Financial Supervision Commission: Regulating Collective Investment Scheme
A licence to carry on Class 3 regulated activity of Services to
Collective Investment Schemes permits a business operating in or from
the Isle of Man (with specified exclusions) to provide the following
services: to act as manager, administrator, trustee, custodian, fiduciary custodian, promoter, investment adviser or asset manager.
The Collective Investment Schemes Act 2008 (CIS Act) sets out the
statutory framework for the regulation of Collective Investment
Schemes, more commonly known as unit trusts, mutual funds or open-ended
investment companies. The Act came into force on 1st August 2008.
The Act sets out 4 classes of scheme:
1) Authorised Schemes under Schedule 1 of the Act;
2) International Schemes under Schedule 2 of the Act;
3) Exempt Schemes under Schedule 3 of the Act;
4) Recognised Schemes under Schedule 4 of the Act.
The Financial Supervision Commission has produced a Collective Investment Schemes handbook which provides full detail of regulated activities, exemptions and exclusions. Licenceholders are obliged to comply with any licence conditions imposed by the Commission and shown on the licence. The Financial Services Rule Book 2008 also contains detailed rules which have to be complied with by all licenceholders.
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. They are treated as equivalent
to UK retail schemes. Authorised Schemes are subject to detailed
regulation concerning their structure and operation. Investors in
Authorised Schemes are covered by the Authorised Collective Investment
Schemes Compensation)Regulations 2008.
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. They may not be promoted to the general public in the Isle
of Man ,but are capable of promotion outside the Island, subject to
rules in a host jurisdiction. ‘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 reviews the constitutional documents of the scheme but does not comment on investment objectives or strategy. The manager and trustee/fiduciary custodian must be Authorised Persons. A flexible approach is taken through which the needs of market place operators with innovative products can be developed. 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 Investor Fund is available only to specialist investors, generally institutional investors and high net worth individuals. The minimum investment is US$100,000. A Specialist Fund is not subject to approval in the Isle of Man and investors are not protected by statutory compensation arrangements.
The Qualifying Fund is available only to qualifying investors who are
non-retail investors. A Qualifying Fund is not subject to approval in
the Isle of Man and investors are not protected by statutory
compensation arrangements.
The Professional Investor Fund is available only to professional
investors who are generally market professionals and who have net
assets in excess of US$1 million. The minimum investment is US$100,000. A professional Investor Fund is not subject to approval in the Isle of Man and investors are not protected by statutory compensation arrangements.
The Experienced Investor Fund is aimed at the ‘Experienced
Investor’. From 1 November 2007, no new Experienced Investor Funds can be established. Equivalent funds may launch as Specialist or Qualifying
funds.
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 not
subject to regulation.
The new framework has positioned the Isle of Man as a premier location
for the domicile of many funds and the establishment of operations by
global fund managers.
They are well served by functionaries such as fund administrators, investment advisers, global custodians etc., together with leading accounting and legal practices with specialist
personnel. The Island can react quickly to market trends and
developments but also be innovative to lead in the marketplace.
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
Commission under Schedule 4 of the Collective Investment Schemes
Act. Once granted recognition, a Recognised Scheme may be promoted to the general public in the Island.
