Financial sector structure

4. The Isle of Man attracts a diverse range of financial business, including banking, insurance, investment, and trust and company business. The vast majority of transactions are conducted with and between nonresidents. The structure of the financial sector at the end of June 2002 was as follows:

• 59 licensed banks and 2 licensed building societies. The banks come from a variety of geographical areas, including Europe, Ireland, South Africa, United Kingdom, and the United States. Total bank deposits were £27.1 billion. The majority of banks are engaged in providing private banking services to nonresidents. The services offered by banks are directed toward deposit-taking with lending activity primarily in the international interbank markets. Some banks act as custodians and trustees to collective investment schemes, while others conduct trade, finance, and treasury operations;

• 128 collective investment schemes established with licensed fund managers and third-party fund administrators. The value of collective investment funds was £5.2 billion (March 2002). Eighty-seven license holders are authorized to undertake investment business, including brokering life, pension, unit trust products, stock broking, and portfolio management;

• 17 authorized life assurance companies are incorporated and managed on the Isle of Man. The majority are subsidiaries of large U.K. or European life assurance and investment groups. These companies manage some £14.7 billion of policyholders funds. Annual premium income for 2001 was £4.9 billion;

• 165 captive insurance companies and 22 captive insurance management companies. Typically they are subsidiaries of major industrial organizations and are set up as dedicated insurance vehicles to help those organizations manage their insurance and risk management programs. Funds under management were £6.1 billion and annual premium income in 2001 was £1 billion;

• 35,514 registered companies, of which private companies are the vast majority. A variety of different company types and structures have evolved in response to commercial demands. About two-thirds of the companies registered are established and maintained for nonresidents who wish to benefit from the jurisdiction’s tax regime and financial services sector;

• 115 licensed CSPs, which provide a full range of corporate formation, management and administration services, and an additional number of TSPs;

• A comprehensive range of services—accountants, lawyers, and other professionals support the financial sector.

Supervisory bodies

5. The Financial Supervision Commission (FSC) was established in July 1983, under the Financial Supervision Commission Order 1983, as a statutory board. It is governed by the Statutory Boards Act of 1987. The FSC originally regulated both deposit-taking institutions and insurance business and, later, investment business. In 1986, a separate insurance authority to supervise and regulate the insurance industry was established. This has since evolved into the Insurance and Pensions Authority (IPA), which is also constituted as a statutory board governed by the Statutory Boards Act of 1987.

6. As a statutory board, eight commissioners appointed by the treasury, subject to the approval of the parliament, Tynwald, oversee the FSC’S work. The chairman is a member of Tynwald and the treasury;³ the Chief Executive of the FSC is also a commissioner. The commissioners can be removed at any time by the council of ministers, and both the council of ministers and the treasury can direct the board. The treasury determines the budgets of the statutory boards annually. These provisions effectively make the FSC and the IPA departments of government.

7. The FSC is responsible for the licensing and supervision of banks; building societies, investment business; collective investment schemes and CSPs; and for the initiation of legislation for the regulation and supervision of these sectors. It will shortly become responsible for the licensing and supervision of TSPs. Under the Financial Supervision Order 1983, the functions of the FSC are defined as taking “such steps as appear to it to be necessary or expedient for the effective supervision of the private financial and commercial sector in the jurisdiction, but with the exception of the insurance industry.”⁴ In practice, the FSC has focused its supervisory efforts on those areas that it considers to pose the greatest reputational risk to The Isle of Man.

8. In 2000, responsibility for maintaining the companies registry, which incorporates companies and registers documents that are required to be filed under the Companies Acts, and other related legislation, was transferred to the FSC from the general registry. This transfer reflected, inter alia, the recognized importance of the companies registry to overall offshore activity in the Isle of Man. As part of this transfer of functions, the FSC also became responsible for companies legislation. As at May 2003, the FSC had a complement of some 58.5 staff, of which 20 are assigned to maintaining the companies registry

9. The treasury, subject to the approval of Tynwald, also appoints the members of the Board of the IPA. The Chairman of the IPA currently is a member of Tynwald and its chief executive is a member of the board. The IPA is responsible for the authorization and ongoing supervision of companies carrying out insurance business in or from The Isle of Man, and insurance companies incorporated in the jurisdiction, and for the regulation of pension schemes. It is also responsible for the registration of insurance management companies and insurance intermediaries carrying on general business. The IPA has a complement of 12 staff.

Legal framework

10. The Isle of Man is a Crown Dependency and self-governing, and is a separate legal jurisdiction from the United Kingdom. The parliament, Tynwald, is the legislature. The Isle of Man is a common law jurisdiction and its courts generally follow local and overseas precedents.

11. The Isle of Man is neither a separate member state nor an associate member of the European Union (EU). On the United Kingdom’s entry into the common market, a Protocol to the Treaty of Accession was negotiated. The Protocol sets out the very limited extent to which EU measures apply within the Isle of Man. Under Protocol 3, the jurisdiction is part of the customs territory of the EU. The common customs tariff levies, and other measures relating to trade apply, and there is free movement of goods in trade between the jurisdiction and the EU; however, no other EU rules apply.

12. The legislative arrangements in the Isle of Man have evolved over a number of years and constitute a comprehensive, if somewhat complex, regulatory framework. The complexity of the legislation is recognized in the plans of the FSC for a Financial Supervision Consolidation Bill, currently planned for discussion by Tynwald in 2004. The key financial legislation is as follows:

• the Statutory Boards Act 1987, and the Financial Supervision Commission Order 1983, which govern the operation of the FSC and also, in the case of the operation of the IPA, the Insurance Act, 1986, and the Retirement Benefits Schemes Act 2000;

• the Banking Act 1998, regulates banking business, which may not be carried on in or from within the jurisdiction without a license. The Act confers licensing power to the FSC. The Act provides substantial powers for supervisory, disciplinary, and enforcement purposes;

• the Building Societies Act 1986, governs building societies. The Act gives the FSC power to authorize them and to require information about their affairs;

• collective investment schemes are regulated and supervised under the Financial Supervision Act 1988. Only schemes that are recognized or authorized by the FSC may be promoted to the general public in the Isle of Man;

• the Companies Acts 1931–1993, provide for the incorporation of companies, the issue of company securities; in particular, shares and debentures, and gives the high court the power to appoint inspectors to investigate the affairs of companies. The Acts have been amended several times over the years to take account of changing business products and practices;

• the Corporate Service Providers Act 2000, gives the FSC the necessary powers to consider applications, issue licenses, and generally regulate and supervise persons engaged in providing widely defined services in relation to the incorporation, management, and administration of companies. A Fiduciary Services Bill, due for consideration by Tynwald in late 2003, will extend the framework already in place for CSPs to encompass the regulation of TSPs;

