At a recent conference in the Isle of Man at which Chris Hamblin of Compliance Matters spoke, John Spellman, the island's chief commercial ideas man, surprised many with the harsh words: “The Isle of Man used to be quick at creating commercial opportunities for itself: no longer!” In this interview with him, conducted subsequently, he explains how regulation forced his jurisdiction to fall behind and what might happen next.

Spellman's explanation for the slowing-down of new products and services is an oft-heard one from the offshore world: “We had to slow down our innovative drive because in the last two years we were faced with a deluge of international banking regulations. For a time, our attention was completely taken up by that and we ran out of people to do the other jobs [i.e. looking for innovative products and strategies]. We have to be in the premiership for complying with those standards but we can't take our eye off the future for very long. We are now coming out of that deluge of work.”

During his slightly controversial speech, the director of financial services in the Isle of Man Government suggested three ways forward on his own initiative – the attraction of entrepreneurs and businesses of all kinds to live and work on the isle; crowd-funding initiatives; and a renewal of the isle's focus on outsourced business. The year 2014 was, of course, one of rapid expansion for the isle's virtual currency business, which Compliance Matters has covered in depth elsewhere.

There are areas of banking all over the world in which mainstream organisations are ridding themselves of vast numbers of sophisticated clients, i.e. high-net-worth clients who are also intelligent and well-informed investors. Spellman commented: “The Isle of Man is now trying to create an environmental space for sophisticated high-net-worth individuals and corporates as well – obviously making sure that the whole process is compliant with international 'know your customer' standards and every other standard there is. We want to attract entrepreneurs. Expert service is the main idea here.”

Of course the Isle of Man's original offshore prosperity was based on 'expert services' when the tourist industry collapsed in the 1980s and the island began touting for business as a good place for banks and other financial firms to outsource their various compliance, checking and processing functions. All the largest accountancy firms opened offices there and the island became an offshore centre in both senses of the term – both as an international financial centre in its own right and as a place where work was 'offshored' – a word that started to apply to international outsourcing functions in the 'noughties. There is now a 'backwash' in progress among the countries that house outsourcing operations, with the Calcuttas of this world running out of capacity (English-speaking telephone operators, professional and other staff are in short supply), raising their prices and creating opportunities nearer home. The Isle of Man is one of those centres that expects to benefit from such a 'backwash'. Spellman's term for it was 'near-shoring'.

The US defines the term 'accredited investor' by the crude yardstick of investable assets, namely $1 million disregarding the value of the principle residence or an income of at least $200,000 each year for the last two years (or $300,000 together with spouse). This gives the investor access to more risky financial instruments. The UK's definition of 'sophisticated investor' sticks more closely to the person's experience of capital markets. It is not known whether the Isle of Man follows British practice at the moment but it is, even now, working on its own unique definition of the phrase 'sophisticated investor;' details of which will be made available to Compliance Matters as soon as they have been decided upon.

Spellman explained further: “We want the same principles to govern the two different categories of sophisticated investor and retail investor. When we come out with the definition, we'll base it on totally new principles, owing nothing to anyone else. We intend to involve the mass affluent – these people could fall either side of the line between sophisticated and retail. The amounts of money and levels of experience may vary. In order to attract and services these people, we are interested in developing flexible investment schemes, crowd-funding strategies and other banking ideas.

“Who had this idea? Me and my colleagues, i.e. the local regulators. We have a less complicated regime than the UK's. We see a real opportunity for what we are going to call 'Enterprise Isle.' ”

He explained one plank of this new policy: “Crowd-funding – it's created an opportunity. We'll be consulting people about it very very shortly. We see real opportunities to offer a product that is focused internationally but with element of consumer protection and a category for a sophisticated investor. At the moment we as suffering from a very low interest rate and international regulation full of complicated rules and on a hitherto-unknown scale. There is a desire on the part of the consumer for disintermediation. The right kind of investors would want a platform of crowd-funding to get the best returns. We have done a lot of research on this with the existing platforms, and with a lot of sophisticated investors.”

When asked what he was doing to ensure that the island did not do the same as the UK and follow a policy of attracting power-crazed Russian psychopaths to its shores, Spellman laughed and said that there was going to be some kind of 'positive vetting' process: “They will have to prove they are good. We'll ensure that they are operating legally and appropriately.” Compliance Matters put it to him that that process might simply end up relying on his own personal whims, but he discounted this and said that the process would be subject to a rigorous pre-set procedure without any leeway.

He went on: “So these are the facets you need in place. Crowd-funding, like-minded people and the right advisors. You need to live a stone's throw away from a pool of HR directors, 'head office' functions, IFAs, lawyers, accountants, actuaries and many others. You need good regulation. All those are represented in the International Square Mile in Douglas. We can bring these things to life.”

Another question revolved around the isle's age-old problem – its rainy, windy weather. On paper this should not matter but time and time again Compliance Matters has heard trustees and board members at offshore firms saying that an offshore centre has an inestimable advantage in attracting companies if the CEO or FD enjoys visiting it; it is just one more factor in the decision whether to stay or go, whenever an economic event prompts any corporate soul-searching. The Isle of Man, which one lawyer once described to our sister publication, Offshore Red, as “Manchester by the sea,” has traditionally done badly on this score. Spellman, however, refuted the problem light-heartedly: “Entrepreneurs come here to do business, not to get a sun-tan!”