Author: Kathryn Sharman
On 1 September 2019, the Isle of Man Financial Services Authority (the “Authority”) issued a Discussion Paper entitled “Forthcoming Amendments to Primary Legislation – Financial Services (Amendments) Bill”. The paper seeks to amend the Collective Investment Scheme Act 2008, the Designated Businesses (Registration and Oversight) Act 2015, the Financial Services Act 2008 and Insurance Act 2008.
The first proposal is the introduction of civil penalties for certain individuals. This penalty already exists under the Insurance Act 2008, but the amendment seeks to extend the penalty to all acts listed. This creates a new liability under the other acts. Clarifications and improvements to the Authority’s powers of inspection and investigation have also been proposed in order to clarify that the powers apply whether or not a breach is suspected. This proposal also seeks to ensure, in cases of misleading practice or misleading statements, that the powers may be used in respect of persons that are not regulated or exempt.
There is a proposal to prevent non-disclosure agreements from constraining employees and others from informing the Authority of relevant matters. Whilst this is in line with the whistle-blower requirements of the Financial Services Rule Book, it does mean that businesses need to actively consider the risk of current and ex- employees disclosing matters to the Regulator which could lead to increased scrutiny being applied. The paper also proposes a shift of burden for any appointment to a Controlled function, so that the regulated entity must satisfy the Authority that the individual is fit and proper. The burden will remain on the Authority if an individual is already in a controlled function to prove that they are unfit.
A number of Act specific proposals are also detailed in the paper. Collective Investment specific amendments include a direct investigation power into collective investment schemes (“CIS”) and the improvement of provisions for the winding up of CIS established as companies. These amendments increase the Authority’s investigative powers by creating a direct route for it to address matters in CIS and also by setting out a more workable winding up process. This means that CIS can now face direct investigation from the FSA.
Insurance specific proposals focus on the ability for modifications and exceptions from the Corporate Governance Codes of Practice to be made in specific circumstances on the application of, or with the consent of, an insurer, insurance manager or insurance intermediary; amendment to the definition of “manager” in the Insurance Act 2008 to broaden its application in a way which is consistent with the concept of ‘key person’ in the Financial Services Act 2008; and finally the introduction of civil supervisory for some breaches of certain matters.
Designated Business specific proposals include the requirement for a Designated Business to be managed and controlled on the IOM; civil penalties where a Designated business has failed to give notice of any change to information required by the Authority; the power for the Authority to direct that an individual is not to be appointed as a specified person where that person is not fit and proper; and finally the power of the Authority to issue a warning that an individual’s conduct may prejudice their fitness and propriety.
It is clear that the proposals put forward under the Discussion Paper will have implications for various categories of regulated entities and it is important that Boards of Directors, senior management and Compliance functions consider the implications and monitor the progress of associated legislative change. At DQ, we will be incorporating the proposals into the Board training that we regularly deliver on corporate governance and we will be assisting our clients to understand any potential impact on their business.