• the Credit Unions Act 1993, regulates the establishment, registration, and operations of credit unions, and the FSC is responsible for their supervision;

• the Insurance Act 1986, and the Insurance Intermediaries (General Business) Act, 1996, provide for the regulation and supervision of insurance companies, insurance management companies, and general insurance intermediaries;

• the Investment Business Act 1991, gives the FSC the authority to regulate and supervise investment business. The FSC authorizes persons to carry on the business and can require information, investigate their affairs, and enforce directions;

• the anti-money laundering regime is supported by a number of statutes, including the Drug Trafficking Act 1996, which introduced powers to require the production of information and documents, and restrain and confiscate the proceeds of crime. The Prevention of Terrorism Act 1990, created the offence of assisting in the retention or control of terrorist funds. The Criminal Justice Act 1990, extended the production, restraint, detention, and confiscation powers to all crimes and allowed the Isle of Man to assist other jurisdictions. The Criminal Justice Act 1991, included powers to provide mutual assistance in criminal matters. The Criminal Justice (Money Laundering) Act 1998, extended the Criminal Justice Act 1990 to criminalizing the laundering of the proceeds of all serious crimes, and provided for the powers to make anti-money laundering codes—for example, the Anti-Money Laundering Code 1998.

Sectoral assessments

18. In addition to the above general observations, the following provides a brief summary of the sectoral assessments.

Company and trust service providers

24. The Isle of Man is one of the first jurisdictions to apply a comprehensive regulatory regime to CSPs. The FSC’s legal framework, including licensing policy, and various codes and practices with respect to CSPs and TSPs, was reviewed in light of the recent OGBS “Statement of Best Practice” for trust and company service providers.

25. The regulatory regime for CSPs is consistent with the OGBS statement and, in some respects, exceeds the best practices. There are a few areas, however, where some fine-tuning is necessary, and these will be addressed in the forthcoming Fiduciary Services Bill.

26. A regulatory regime for TSPs is not yet in place, but the framework for the regulation and supervision of CSPs provides a satisfactory framework on which to build the supervisory system. The plan is to proceed with the licensing of TSPs under the Fiduciary Services Bill.

27. With respect to the progress of licensing, while the FSC appears to have dealt with the application process for CSPs well, at the time of the mission’s visit there were still a number of CSPs operating under “transitional registration provisions.” Although these companies and individuals all applied for licenses and were covered by the enforcement provisions of the CSP legislation, some had not yet been licensed because the licensing process was not yet complete. Under the transitional arrangements there could have been businesses still operating to a standard not acceptable for a licensed entity.

28. Since the date of the mission, these risks have been substantially reduced by two measures. Firstly, the CSP Codes have been extended to all CSPs, including as yet unlicensed applicants, with effect from May 1, 2003, and therefore, the same standards apply to all CSPs. Secondly, a deadline of July 31, 2003, was set for the completion of the licensing of CSPs. The Commissioners considered all the CSP license applications by the July 31 deadline. In accordance with the Commission’s published licensing policy, there are a small number of applications which cannot be decided pending the outcome of an investigation or litigation. The remaining unapproved applicants are withdrawing in accordance with programs agreed with the Commission. The small number of CSPs now operating under “transitional registration provisions” due to the licensing policy are covered by the enforcement provisions of the CSP legislation. With respect to TSPs, until the legislation is in place and the vetting process is also completed, the FSC will not be aware whether all of them can meet the OGBS’s standards. The FSC envisages that the majority of TSP license applications will be from CSP license holders who have already met the FSC’s fitness and propriety criteria.

Independence and accountability of the regulators

31. A key issue identified in the assessment is the lack of independence and accountability of the regulators. This shortcoming has not been a major concern to date, given the nature of the business activity and the small size of the jurisdiction, with its collegial culture, and commitment to high-quality regulation. However, the mission does consider that establishing the independence of regulation, with clearly defined responsibilities and powers, and with a formal process to ensure proper accountability, is important to the development of the financial services industry.

32. The authorities should enact appropriate legislation to establish independent and accountable financial supervisors. The treasury is considering a review of the functions of the FSC and IPA, and, as noted, a Financial Supervision Consolidation Bill covering FSC legislation is planned for parliamentary discussion in 2004. As part of this review and drafting process Key actions to consider are: (1) revocation of the powers of the council of ministers and the treasury to give directions to the FSC and IPA, and discontinue the practice of appointing members of Tynwald or the treasury to the FSC and the IPA; and (2) introduction of general provisions relating to the qualifications and experience of commissioners, require the FSC and IPA to publish annual reports containing full information about their financial affairs and performance, and to present the reports to parliament

33. In addition, a number of more specific recommended actions are provided in the next section for each of the four assessed standards.

Institutional setting and market structure

34. The majority of banks in the Isle of Man are engaged in providing private banking services to nonresidents. The services offered by banks are directed toward deposit taking with the funds on lent primarily in the international inter bank markets. Some banks act as custodians and trustees to collective investment schemes, while others conduct trade finance and treasury operations.

General preconditions for effective banking supervision

35. The Banking Act 1998, regulates banking business, which may not be carried on in or from within the jurisdiction without a license. The Act confers licensing powers on the FSC. The Act provides substantial powers for supervisory, disciplinary, and enforcement purposes.

Table 1.

Bank Deposits

Table 1.

Bank Deposits

			Total Bank
	Sterling	Non-Sterling	Deposits
Date	(in billions of £)	(in billions of £)	(in billions of £)
31/12/98	14.98	7.33	22.31
31/12/99	15.20	7.76	22.96
31/12/00	17.83	6.86	24.69
31/12/01	17.72	9.27	26.99
3l/03/02	18.08	8.80	26.88
30/06/02	18.48	8.54	27.02
30/09/02	18.31	8.80	27.11

View Table

Table 1.

Bank Deposits

			Total Bank
	Sterling	Non-Sterling	Deposits
Date	(in billions of £)	(in billions of £)	(in billions of £)
31/12/98	14.98	7.33	22.31
31/12/99	15.20	7.76	22.96
31/12/00	17.83	6.86	24.69
31/12/01	17.72	9.27	26.99
3l/03/02	18.08	8.80	26.88
30/06/02	18.48	8.54	27.02
30/09/02	18.31	8.80	27.11

36. Under the Financial Supervision Order 1983, the functions of the FSC are defined as taking “such steps as appear to it to be necessary or expedient for the effective supervision of the private financial and commercial sector in the jurisdiction, but with the exception of the insurance industry.”⁷ In practice, the FSC has focused its supervisory efforts on those areas that it considers to pose the greatest reputational risk to the jurisdiction.

