A senior figure pushing the development of financial services in the Isle of Man spoke to this publication about the sector's evolution on the island.

Offshore financial jurisdictions have had a lot to deal with recently. In this more “transparent” world, to use a familiar adjective, IFCs need to develop more “value-add” features to stay competitive. One such jurisdiction, the Isle of Man, is targeting a wide range of offerings. This publication recently spoke to John Spellman, director of financial services at the IoM’s department of economic development. 

The island has announced initiatives in areas such as crowdfunding, alternative finance, an inward investment fund for the jurisdiction, and a tax scheme for IoM-based investors. With rival jurisdictions such as Guernsey, Jersey and, further afield, Malta and Gibraltar battling for business, it is a good moment to see how the Isle of Man stacks up. 

Please elaborate on the type of crowdfunding regime you are creating in the island. What sort of rules and controls are in place? What are the key features? What is the legislation designed to do? When do you expect the new rules to be live? Who is involved in promoting this legislation? Why did you consider the need for it? What can the island do that makes you stand apart from the opposition?
The Isle of Man is planning to introduce new regulation for crowdfunding to enable new and innovative ways of securing funding for entrepreneurs. This will include both equity and loan areas.

The new rules are expected to go live later in Q1 this year and is yet another exciting development for the island in creating an environment for businesses to source funding. The legislation will be weighted to provide protection to retail type clients while making sure not to “take the crowd out of crowdfunding”. 

It is proposed that these clients may invest £1,500 (around $2,100) per annum into any single investment or loan with a cap of £5,000 on any one platform. Sitting above this “restricted client” banding is the proposed high net worth client, which offers clients with a net worth of £100,000-plus the opportunity to invest/lend up to £10,000 per annum, capped at £50,000. The top banding is called the "unlimited client" and is for clients with net worth of £500,000-plus whereby they will have the “freedom to flourish” by investing/lending an unlimited amount. All client types will have to agree to a disclaimer confirming their own status and category before being allowed to proceed.

(Note: The details above are still subject to amendment.)

The promotion of this initiative will be the responsibility of the Department of Economic Development and we have a marketing plan in place pre-launch. This plan will also include the other key initiatives we are working on including the new £50 million Enterprise Development Scheme, also scheduled to launch during Q1 2016. This is the first international business centre to create a regulatory environment for debt and equity crowdfunding platforms. We see the island as the perfect place to be as crowdfunding continues to evolve from a country focused model to an international offering,

The alternative banking regime. Can you give me some specifics on what sort of banks/financial institutions you are seeking to attract and what are their important features? What are the bank licensing requirements? Are there specific minimum tests and requirements? Where do you see clients coming from?
We are seeing a growing appetite for smaller, niche banking operations to support emerging sectors as well as wealthy individuals looking for a more personal form of banking. This work has resulted in the Isle of Man proactively seeking new opportunities and laying the foundations for an alternative banking solution.

The proposed ABR framework is the result of months of consultation and industry collaboration. The main banking types we are looking to attract are private banks, foreign banks and perhaps technology-enabled challenger banks, with an emphasis on non-retail, internationally focused banking appetites. In particular we are looking to increase choice for new start-ups, e-business and e-gaming sectors as well as facilities for high net worth individuals and private equity partners.

When introduced, the ABR will expand the existing Class 1 (deposit-taking) banking licence to include:

Class 1(1) – for the typical existing bank and any taking retail deposits; 
Class 1(2) – for non-retail deposit takers - those that provide services to a very limited class of individuals - and corporates; and 
Class 1(3) – for representative offices of foreign banks, not able to take deposits in the island.

The Class 1(2) non-retail (or wholesale) banks (including private/merchant banking) would comprise a new banking sector on the Isle of Man. Class 1(2) would only be available to corporate depositors and a very limited class of individuals (with a high minimum entry criteria, which is still being discussed). Dependent on the outcome of the consultation, one definition of eligibility for individuals is “an individual depositor who certifies that they have a minimum of £500,000 net worth”. The standard licensing policy requirements for competency, solvency, integrity and the need for a real presence on the Isle of Man would still apply for Class 1(2) holders. 

The general characteristics and requirements of Class 1 (3) would be very similar to those for representative offices in Australia and Canada, and the licence fees would be much lower than for Class (1) and (2). 

For Class 1 (2) and Class 1 (3), it will not be possible to be part of the Isle of Man’s Depositors Compensation Scheme (DCS), meaning these banks would have no liability to fund the DCS in the event of another member bank failing. Of course, deposits with these new banks would not have the protection offered by the DCS (currently £50,000 for each individual and £20,000 for most corporates) in the event of their failure; such individuals banking with them are expected to be able to shoulder such losses. Rules focused on disclosure to make sure this is transparent to customers will be part of the ABR framework.

We continue to work closely with the British Banking Association.

The final consultation on ABR ends on 5 February, at which point the FSA will complete the framework for the 3 separate licences. The relevant regulations will be adopted in the summer, but applications can be considered now.

How do you characterise the business strategy of the Isle of Man at the moment in terms of how it competes against rival jurisdictions? 
Our long-established economic diversification strategy has seen us maintain our strong financial services sector and use this and our attractive business environment as a springboard to encourage emerging industries, such as e-business. Our more traditional sectors of manufacturing and tourism have also evolved and are now enjoying healthy growth. That growth was built around an economic framework that is strong, innovative and fit for purpose. But today, we must build on that success and drive forward further diversification and growth in our economy.

We have a strong reputation for nurturing SME businesses. That is why we believe a new “Enterprise Isle” package of initiatives announced by the Isle of Man’s chief minister, Allan Bell, in July will create an even stronger environment that supports entrepreneurs, innovation, and targets investment that drives growth.

Can you give me a bit more detail on the tax scheme for Isle of Man-based investors, and the inward investment fund and how that works? 
Although we have the zero/10 [corporate] tax regime in place, which has been successful in itself in attracting and retaining business, government is increasing tax incentives for businesses to help them grow. The zero per cent tax holiday to new commercial construction projects, developments and property improvements has been extended for projects where local jobs are being created. 

There will also be incentive schemes introduced that will encourage individuals to support Manx businesses through loans or equity investments in time for the [UK] budget. 

The £50 million Enterprise Development Scheme has two objectives: to create jobs on the Isle of Man and to create a real return on investment in order to create an evergreen investment fund.

The scheme will be managed by a regulated and experienced third party investment manager(s) who can make sure the funds are invested impartially. The scheme manager will be appointed soon.