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Regulating Funds & Unit Trusts
The Financial Supervision Act 1988 ("FSA"), which came into operation on 1 November 1988, contains the statutory framework for the regulation in the Isle of Man of Collective Investment Schemes, more commonly known as unit trusts or mutual funds.
The FSA provides for the regulation of 3 classes of Collective Investment Scheme:- Schemes Authorised by the Commission under Section 3 of the FSA
- International Schemes within the meaning of Section 11 of the FSA
- Schemes Recognised by the Commission under Sections 12 and 13 of the FSA
Any Collective Investment Scheme established in the Island which is to be promoted to the general public in the Island (or the UK by virtue of the Island's designated territory status) must be authorised by the Commission under Section 3 of the FSA. Authorised Schemes are subject to detailed regulation concerning their structure and operation.
The principal Regulations governing Authorised Schemes are:
- Financial Supervision (Authorised Collective Investment Schemes) Regulations 1988.
These Regulations provide for all aspects of the operation of an Authorised Scheme. These include such matters as the powers and duties of Managers and Trustees (in the case of an open-ended investment company scheme, its directors), the distribution of income, valuation of Scheme property, the cancellation and creation as well as the sale and repurchase of units, expenses, investment and borrowing powers and restrictions upon them, the contents of reports to unit-holders and share-holders, the requirements for meetings of unit-holders and share-holders, and the termination of Schemes.
To help those interested in setting up Schemes the Commission has prepared various types of model constitutional documents.
Authorised Collective Investment Schemes (Compensation) Regulations 1988.
These Regulations provide for the establishment of a Compensation Fund for investors if a Manager or a Trustee, of an Authorised Scheme becomes insolvent.
Every Authorised Scheme is required to have in the Island a Manager licensed under Section 3 of the Investment Business Act 1991 and a separate trustee, which must be a banking institution licensed under Section 6 of the Banking Act 1998.
The Financial Supervision Act 1988 ("FSA"), which came into operation on 1 November 1988, contains the statutory framework for the regulation in the Isle of Man of Collective Investment Schemes, more commonly known as unit trusts or mutual funds.
International Schemes
Any Collective Investment Scheme established in or operated from the Isle of Man which is not an Authorised Scheme is regarded as an International Scheme, and therefore subject to the provisions of Section 11 of the FSA: International Schemes may not be promoted to the general public in the Isle of Man (or the UK).
The principal Regulations governing International Schemes are:
- Financial Supervision (Restricted Schemes) Regulations 1990.
These Regulations prescribe what matters shall be provided for in the documents constituting a Restricted Scheme. The Regulations do not seek to be prescriptive as to how those matters must be dealt with. The intention of the Regulations is to ensure all material particulars relating to a scheme and its operation are disclosed to potential investors.
Financial Supervision (Restricted Schemes) (Advertising & Scheme Particulars) Regulations 1995.
These regulations require the operators of International schemes to produce scheme particulars which contain the information specified in the regulations such as details of the manager, trustee, investment adviser fees and expenses, constitution and investment objectives, investment, hedging and borrowing powers, limits and restrictions, valuation, pricing and dealing procedures. Whilst the regulatory regime governing& International Schemes does not impose the same detailed prescriptive regulations as apply to Authorised Schemes, the regulations are designed to provide certain minimum investor protection safeguards and to ensure strict disclosure of all material matters to potential investors. Every Restricted Scheme is required to have in the Island a manager licensed under Section 3 of the Investment Business Act 1991 as well as an independent trustee which must be either a banking institution licensed under Section 3 of the Banking Act 1998, or an Authorised Trustee in another jurisdiction which has been approved by the Commission.
The Professional Investor Fund (PIF) is a sub-category of International scheme which is available only to professional investors who are generally market professionals and who have net assets in excess of $1 million. The minimum investment in a PIF is $100,000.
A PIF is not specifically required to have a manager or trustee but the day to day operation of a PIF must be carried out in the Island by an approved person specifically licensed to carry out this activity.
A PIF is not subject to specific documentation regulation. It is not subject to any regulatory restrictions on its investment and borrowing powers. The Offering Document must contain sufficient information to enable an informed investment decision and must contain mandatory risk warnings
The Experienced Investor Fund (EIF) is a further sub-category of International scheme, designed for the experienced investor, defined as "a person who, in relation to any experienced investor fund, is sufficiently experienced to understand the risks associated with an investment in that fund". The minimum investment in an EIF is $15,000.
An EIF must be administered in the Island by an approved person specifically licensed to carry out this activity.
Regulation of an EIF is focussed on the operator (approved person) rather than on the scheme product itself. The EIF is not subject to specific documentation regulations. It is not subject to any regulatory restrictions on its investment and borrowing powers. The offering document must contain all material information to enable an informed investment decision and must contain mandatory risk warnings.
An EIF must make proper arrangements for the custody of the property, whether with a custodian bank or prime broker who may not be represented in the Isle of Man.
Exempt International Schemes
Exempt International schemes are not subject to the provisions of section 11 of the FSA. They must have less than 50 investors and their relevant constitutional documents should expressly prohibit the 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. The manager of more than one exempt scheme must be licensed.
Recognised Schemes
Collective Investment Schemes which are managed in or authorised under the law of another country or territory outside the Island may not be promoted to the general public in the Island unless they have been granted recognition by the Financial Supervision Commission under Sections 12 or 13 of the FSA. Schemes applying for recognition in the Island are required to comply with the following Regulations:
- Financial Supervision (Recognised Schemes) (Notification) Regulations 1988.
These Regulations specify the information and documents that must be provided to the Commission when applying for recognition on behalf of a Scheme.
Financial Supervision (Recognised Schemes) (Facilities in the Island) Regulations 1988.
These Regulations require the operator of a Recognised Scheme to maintain at an address in the Island specified facilities for the service of investors.
Every Authorised and Restricted Scheme is required to have a manager in the Island which is licensed under Section 3 of the Investment Business Act 1991. As such, all managers are subject to the same strict qualitative licensing criteria that apply to all Investment Businesses. In addition, every applicant for a licence to act as Manager of an Authorised or Restricted Scheme must be able to demonstrate to the Commission that it has a proven track record in the field of Collective Investment Scheme management in another jurisdiction whose supervisory standards are acceptable to the Commission and which has established primary and secondary securities markets.
Unlike other Investment Business licence holders, Managers of Authorised and Restricted Schemes need not maintain a real presence in the Island. Where a manager chooses not to establish a real presence in the Island, it is a requirement that its business must be administered by a licensed Third Party Fund Administrator in the Island. Third Party Fund Administrators which provide administrative services to such "managed managers" are required to hold an Investment Business licence under Section 3 of the Investment Business Act 1991.
Investment Funds
Regulatory Authorities
Funds and fund management companies are regulated by the Financial Supervision Commission
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