37. The FSC has to be commended for its proactive stance in establishing high standards for banking in order to attract and maintain a reputable international financial center.

Principle-by-principle assessment

38. The detailed assessment of compliance show that the financial regulatory system of the Isle of Man generally complies well with the Basel Core Principles for Effective Banking Supervision.

Accounting, CP 21; Remedial Measures, CP 22; Cross-Border Banking, CPs 23—25

43. The Isle of Man achieves a high degree of compliance with these CPs.

Table 2.

Recommended Actions to Improve Compliance with the Basel Core Principles

Table 2.

Recommended Actions to Improve Compliance with the Basel Core Principles

Reference Principle	Recommended Action
CP 1(2)–Operational independence and adequate resources	The existing framework of government dependence and the lack of budgetary autonomy should be addressed. Perform an in-depth analysis of the resources required to fulfill the supervisory objectives and as a consequence, establish a change plan for the business process of banking supervision.
CP 16–On-site and off-site supervision	Prioritize the completion of the examination methodology for full scope examinations supplemented by formalized quality control procedures. Explore increased synergies between FSC and external auditors.

View Table

Table 2.

Recommended Actions to Improve Compliance with the Basel Core Principles

Reference Principle	Recommended Action
CP 1(2)–Operational independence and adequate resources	The existing framework of government dependence and the lack of budgetary autonomy should be addressed. Perform an in-depth analysis of the resources required to fulfill the supervisory objectives and as a consequence, establish a change plan for the business process of banking supervision.
CP 16–On-site and off-site supervision	Prioritize the completion of the examination methodology for full scope examinations supplemented by formalized quality control procedures. Explore increased synergies between FSC and external auditors.

Authorities’ response to the assessment

Reference Principle	Action Taken/To be Taken
CP 1 (2)–Operational independence and adequate resources	The Isle of Man Treasury is currently undertaking a full review of the jurisdiction’s regulatory bodies (scheduled for completion by June 2004). This review will have full regard to independence, accountability and proposed changes to the legislative framework.
CP 16–On-site and off-site supervision	The examination methodology for full scope examinations has now been completed. Formalized quality control procedures have been put in place. Within the reorganization of Supervision Division there will be one senior individual assigned responsibility for consistency of approach and quality control for both on-site and off-site supervision. There will be a validation panel, consisting of experienced supervisors, to validate / challenge risk assessments and supervisory programs for individual license holders. Since the IMF visit, two meetings have taken place with the external auditors of banks. Each audit firm was represented at partner level at both meetings. The first meeting sought to identify synergies between the external auditors and the FSC. The second was to discuss industry wide current auditing and supervisory issues on a non-license holder specific basis. It was agreed that formal half-yearly meetings will take place. In addition, the Commission and the auditors agreed to enhance cooperation with each other on specific issues and to consider more regular bilateral or trilateral meetings. The Commission will also consider making greater use of the Reporting Accountants regime.

View Table

Reference Principle	Action Taken/To be Taken
CP 1 (2)–Operational independence and adequate resources	The Isle of Man Treasury is currently undertaking a full review of the jurisdiction’s regulatory bodies (scheduled for completion by June 2004). This review will have full regard to independence, accountability and proposed changes to the legislative framework.
CP 16–On-site and off-site supervision	The examination methodology for full scope examinations has now been completed. Formalized quality control procedures have been put in place. Within the reorganization of Supervision Division there will be one senior individual assigned responsibility for consistency of approach and quality control for both on-site and off-site supervision. There will be a validation panel, consisting of experienced supervisors, to validate / challenge risk assessments and supervisory programs for individual license holders. Since the IMF visit, two meetings have taken place with the external auditors of banks. Each audit firm was represented at partner level at both meetings. The first meeting sought to identify synergies between the external auditors and the FSC. The second was to discuss industry wide current auditing and supervisory issues on a non-license holder specific basis. It was agreed that formal half-yearly meetings will take place. In addition, the Commission and the auditors agreed to enhance cooperation with each other on specific issues and to consider more regular bilateral or trilateral meetings. The Commission will also consider making greater use of the Reporting Accountants regime.

Information and methodology used for the assessment

45. In preparing the detailed assessment, Fund staff reviewed the relevant AML/CFT laws and regulations, and supervisory and regulatory systems in place, to deter money laundering and financing of terrorism among prudentially regulated financial institutions. In addition, the Fund reviewed the regulatory systems in place for CSPs, some of which were fully licensed at the time of the assessment, with a smaller number still at the application stage and being treated under transitional provisions. The FSC was also in the early stages of establishing a framework for the regulation of TSPs. The expert that was not under the supervision of Fund and Bank Staff reviewed the capacity and implementation of criminal law enforcement systems. The mission was undertaken over the course of two visits to the Isle of Man. The assessment is based on information available at the times of the two visits (i.e., October 30, 2002 and February 13, 2003).

Criminal Justice Measures and International Cooperation

Preventive measures for financial institutions

61. The FSC and the IPA have established comprehensive programs for implementing AML/CFT standards amongst prudentially regulated institutions. Prudentially regulated sectors include banking, insurance, and investments. At the time of the assessment, the process of regulating CSPs was well advanced and plans were in place to commence the regulation of TSPs. Both regulators have issued detailed guidance notes and have a strong rapport with the financial services industry. They both undertake on- and off-site surveillance of regulated institutions. The FSC and IPA have visited most banks, fund and investment managers, and insurance companies. The regulatory bodies have been actively involved in training initiatives for the industry.

62. Apart from measures directly related to its AML/CFT regime, the company registration role undertaken by the FSC is also critical. Since the companies registry function is undertaken by the FSC, it has the opportunity to undertake detailed due diligence on all companies, including those seeking to operate as a licensed financial institution.

63. The on-site reviews undertaken by both regulators are thorough and in a number of cases following the conduct of such reviews licensees were directed to undertake remedial action to meet required standards. In some instances, concerns were referred to the attorney general to determine if specific action should be taken against the institutions in question.

64. No members of the IPA staff are employed full time on AML/CFT, but two staff members devote significant portions of their time to AML/CFT matters, and have the ability to call upon the assistance of other staff of the IPA whenever required. All members of the supervisory staff have some experience of AML/CFT matters, and refresher training is undertaken. It is the intention of the IPA that all life assurance companies will be visited at least once in every two years, with follow-up and additional visits, if appropriate. Over the last two years, all but one of the insurance companies have been visited.

