Collective Investment Schemes
The Collective Investment Schemes Act 2008, which came into operation on 1 August 2008, contains the statutory framework for the regulation and governance in the Isle of Man of collective investment schemes, more commonly known as unit trusts, mutual funds or open-ended investment companies.
The Act sets out four classes of Scheme:
a) Authorised Schemes under Schedule 1 of the Act;
b) International Schemes (including Full International Schemes and other prescribed classes) under Schedule 2;
c) Exempt Schemes under Schedule 3;
d) Recognised Schemes under Schedule 4.
The Isle of Man was the first overseas territory to obtain designation under Section 87 of the UK Financial Services Act 1986, having satisfied the UK Government that the law under which collective investment schemes are authorised and supervised in the Island affords investors protection at least equivalent to that provided for them under the law of the United Kingdom.
The UK Government reaffirmed this status in 2003, following a review of the designated territories. Isle of Man authorised schemes also benefit from the 'fast track' approval procedures in Hong Kong and Australia, and following the decision of the Japanese Security Dealers Association in December 1991, are eligible for promotion to Japanese residents.
Authorised 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 Financial Supervision Commission under Schedule 1 of the Act. Authorised Schemes are subject to detailed regulation concerning their structure and operation.
The Authorised Collective Investment Scheme (Compensation) Regulations 2008 only apply to investors in Authorised Schemes.
International Schemes
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 of the Act, and may not be promoted to the general public in the Isle of Man
Full International Schemes are not subject to any direct approval or authorisation process but the manager of such a scheme must have the Commission's permission to act, and personnel involved (the Governing Body) must be fit and proper persons. The Commission aims to provide a flexible approach through which the needs of marketplace operators with innovative products can be developed.
The Manager and trustee/fiduciary custodian of a full international fund must be Authorised Persons. The Commission does not comment on the investment objectives of the scheme and investors are not protected by any statutory compensation arrangements.
There are further sub-categories of international scheme: the Specialist Fund, the Qualifying Fund, the Professional Investor Fund, and the Experienced Investor Fund.
The Specialist Fund is only available to specialist investors, generally institutional investors and high net worth individuals. The minimum investment is US $100,000.
The Qualifying Fund is only available to qualifying investors who are non-retail investors.
The Professional Investor Fund is available to professional investors who are market professionals with net assets in excess of US $1 million. The minimum investment is US$100,000.
The Experienced Investor Fund is aimed at the 'experienced investor'. From 1 November 2007, no new Experienced Investor Funds can be established.
Exempt Schemes
An exempt scheme is classified as such if it has less than 50 participants and the relevant constitutional documents expressly prohibit the making of an invitation to the public to subscribe in any part of the world. They are regarded as private arrangements and are not subject to regulation.
Recognised Schemes
These are Collective Investment Schemes which are managed in or authorised under the law of another country or territory outside the Island. They may not be promoted to the general public in the Island unless they have been granted recognition by the Financial Supervision Commissionunder Schedule 4 of the Act. Once granted recognition, a Recognised Scheme may be promoted to the general public in the Island.