The Isle of Man's financial regulator has published a discussion paper in which it says that it wants the Government to change the law to give it more powers.

The Isle of Man Financial Services Authority wants to change the Collective Investment Schemes Act 2008; the Designated Businesses (Registration and Oversight) Act 2015; the Financial Services Act 2008; and the Insurance Act 2008. It hopes that its reforms will affect all regulated entities, collective investment schemes and designated businesses, along with the functionaries of and advisors to those bodies.

Penalties and inspections

The Insurance Act already provides the FSA with the power to impose civil penalties on individuals, but the other Acts do not. The regulator wants this to change.

The paper goes on: "It is likely that the ‘individual’ civil penalty regime will be limited to the people who perform certain jobs only, such as controllers, directors or chief executives of regulated entities or designated businesses, and members of the governing bodies of collective investment schemes."
 
The IOMFSA wants the amendments to make it clear that its powers of inspection (under all Acts) apply whether or not it suspects that somebody has broken a rule and to ensure that in cases of misleading practices (s38 FSA08) and misleading statements (s37) it can use such powers also with regard to firms that are neither regulated nor exempt. This, if enacted, would be a significant broadening of the reach of its powers on its own.

The regulator also wants to apply a civil penalty when a designated business has failed to give notice of any change to the information that it is obliged to give to the FSA under s8 DBROA15. At the moment, section 20(1) makes a refusal to notify the regulator of such a change a criminal offence, but the regulator thinks it 'disproportionate' to prosecute in most cases and prefers to levy a civil penalty.

Contractual changes

In order to protect the reputation of the Isle of Man, and to help people who may sign bad agreements under duress or undue influence, the FSA wants to put a section in each Act that makes void any contractual provision between a regulated entity or the companies in its group, or its designated business or its collective investment schemes and another person (perhaps an employee, officer, or skilled person) which purports to prevent that individual from providing information to the regulator that is relevant to it.

Fit and proper

Applicants to become regulated firms are required to satisfy the FSA that they and their staff are 'fit and proper' for the purposes of financial services. However, if a firm is already regulated, it is up to the regulator to weed out anyone who takes up a controlled function as not fit and proper. The regulator is tired of this duty and now wants to oblige the firm to send in proof of the person's fitness and propriety, while the regulator sits back.

The applicant firm that seeks to become regulated ought to satisfy the FSA that individuals planned for controlled functions are fit and proper. (Burden on applicant.)
 
The existing regulated entity that wants to place an individual in a controlled function that he does not already perform ought to satisfy the FSA that this individual is fit and proper (Burden on firm.)
 
Concerning the existing regulated entity and individual already in a controlled function, if the FSA believes that the individual is no longer fit and proper, it should be up to the FSA to demonstrate this (Burden on regulator.)

CIS

The authority also wants the power to investigate collective investment schemes directly. At the moment it has to rely on indirect routes to do so, sometimes by using powers in company law or the Company Officers (Disqualification) Act 2009. It wants to extend its powers in the FSA08 to inspect various financial institutions to current and former collective investment schemes, in the interests of "timely intervention." It also wants more power to wind up CIS established as companies.

Ombudsman services

The Office of Fair Trading is thinking of making some changes to the Financial Services Ombudsman Scheme. If so, it will add these to the draft Bill when it comes.

Substance

Some businesses have registered themselves with the regulator in accordance with the DBROA15 despite having no presence on the isle bar a registered office. To tighten things up, the regulator wants to legislate to oblige designated businesses to be managed and controlled locally.