65. An enforcement officer at the FSC devotes the vast majority of his time to AML/CFT issues and is able to call upon the assistance of other FSC staff, as required. All staff attend training on AML/CFT annually. Over the last three years, the FSC has visited most licensed banks and fund and investment managers, and 27 CSPs. The AML/CFT reviews are also undertaken through off-site surveillance.

66. In December 2000, the Isle of Man, in conjunction with Guernsey and Jersey, developed the consultation document entitled, “Overriding Principles For a Revised Know Your Customer Framework.” On the basis of responses to the document, the Commissions issued a paper outlining the direction to be taken in the AML legal and regulatory frameworks in each jurisdiction. This paper, which does not replace the existing guidance notes, focuses on issues related to the verification of customer identity.

67. Among the many aspects of identity verification addressed in the paper are the issues of introduced business and the verification of customers’ identity whose relationship with financial institutions pre-dates the all-crimes anti-money laundering legislation (progressive program). Unlike the existing framework where an introducer can hold verification documents to be made available to the “accepting party” on request, the paper envisages that an “accepting party” will always hold either originals or copies of these documents. In terms of the progressive program, the paper envisages that where FIs discover any deficiencies in existing verification documents, they should seek to obtain necessary information to address the deficiency. It proposes that this work be undertaken on the basis of risk prioritization and trigger events.

68. The IPA has implemented those areas of the Overriding Principles appropriate to the insurance sector within the CTP. This includes a requirement for all license holders to have in place a retrospective review program.

69. Visits to regulated institutions indicated a high level of awareness of AML/CFT issues, policies, and procedures, which generally meet international standards. Most institutions visited had well-documented policies and procedures in place, including a graduated range of measures that are applied on the basis of perceived risks.

70. At the time of the assessment, the FSC had commenced the process of regulating CSPs and plans were in place to commence the regulation of TSPs. The FSC has set a deadline for completion of the licensing process for CSPs by July 31, 2003. However, both CSPs and TSPs are captured by the AML/CFT legal framework. The CSPs are included in the FSC’s surveillance activities, and TSPs will be included once the licensing regime is in place. [The FSC does not regulate TSPs yet and, therefore, has no powers to oversee AML/CFT compliance by TSPs and does not do so). At the time of the assessment, 27 CSPs had been visited by the FSC.

71. The principal areas of concern with respect to preventive measures for financial institutions are the following:

• Although the framework is generally effective, the FSC does not have the statutory authority to regulate or monitor compliance for MSBs, which is the responsibility of Customs and Excise. This is considered to be a potential weakness.

• Visits to financial institutions revealed a wide range of KYC practices in relation to the issues addressed by the Overriding Principles Paper. The FSC should continue its efforts to achieve a greater degree of uniformity in the practices used by license holders. This is particularly needed in matters related to introduced business and the retrospective verification of customer identity.

• While the FSC and the IPA have been able to undertake on-site visits to most institutions over a two-year period, this has to some extent been at the expense of adequate surveillance of other areas of risk faced by licensees. It is considered that the current level of resources available to the FSC’s Supervision Division are insufficient to enable it to exercise a comprehensive surveillance function across all financial institutions

Summary assessment against the FATF recommendations

72. The Isle of Man has a comprehensive legal and institutional AML/CFT framework with high levels of compliance observed amongst regulated institutions. This report however makes a number of recommendations for further strengthening of the regime. Table 1 summarizes actions required in relation to the 40+8 recommendations.

Table 3.

Recommended Action Plan to Improve Compliance with the FATF Recommendations

Table 3.

Recommended Action Plan to Improve Compliance with the FATF Recommendations

Reference FATF Recommendation	Recommended Action
40 Recommendations for AML
Provisional measures and confiscation (FATF 7)	Consideration should be given to the adoption of a civil forfeiture law for crimes other than FT.
Customer identification and record-keeping rules (FATF 10–13)	The relevant laws should be amended to explicitly require that customer identification procedures be followed by reporting parties. The FSC has already undertaken considerable work to direct FIs towards the customer identification standards proposed by the Position Paper. It is nevertheless recommended that these efforts be redoubled to ensure a greater degree of consistency in the approach adopted by licensees.
Measures to cope with countries with insufficient AML measures (FATF 20–21)	Consideration should be given to the imposition of a requirement that all Isle of Man FIs apply Isle of Man legal and regulatory requirements in respect of AML/CFT to their branches and subsidiaries outside of Isle of Man. Consideration should also be given to ensuring that institutions test compliance of AML/CFT systems against home and host country standards.
8 Special recommendations on terrorist financing
I. Ratification and implementation of UN Instruments	Implementing legislation, in particular the Anti-Terrorism and Crime Act, should be adopted or implemented by the Isle of Man so that the UN Convention for the Suppression of the Financing of Terrorism, and the UN Convention Against Transnational Organized Crime (Palermo Convention) may be extended to the Isle of Man.
II. Criminalizing the financing of terrorism and associated money laundering	The Anti-Terrorism and Crime Act should be implemented so that the financing of terrorism and associated money laundering may be fully criminalized.
VII. Wire transfers	Within the two-year period referred to by FATF, the relevant laws should be amended to require that accurate and meaningful originator information on funds transfers remain with the transfer through the payment chain, and that FIs give enhanced scrutiny to wire transfers that do not contain complete originator information.

View Table

Table 3.

Recommended Action Plan to Improve Compliance with the FATF Recommendations

Reference FATF Recommendation	Recommended Action
40 Recommendations for AML
Provisional measures and confiscation (FATF 7)	Consideration should be given to the adoption of a civil forfeiture law for crimes other than FT.
Customer identification and record-keeping rules (FATF 10–13)	The relevant laws should be amended to explicitly require that customer identification procedures be followed by reporting parties. The FSC has already undertaken considerable work to direct FIs towards the customer identification standards proposed by the Position Paper. It is nevertheless recommended that these efforts be redoubled to ensure a greater degree of consistency in the approach adopted by licensees.
Measures to cope with countries with insufficient AML measures (FATF 20–21)	Consideration should be given to the imposition of a requirement that all Isle of Man FIs apply Isle of Man legal and regulatory requirements in respect of AML/CFT to their branches and subsidiaries outside of Isle of Man. Consideration should also be given to ensuring that institutions test compliance of AML/CFT systems against home and host country standards.
8 Special recommendations on terrorist financing
I. Ratification and implementation of UN Instruments	Implementing legislation, in particular the Anti-Terrorism and Crime Act, should be adopted or implemented by the Isle of Man so that the UN Convention for the Suppression of the Financing of Terrorism, and the UN Convention Against Transnational Organized Crime (Palermo Convention) may be extended to the Isle of Man.
II. Criminalizing the financing of terrorism and associated money laundering	The Anti-Terrorism and Crime Act should be implemented so that the financing of terrorism and associated money laundering may be fully criminalized.
VII. Wire transfers	Within the two-year period referred to by FATF, the relevant laws should be amended to require that accurate and meaningful originator information on funds transfers remain with the transfer through the payment chain, and that FIs give enhanced scrutiny to wire transfers that do not contain complete originator information.

