Financial Supervision Commission: Regulation and Supervision
Regulation
The guiding principles for the Financial Supervision Commission's regulatory approach continue to be those set internationally. If the Island is to continue to attract reputable institutions and enjoy market access overseas, then these are the standards by which it will be judged.
The Commission's objectives are: a) securing an appropriate degree of protection for the customers of persons carrying on a regulated activity b) the reduction of financial crime c) supporting the Island's economy and its development as an international financial centre.
Another important reason for sustaining high standards is that the parent supervisors of licence holders rely on the Commission to exercise adequate supervision locally, so that they can be kept informed and alerted if issues arise. In this way, the feedback received from the Commission by parent supervisors is an important part of their consolidated supervision.
During 2001/2002, the Commission's executive undertook a self assessment of its compliance with the core principles of the Basel Committee on Banking Supervision and also those of the International Organisation of Securities Commissions (IOSCO), using the published methodology. The outcome was positive and the exercise helped identify areas where further work can be directed to strengthen the supervisory approach.
Supervision
The Commission uses both desk-based and onsite supervision to maintain the effectiveness of its work. Onsite visits remain a central part of the Commission's supervisory effort. Only by visiting a licenceholder's premises can the Commission's officers properly understand the business they are supervising and consider first hand the standards of conduct being observed. They are then also better placed to make peer group comparisons between institutions and keep in touch with industry best practice.
Typically, a visit team might comprise 3 or 4 persons led by a more experienced team leader. Advance notice of about a month will be given, and the nature and scope of the visit - with a list of those attending - will be explained. A visit is likely to take between one and three days, depending on the size and complexity of the business being reviewed.
The Commission has access to all the books and records necessary for it to perform its functions, and files may be tested for compliance. Copies of papers are taken only if they are required to verify procedures being followed or if particular supervisory concerns need to be pursued. Information which the Commission obtains in the course of its supervision is regarded as restricted information and therefore strictly confidential.
A draft report is sent to the licenceholder within ten days of the visit, to be checked by management for comment and accuracy. A final copy of the report will then be issued, which will contain an action plan and timetable for any points arising. A follow-up visit may be undertaken after the action period to verify that remedial steps have been taken.
The Commission undertakes an internal risk assessment of all its licenceholders. This guides the intensity of supervision of individual licenceholders and provides the basis for prioritising and setting the frequency for its onsite visit programme. It also focuses supervisory attention on the important issues.
The Commission has now signed Memoranda of Understanding with a number of jurisdictions, thus facilitating the transfer of supervisory information between regulators and the consolidated supervision of entities with common presences.
Designated Territory Status
Under arrangement with the UK, collective investment schemes authorised in the Island may be marketed to investors in the UK. To allow this arrangement, known as Designated Territory Status, to continue HM Treasury in the UK undertakes periodic reviews of the Island's regulatory arrangements to ensure their broad equivalence with those of the UK. In 2002 the FSA undertook a review of the Island's authorized scheme arrangements on behalf of HM Treasury.
In May 2003, the UK Treasury renewed the Isle of Man designated territory status for the purpose of Section 270 of the UK Financial Services and Markets Act 2000.
Similar reciprocal arrangements operate between the Isle of Man, Jersey, Guernsey and Ireland in respect of authorised schemes.
Isle of Man authorised schemes are also subject to the 'fast-track' approval procedure in Hong Kong and Australia.
In addition, the Japanese Securities Dealers Association have agreed that the Isle of Man authorised schemes, which have been recognised in the UK, are eligible for promotion to Japanese residents.
Depositors' Compensation Scheme
The Depositors' Compensation Scheme reports separately on its activities. The Commission acts as Scheme Manager, as well as being involved in the administration of the Scheme generally.
Complaints
Licenceholders are required to maintain a register of complaints so that client/customer concerns can be identified and remedial action monitored. In January 2002, a financial services Ombudsman was established under the aegis of the Office of Fair Trading.
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