Annual Report 2010/2011 Regulatory Objectives
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Isle of Man Financial Supervision Commission Annual Report 2010/2011 Regulatory Objectives The Commission’s regulatory objectives are to: . secure an appropriate degree of protection for the customers of persons carrying on a regulated activity, . reduce financial crime, and . support the Island’s economy and its development as an international financial centre. The Commissioners Rosemary Penn MBE (Chairman) John Aspden (Chief Executive) John Cashen OBE (Deputy Chairman) Tim Cullen Bryan Stott Geoff Karran MBE Alan Smith 2 Contents Chief Executive’s Report 4 06 Policy Development 32 01 Market Developments 07 Operations Finance and administration 36 International financial markets & the global economy 6 Human resources 37 Isle of Man economy 8 Learning and development 38 Market statistics 9 Information technology 39 02 The Commission: Organisation Appendices and Corporate Governance Appendix A – Financial Supervision Commission Organisation of the Commission 12 and its Functions 40 Corporate governance and risk management 14 Appendix B – Membership of the Financial External communication 15 Supervision Commission 41 Complaints against the Commission 15 Appendix C – Organisation Chart 42 Appendix D – How the Commission operates 44 03 Corporate Business Plan 16 Appendix E – Summary of Licences and Authorisations 46 04 Regulatory Approach Appendix F – Statement of Responsibilities in respect of the Chief Executive’s report 47 Authorisations 17 Report and the accounts of the Supervision 18 Independent Auditors 48 Supervisory approach 19 Appendix G – Legislation coming into force between Risk and compliance 19 1 April 2010 and 31 March 2011 52 Banking 20 Appendix H – Consultative documents issued between Fiduciary services 22 1 April 2010 and 31 March 2011 54 Funds and Investment Services 23 Appendix I – Other information 54 Depositors’ and Investors’ Compensation Schemes 25 Glossary 55 Complaints about licenceholders 25 International relations 26 05 The Prevention of Money Laundering and Countering the Financing of Terrorism, and Enforcement Action Prevention of money laundering and countering the financing of terrorism 28 Assistance with investigations and insider dealing 30 Remedial action 30 Sanctions updates and public warnings 31 Other work 31 3 It gives me great pleasure to present the Annual Report and Accounts of the Financial Supervision Commission for the year ended 31 March 2011. This Report on the Commission’s activities has been prepared for submission to Treasury and to be laid before Tynwald in fulfilment of the Commission’s obligation under Schedule 1 of the Financial Services Act 2008. The year has been a period in which both markets and the global regulatory environment have continued to adjust in a post-crisis environment. Chief Executive’s Report The Commission has been proactive in supporting industry in reshaping its strategic model for the new environment. John Aspden Chief Executive In many Western countries sentiment continues to be affected by uncertain prospects for economic recovery and the reality of having to reduce substantial deficits. The regulatory environment has seen the start of many important initiatives to restore financial stability and the credibility of regulatory oversight, although consensus on some important issues - like resolution arrangements for too-big-to-fail institutions - still remains elusive. Against this backdrop the Commission had to remain highly responsive to external events. The Island is exposed to changing fortunes in international wealth flows, since most of its client base comes from overseas. Business has therefore been challenging and the Commission’s licenceholders have had to contain costs and work hard to sustain volumes. For its part the Commission has been proactive in supporting industry in reshaping its strategic model for the new environment. In the funds sector this has resulted in active participation with the Funds Development Group, while discussions have been held with the banks who have been reviewing their own vision for the future. The Commission is very 4 conscious of a public expectation that financial institutions should and efficient result. This review has commenced and will form a core adopt high ethical standards when transacting business especially part of the coming year’s work programme. with the retail sector. As an organisation funded by our licenceholders and with public There are important changes afoot in the UK with the Retail money, it is important that we should look to achieve meaningful cost Distribution Review. The Commission has stated that it is looking to savings. Central to this, in particular to ensure that the Commission reflect the increase in professional standards after further discussion can continue to perform its statutory functions effectively, are the with the industry. A number of investment advisers on the Island steps which we have begun, and are continuing to take, to examine have already begun to factor in the principles of the new regime to in detail the processes which we use to carry out our work and how their business practices. they can be streamlined or even eliminated. Through a combination of cutting back on general expenditure, a reduction in headcount and Outside of the immediate finance sector it is also imperative that the the introduction of efficiencies we have ensured that we remain within quest for new business for the Island as a whole does not lower the budget allocated by Government. standards to a level which could compromise our hard-won reputation. The Commission is a statutory board, which helps to distinguish it In the regulatory arena the FSB has pressed forward with the as a separate body with distinct powers. However there is a clear mandate given to it by the G20. I am pleased to report that the expectation of international standard-setting organisations that Island continues to meet the international benchmark tests set by regulatory bodies should be independent. Operationally the line can the FSB for compliance with key standards of co-operation. This is become blurred especially where the regulator does not have complete critical to maintain since, as a smaller jurisdiction, we have to expect financial independence because of the way in which wider revenues that we will continue to be under scrutiny from our larger peers. have been re-allocated. The FSB itself is undertaking assessments of countries’ performance against specific international standards. The effect of this can be seen in the Annual Accounts of the Commission where for the first time expenditure exceeds revenue The Island’s approach to AML/CFT matters is an essential component because of a Government decision to transfer Companies Registry of this world-order. Compliance with the core and key Recommendations away from the Commission. of the FATF is a prerequisite, and a jurisdiction’s international standing rests substantially on this. The Commission’s liaison and contact with international regulatory bodies is extremely important. On a day-to-day basis this will frequently be in I am able to report that the Commission has given a high priority to the context of an ongoing dialogue with home regulators. More widely, updating further the Island’s AML/CFT standards, and other important for example in the context of Basel and IOSCO, the Commission changes to legislation as well as the increasing reach to non-financial participates in standard-setting work which is a valuable way of businesses should ensure that we continue to improve our perceived contributing towards cross-border convergence and understanding. position. Through regular consultation and a developed culture of The international regulatory architecture is changing including with a compliance we have reached the stage where our licenceholders new framework in Europe. It will be important that, even as a non- have been able to integrate robust AML/CFT practices as a very member of the EU, we develop our links with the new authorities. accepted part of the business framework. The Government’s strong support for the Small Countries Financial On-site visits to licenceholders remain at the core of our supervisory Management Programme, organised in conjunction with the World Bank work. This gives the Commission a first-hand view of how a business and designed by faculty from Oxford University's Saïd Business School, is being conducted, and what governance and due diligence measures is another example of how international liaison can successfully work. have been put in place. For a regulatory organisation to operate successfully it needs support By their nature visits can be intrusive, however the general feedback from its many different stakeholders. It is important for me therefore is that the time taken by the Commission properly to understand a to thank our licenceholders for the time which they devote to commenting licenceholder’s business proves very worthwhile. The Commission’s constructively on regulatory proposals: it is only in this way that we experience drawn from visits across the industry, gives it a unique can hope to implement a regime which to be effective also needs to opportunity to compare authoritatively and give useful feedback. be workable. We have also begun to take a more creative look at how we carry All of the staff would also want me to thank the Board for their out our remedial and enforcement work. Our powers – granted by continued and proactive support without which it would be impossible Tynwald in the consumer interest,