Authorities’ response to the assessment

Reference FATF Recommendation	Action Taken/Action to be Taken
40 Recommendations for AML
Provisional measures and confiscation (FATF 7)	The Anti-Terrorism and Crime Bill (which is mentioned throughout the Report) has passed through all its parliamentary stages in the Isle of Man and Royal Assent was announced in June 2003. The new Act gives significantly more powers to combat FT and enables the forfeiture of assets of corresponding value.
Customer identification and record-keeping rules (FATF 10–13)	The interim review of the Anti-Money Laundering Code 1998 has been completed, with a revised draft 2003 Code issued for consultation at the start of July One of the principal new provisions is that the ongoing obligation to operate identification procedures will be made clearer. Initiatives to incorporate the provisions of the Overriding Principles Paper in respect of the treatment of professional intermediaries into the legal framework and the notes, will be completed in particular following a decision by FATF on its treatment of such persons. The notes will be reviewed regarding the requirement to undertake periodic re-verification of personal customers under certain circumstances. IPA comment: The CTP includes explicit requirements for the verification standards to be followed by the Insurance Business. The CTP also include a requirement for every Insurance Business to have a program in place to retrospectively review all existing client files.
	The interim review of the Anti-Money Laundering Code 1998 has been completed, with a revised draft 2003 Code issued for consultation at the start of July The following are the principal new provisions- a continuing obligation is to be imposed on relevant businesses to verify evidence of identity as soon as reasonable practicable after:-The relevant person becomes aware of anything which causes the relevant person to doubt the identity of the person who, in relation to the formation of the business relationship, was the applicant for business.
Measures to cope with countries with insufficient AML measures (FATF 20-21)	A new section, S2.08, has been included in the new notes to cover the requirement to impose standards of AML/CFT to branches, etc., outside the Isle of Man. IPA comment: It is a requirement of the CTP that all branches and subsidiaries apply, as a minimum, the Isle of Man standards and requirements to their business wherever situated The interim review of the Anti-Money Laundering Code 1998, has been completed, with a revised draft 2003 Code issued for consultation at the start of July. One of the principal new provisions is that relevant businesses will have to ensure that branches and subsidiaries outside the Isle of Man will undertake AML procedures that are no less strict than those that are operated by the relevant businesses.
8 Special Recommendations on Terrorist Financing
I. Ratification and implementation of UN Instruments	The Anti-Terrorism and Crime Bill (which is mentioned throughout the Report) has passed through all its parliamentary stages in the Isle of Man, and royal assent was announced in June 2003. The new Act gives significantly more powers to combat FT.
VII. Wire transfers	S4.04 of the notes refers to the FATF recommendation to establish a requirement for the inclusion of originator information on funds transfer. The FSC accepts that there is a global problem of absence of originator information as a result of IT limitations. The new notes require a license holder to conduct enhanced scrutiny of and monitor funds transfers that do not contain complete originator information. License holders should have a program in place to comply with FATF’s recommendations in respect of outgoing fund transfers by December 2003.

View Table

Reference FATF Recommendation	Action Taken/Action to be Taken
40 Recommendations for AML
Provisional measures and confiscation (FATF 7)	The Anti-Terrorism and Crime Bill (which is mentioned throughout the Report) has passed through all its parliamentary stages in the Isle of Man and Royal Assent was announced in June 2003. The new Act gives significantly more powers to combat FT and enables the forfeiture of assets of corresponding value.
Customer identification and record-keeping rules (FATF 10–13)	The interim review of the Anti-Money Laundering Code 1998 has been completed, with a revised draft 2003 Code issued for consultation at the start of July One of the principal new provisions is that the ongoing obligation to operate identification procedures will be made clearer. Initiatives to incorporate the provisions of the Overriding Principles Paper in respect of the treatment of professional intermediaries into the legal framework and the notes, will be completed in particular following a decision by FATF on its treatment of such persons. The notes will be reviewed regarding the requirement to undertake periodic re-verification of personal customers under certain circumstances. IPA comment: The CTP includes explicit requirements for the verification standards to be followed by the Insurance Business. The CTP also include a requirement for every Insurance Business to have a program in place to retrospectively review all existing client files.
	The interim review of the Anti-Money Laundering Code 1998 has been completed, with a revised draft 2003 Code issued for consultation at the start of July The following are the principal new provisions- a continuing obligation is to be imposed on relevant businesses to verify evidence of identity as soon as reasonable practicable after:-The relevant person becomes aware of anything which causes the relevant person to doubt the identity of the person who, in relation to the formation of the business relationship, was the applicant for business.
Measures to cope with countries with insufficient AML measures (FATF 20-21)	A new section, S2.08, has been included in the new notes to cover the requirement to impose standards of AML/CFT to branches, etc., outside the Isle of Man. IPA comment: It is a requirement of the CTP that all branches and subsidiaries apply, as a minimum, the Isle of Man standards and requirements to their business wherever situated The interim review of the Anti-Money Laundering Code 1998, has been completed, with a revised draft 2003 Code issued for consultation at the start of July. One of the principal new provisions is that relevant businesses will have to ensure that branches and subsidiaries outside the Isle of Man will undertake AML procedures that are no less strict than those that are operated by the relevant businesses.
8 Special Recommendations on Terrorist Financing
I. Ratification and implementation of UN Instruments	The Anti-Terrorism and Crime Bill (which is mentioned throughout the Report) has passed through all its parliamentary stages in the Isle of Man, and royal assent was announced in June 2003. The new Act gives significantly more powers to combat FT.
VII. Wire transfers	S4.04 of the notes refers to the FATF recommendation to establish a requirement for the inclusion of originator information on funds transfer. The FSC accepts that there is a global problem of absence of originator information as a result of IT limitations. The new notes require a license holder to conduct enhanced scrutiny of and monitor funds transfers that do not contain complete originator information. License holders should have a program in place to comply with FATF’s recommendations in respect of outgoing fund transfers by December 2003.

General

73. This assessment of the current state of the Isle of Man’s compliance with the IAIS Core Principles has been completed as part of the IMF Offshore Financial Center (OFC) assessment program. The assessment was undertaken by John Darwood (Consultant MFD).

