solutions to the global economic crisis,
the Isle of Man is ready to play a constructive part,” concluded
At the time of writing, the Isle of Man has signed 16 TIEAs - more
than any other offshore jurisdiction.
In February, 2005, agreements were signed with the Dubai Financial
Services Authority, the UAE Central Bank, and the Bahrain Monetary
Agency. The DFSA signed two memoranda of understanding with the
Isle of Man's Financial Supervision Commission and Insurance and
The two agreements aim to provide a framework for the provision
of mutual assistance and information exchange between the two jurisdictions
with regard to cross-border transactions. In addition, the agreements
are designed to improve compliance, thereby helping to prevent money
laundering and fraud.
Under each agreement, the Middle East Agencies, the FSC and IPA
will consult with each other on an on-going basis to enhance regulatory
co-operation and to collaborate on international supervision between
The MOUs also provide a framework for regulatory cooperation through
the exchange of information and mutual cooperation in the field
of on-site examinations of entities, subject to regulation in both
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