Collective Investment Schemes

All you need to know about international, authorised and exempt 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.

These are 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.

Overseas Territory

The Isle of Man was the first overseas territory to obtain designation under Section 87 of the UK Financial Services Act 1986.

This was because it was able to satisfy the UK Government that investors would be provided with protection at least equivalent to that under the law of the UK.

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 Isle of Man or the UK, 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.

With this in mind, 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 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', but since 1st November 2007 no new funds of this nature have been allowed to be created.

Exempt Schemes

Schemes are exempt if they have less than 50 participants, and they are expressly prohibited from making of an invitation to the public to subscribe in any part of the world.  

Such schemes 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 Commission, under Schedule 4 of the Act. 

Once granted recognition, a Recognised Scheme may be promoted to the general public in the Island.