74. Completion of a formal assessment serves several purposes. First, it benchmarks the current state of insurance supervision, recognizing that there have been extensive changes in the last years. Second, it suggests a number of further improvements or changes. Thus, this report provides a key input for the development of an action plan to move toward full compliance with the Core Principles.

Information and methodology used for assessment

75. This assessment has been conducted by comparison of the standards and practices of insurance supervision with the Insurance Core Principles and Insurance Core Principles Methodology promulgated by the International Association of Insurance Supervisors (IAIS), of which the Isle of Man is a member. In addition meetings have been held with the various insurance market associations and some individual companies.

Institutional and macroprudential setting-overview

76. The Isle of Man government Insurance and Pensions Authority (IPA) is the responsible body for the supervision of all insurance activity on the Island with the exception of life insurance intermediaries who are registered with the FSC for life business only. The IPA Mission Statement is as follows:

The IPA exists to maintain and develop an effective regulatory framework for insurance and pension business which will:

• provide security for investors;

• prevent and deter the Isle of Man being used for the purposes of financial crime;

• preserve the international reputation of the Isle of Man;

• ensure a flourishing environment for Isle of Man businesses.

77. There are three major strands of insurance business carried on in the Island, international life business, captive insurance business and domestic general and life business.

General preconditions for effective insurance regulation

78. Like the other crown dependencies, the jurisdiction has two distinct areas of offshore business, international life companies and captive insurance companies; but in the present case, the former comprises a much more substantial element, which accounts for some £14 billion of policyholders’ funds. The latter has a collective premium income of some £1.05 billion. There is only one locally incorporated company writing domestic business.

79. The most obvious benefit the combined insurance sector brings is that of employment; currently, nearly 2,500 persons, about 5.5 percent of the entire workforce, are being engaged in the industry. Spin-off benefits are found in the related business support services, banking, accounting, and legal. The jurisdiction enjoys a good reputation internationally.

80. The responsibility for the supervision of the insurance market (with the exception of life insurance intermediaries) rests with the IPA, an independent statutory board established under the Insurance Act 1986, which, together with regulations and guidance notes, provides the foundation for the supervision. Life insurance intermediaries are registered with the FSC for life business only.

81. The preconditions for effective insurance supervision are provided and the infrastructure is well developed:

• the legal framework in place has worked well to date but has been recognized as being in need of updating which has led to an extensive review and the planned introduction of an insurance (amendment) bill by October 2003;

• the court system is efficient and reliable;

• the applied accounting standards are internationally accepted;

• actuarial and auditing services are available and apply recognized principles;

• sound and effective macroeconomic policies are in place, which allow the insurance industry to operate in a stable environment.

82. The supervisor is fully equipped to exercise its functions adequately. The IPA has an establishment of 12 full-time staff comprising a director, managers, supervisors, and analysts. Two positions are currently unfilled and actuarial services are available by way of consulting actuaries.

Principle-by-principle assessment

83. The jurisdiction has achieved a reasonable degree of compliance with the IAIS Insurance Core Principles.

Cross Border Operations, Supervisory Coordination and Cooperation, and Confidentiality (Principles 15—17)

113. All persons carrying on insurance business in the jurisdiction must be licensed and comply with ongoing reporting requirements. New subsidiaries or branches of foreign companies are always subject to consultation between the respective supervisors.

114. The supervisor has the power to, and will cooperate with, any home country supervisor who may wish to conduct an on-site visit within the jurisdiction.

115. The supervisor enjoys good working relationships with the U.K. FSA—important because many of the International Life companies are subsidiaries of U.K. parents (or are also authorized by the UK FSA in respect of UK business)—and with other members of the IAIS, supported by formal MOUs.

116. The Act imposes duties of confidentiality on the supervisor and staff. A person who fails is guilty of an offence. The cases in which the supervisor is permitted to disclose or share information are set out in the Act, but these are not considered to be entirely adequate and consequently they are to be updated as part of the proposed amendment bill.

Table 4.

Recommended Action Plan for Observance of IAIS Insurance Core Principles

Table 4.

Recommended Action Plan for Observance of IAIS Insurance Core Principles

Reference Principle	Recommended Action
CP 1, Organization	In order to strengthen the operational independence of the supervisor, the Board of the IPA should not have any representation from Tynwald, and powers for making secondary legislation should be transferred from the treasury to the IPA. Efforts to amend the existing legislation should be expedited.
CP 4, 5 Corporate governance and Internal controls	These principles should be fully recognized within the legislation by way of development of appropriate regulations; firstly, because of the very evident present-day need of proper supervision in this area, and, secondly, because several other planks in the present structure, e.g., internal controls and on-site inspections, will not be fully effective without it.
CP 6 and 7, Assets and Liabilities	On-site inspection procedures should be carefully reviewed to ensure that all the appropriate checks are covered.
CP 9 Derivatives	Although there is currently little activity in this area, the existing guidelines should be reviewed, and the reporting requirements under the existing regulations should be expanded to take the Principle fully into account.
CP 11 Market conduct	Consideration should be given to bringing those general insurance intermediaries not currently required to be registered to be brought within the scope of the Intermediaries Act.
CP 12 Financial reporting	Insurance managers should be required to file an annual return for their own business (audited accounts and list of managed companies).

View Table

Table 4.

Recommended Action Plan for Observance of IAIS Insurance Core Principles

Reference Principle	Recommended Action
CP 1, Organization	In order to strengthen the operational independence of the supervisor, the Board of the IPA should not have any representation from Tynwald, and powers for making secondary legislation should be transferred from the treasury to the IPA. Efforts to amend the existing legislation should be expedited.
CP 4, 5 Corporate governance and Internal controls	These principles should be fully recognized within the legislation by way of development of appropriate regulations; firstly, because of the very evident present-day need of proper supervision in this area, and, secondly, because several other planks in the present structure, e.g., internal controls and on-site inspections, will not be fully effective without it.
CP 6 and 7, Assets and Liabilities	On-site inspection procedures should be carefully reviewed to ensure that all the appropriate checks are covered.
CP 9 Derivatives	Although there is currently little activity in this area, the existing guidelines should be reviewed, and the reporting requirements under the existing regulations should be expanded to take the Principle fully into account.
CP 11 Market conduct	Consideration should be given to bringing those general insurance intermediaries not currently required to be registered to be brought within the scope of the Intermediaries Act.
CP 12 Financial reporting	Insurance managers should be required to file an annual return for their own business (audited accounts and list of managed companies).

Authorities’ response to the assessment

Reference Principle	Action Taken/To Be Taken
CP 1, Organization	The treasury has undertaken to review the question of Tynwald representation on the Board of the IPA. In addition, the amendment bill sets out a clear statement of the IPA’s regulatory objectives and the division of responsibilities between its board and executive. The appeals process will be revised by the provisions of the Insurance (Amendment) Bill 2003 and the treasury will be removed from it. Under the Bill, the power to make secondary legislation will also be transferred to the IPA.
CP 4, 5 Corporate governance and Internal controls	The Insurance (Amendment) Bill includes enabling provisions to allow the IPA to make regulations or statutory codes as appropriate in this area and update the IPA’s powers of inspection and investigation and the range of sanctions available.
CP 6 and 7, Assets and Liabilities	This will be done as the on-site inspection program develops.
CP 9 Derivatives	This matter will be reviewed to ensure that the Principle is taken fully into account in a way that is appropriate for the type of business involved.
CP 11 Market conduct	The IPA will give consideration to this matter, taking into account current developments in the UK market (to which the jurisdiction’s domestic insurance market is very closely linked in this area) and also the development of regulation in this area in the EU.
CP 12 Financial reporting	This point is accepted and consideration will be given to the appropriate way of implementing it.

View Table

Reference Principle	Action Taken/To Be Taken
CP 1, Organization	The treasury has undertaken to review the question of Tynwald representation on the Board of the IPA. In addition, the amendment bill sets out a clear statement of the IPA’s regulatory objectives and the division of responsibilities between its board and executive. The appeals process will be revised by the provisions of the Insurance (Amendment) Bill 2003 and the treasury will be removed from it. Under the Bill, the power to make secondary legislation will also be transferred to the IPA.
CP 4, 5 Corporate governance and Internal controls	The Insurance (Amendment) Bill includes enabling provisions to allow the IPA to make regulations or statutory codes as appropriate in this area and update the IPA’s powers of inspection and investigation and the range of sanctions available.
CP 6 and 7, Assets and Liabilities	This will be done as the on-site inspection program develops.
CP 9 Derivatives	This matter will be reviewed to ensure that the Principle is taken fully into account in a way that is appropriate for the type of business involved.
CP 11 Market conduct	The IPA will give consideration to this matter, taking into account current developments in the UK market (to which the jurisdiction’s domestic insurance market is very closely linked in this area) and also the development of regulation in this area in the EU.
CP 12 Financial reporting	This point is accepted and consideration will be given to the appropriate way of implementing it.

General

117. This report has been prepared in the course of a formal assessment by the IMF of the regulatory and supervisory arrangements of the Isle of Man for its financial sector, and the extent to which these arrangements conform with known international standards and statements of best practice.

Information and methodology used for assessment

118. In essence the assessment was undertaken by analyzing the rules of law, the statements of best practice, and the evidence of current practice and evaluating them against the 30 IOSCO Principles. The mission was required to decide in the case of each principle whether it was (a) implemented;(b) broadly implemented; (c) partially implemented; (d) not implemented; or (e) not applicable. In the course of this assessment, the mission made a number of judgments. We report on these in Table1 to the report.

119. The mission reviewed many background documents before or in the course of the assessment. These included the IMF’s own guidance notes on assessment process and procedures, various IOSCO reports and resolutions, relevant publications of OECD, selected Isle of Man legislation, regulations, orders, codes and guidance notes, various documents on the FSC website, the IOSCO self-assessments prepared by the FSC and various operational documents of the FSC. In reviewing this material the mission paid close attention to the explanatory notes accompanying the IOSCO statement of Objectives and Principles. It also considered the MFP Transparency Code. The mission had extensive discussions with representatives of the government, the FSC, professional bodies and industry associations, and a number of supervised firms that were representative of the various categories of firms licensed to undertake securities and investment business. In the time available the mission did not have the opportunity to confer with independent commentators.

Institutional and macroprudential setting, market structure

120. The core Isle of Man rules of law about the regulation of securities and investments relate to:

• the functions and powers of the FSC;

• the licensing and supervision of those who undertake investment business, in particular, those who deal in investments, arrange deals in investments, manage investments belonging to others, give investment advice, or operate or administer a collective investment scheme (CIS);

• the authorization and supervision of CIS’s;

• the offer of securities and investments to members of the public and others.

121. These rules of law are administered and enforced by the FSC. However, the prosecution of criminal offences under the Companies Acts is a matter for the attorney general.

122. The term “investment” is defined to include the full range of securities and investment products. The principal investment products, which are the subject of regulation, are interests in CIS’s. There are also life insurance policies, which have the character of investments but are regulated as insurance products. These are dealt with elsewhere in the mission’s report. Isle of Man people may also invest in overseas listed securities.

123. A CIS may be an authorized scheme, a recognized scheme, an international scheme or an exempt scheme. Interests in an authorized scheme are available for offer to the general public in the Isle of Man. Authorized schemes, which meet certain requirements of U.K. law, may be offered to the general public in the United Kingdom. Comparable arrangements apply on a reciprocal basis with a limited number of other jurisdictions. A “recognized scheme” is one, which is established outside Isle of Man but is “recognized” by the FSC for marketing within the Island. The international schemes are intended for offer to more experienced or professional investors and, in practice, are not offered to the general public in the Island. Funds under management in CIS’s as at June30, 2002 were £5.12 billion. In addition, there were £3.5 billion in funds under discretionary management. There were 87 investment business licenses current.

124. There is no stock exchange in the Island and any listing of securities in Isle of Man based schemes or companies will be in another jurisdiction.

General preconditions for effective securities regulation

125. The Isle of Man has a conventional framework of general business law, including a common law system and rules of law about competition. There is a diversity of market participants. The only barriers to entry into the finance sector that were observed were those associated with the operation of the regulatory system.

126. The principal investment product is the collective investment scheme (CIS). The value of CISs in the Isle of Man, as at June 30, 2002, was £5.12 billion. In addition, financial assets under discretionary management were estimated to be £3.5 billion. There were 87 investment business licenses current.

Principle-by-principle assessment

127. The Isle of Man has achieved a high standard of compliance with the IOSCO Principles. The FSC has a good range of regulatory powers. Its work on the authorization and supervision of investment business seems appropriately resourced, and it seems able to maintain consistent standards of supervision within the investment industry.

Secondary Market (Principles 25—30)

135. There is no stock exchange or other securities trading system in the Isle of Man. Principles 25 to 27, 29, and 30 are not applicable. There is an offence of insider dealing; and the treasury, but not the FSC, has wide-ranging inspection and investigation powers. These powers can be used to assist other regulators. However, the burdens of proof are such that it may be very difficult to secure a conviction within the Isle of Man. Moreover, the law does not apply explicitly to market manipulation.

Table 5.

Recommended Actions to Improve Observance of the IOSCO Objectives and Principles of Securities Regulation

Table 5.

Recommended Actions to Improve Observance of the IOSCO Objectives and Principles of Securities Regulation

Reference Principle	Recommended Action
CP 2 Principles Relating to Regulator	The FSC and the government should review the relevant laws, policies, and practices with a view to providing for the FSC to become a more independent and more accountable financial services regulator and supervisor.
CP 10 Principles for the Enforcement of Securities Regulation	The FSC should review its template for its on-site inspection report, and ensure that the purpose is clearly and accurately stated. The FSC should review its procedures for inspecting the arrangements between the IFA and the scheme manager; in particular, in relation to the supply and use of offer documents and promotional literature, and consider whether they are adequate for ensuring that customers are well informed and advised.
CP 14 Principles for Issuers	The government and the FSC should review the powers of intervention in the Companies Act in respect of a registered prospectus. The FSC should review the reporting requirements for the international, experienced investor and professional investor schemes.
CP 16 Principles for Issuers	The FSC should review the reporting procedures under the Companies Act. The FSC should continue its review of policies on the authority for financial reporting and audit standards and the review of auditor performance.
CP 24 Principles for Market Intermediaries	The government should secure the enactment of rules of law for dealing with the failure of a market intermediary. The FSC should prepare and disseminate a guidance note or other suitable procedure for dealing with the failure of a market intermediary.
CP 28 Principles for the Secondary Market	The government should review aspects of the insider dealing law.

View Table

Table 5.

Recommended Actions to Improve Observance of the IOSCO Objectives and Principles of Securities Regulation

Reference Principle	Recommended Action
CP 2 Principles Relating to Regulator	The FSC and the government should review the relevant laws, policies, and practices with a view to providing for the FSC to become a more independent and more accountable financial services regulator and supervisor.
CP 10 Principles for the Enforcement of Securities Regulation	The FSC should review its template for its on-site inspection report, and ensure that the purpose is clearly and accurately stated. The FSC should review its procedures for inspecting the arrangements between the IFA and the scheme manager; in particular, in relation to the supply and use of offer documents and promotional literature, and consider whether they are adequate for ensuring that customers are well informed and advised.
CP 14 Principles for Issuers	The government and the FSC should review the powers of intervention in the Companies Act in respect of a registered prospectus. The FSC should review the reporting requirements for the international, experienced investor and professional investor schemes.
CP 16 Principles for Issuers	The FSC should review the reporting procedures under the Companies Act. The FSC should continue its review of policies on the authority for financial reporting and audit standards and the review of auditor performance.
CP 24 Principles for Market Intermediaries	The government should secure the enactment of rules of law for dealing with the failure of a market intermediary. The FSC should prepare and disseminate a guidance note or other suitable procedure for dealing with the failure of a market intermediary.
CP 28 Principles for the Secondary Market	The government should review aspects of the insider dealing law.

Authorities’ response to the assessment

Reference Principle	Authorities Response
CP 2 Principles Relating to the Regulator	Principles 1 and 2 The Isle of Man Treasury is currently undertaking a full review of the Isle of Man’s regulatory bodies (scheduled for completion by June 2004). The scope of the review has full regard to observations concerning independence, accountability, and will identify any changes required to the legislative framework, including any clarification of the Commission’s statutory responsibilities.
CP 10 Principles for the Enforcement of Securities Regulation	Principle 10 The FSC is currently reviewing its template for its on-site inspection reports and the comments made will be taken into account in this process. The Commission has an established regime of detailed on-site inspections for FSC regulated IFAs. Any generic issues relating to IFAs will be the subject of half-yearly meetings with the Insurance Brokers Association which has agreed to take responsibility for the IFA industry.
CP 14–16 Principles for Issuers	Principle 14 The Commission will consider powers of intervention in the Companies Acts 1931–1992 and related legislation in respect of a registered prospectus as part of a fundamental review of Company Law to be commenced shortly. The FSC is currently drafting revised reporting procedures relating to international, experienced investor, and professional investor schemes. The Commission will consider annual reporting procedures under the Companies Acts as part of the forthcoming review of Company Law referred to above. Principle 16 The Commission is currently considering the question of financial and audit standards, and auditor performance. Any required changes will be progressed in line with the forthcoming consolidation legislation. Regular meetings with the large audit practices have been instigated to explore synergies between the FSC and the external auditors.
CP 24 Principles for Market Intermediaries	Principle 24 The Commission intends to consider the question of rules of law for dealing with the failure of a market intermediary within the forthcoming consolidation legislation. The Commission will also develop guidance for the industry in this area.
CP 28 Principles for the Secondary Market	Principle 28 As part of the review of the Isle of Man’s regulatory bodies, referred to above, the question of insider dealing legislation will also be considered.

View Table

Reference Principle	Authorities Response
CP 2 Principles Relating to the Regulator	Principles 1 and 2 The Isle of Man Treasury is currently undertaking a full review of the Isle of Man’s regulatory bodies (scheduled for completion by June 2004). The scope of the review has full regard to observations concerning independence, accountability, and will identify any changes required to the legislative framework, including any clarification of the Commission’s statutory responsibilities.
CP 10 Principles for the Enforcement of Securities Regulation	Principle 10 The FSC is currently reviewing its template for its on-site inspection reports and the comments made will be taken into account in this process. The Commission has an established regime of detailed on-site inspections for FSC regulated IFAs. Any generic issues relating to IFAs will be the subject of half-yearly meetings with the Insurance Brokers Association which has agreed to take responsibility for the IFA industry.
CP 14–16 Principles for Issuers	Principle 14 The Commission will consider powers of intervention in the Companies Acts 1931–1992 and related legislation in respect of a registered prospectus as part of a fundamental review of Company Law to be commenced shortly. The FSC is currently drafting revised reporting procedures relating to international, experienced investor, and professional investor schemes. The Commission will consider annual reporting procedures under the Companies Acts as part of the forthcoming review of Company Law referred to above. Principle 16 The Commission is currently considering the question of financial and audit standards, and auditor performance. Any required changes will be progressed in line with the forthcoming consolidation legislation. Regular meetings with the large audit practices have been instigated to explore synergies between the FSC and the external auditors.
CP 24 Principles for Market Intermediaries	Principle 24 The Commission intends to consider the question of rules of law for dealing with the failure of a market intermediary within the forthcoming consolidation legislation. The Commission will also develop guidance for the industry in this area.
CP 28 Principles for the Secondary Market	Principle 28 As part of the review of the Isle of Man’s regulatory bodies, referred to above, the question of insider dealing legislation will also be considered.