Cannan emphasised that, at present, the watchdog’s main role is to register unregulated funds and supervise their functionaries; which includes managers, administrators, trustees, fiduciary custodians or custodians who must be regulated, reports local newspaper IOMToday.
He was responding to a question in the Isle of Man’s seat of government, the House of Keys, about the protection available for clients who invest in unauthorised schemes.
“Being unregulated, these collective investments schemes are typically of higher risk and the authority’s remit is to seek that these risks are made known to potential investors and also that those involved in the promotion, management or administration of such funds are properly licensed and experienced in accordance with the authority’s supervisory approach,” Cannan said.
“It is, however, worth noting that the authority will be undertaking a review of these types of funds, and the framework that applies, and make appropriate recommendations for change.”
“If Isle of Man unregulated funds are sold by Isle of Man financial advisers, the authority would potentially review the suitability documentation during visits to the financial advisers.”
Cannan’s statement follows an announcement last week that the IoM’s Financial Services Authority is also to crack down on collective investment funds by setting out “effective” guidance rules to “safeguard the reputation of the island”.
That crackdown comes after a spate of Isle of Man-domiciled funds collapsed, leaving domestic taxpayers withe a bill to pay for their liquidation.
Not sold to the public
Cannan said the new move against unregulated funds covered qualified and specialist funds, and those not licenced, authorised or regulated by the IOMFSA.
“It is very important to note that, because such schemes are unregulated, they cannot be sold to the general public. The authority has taken preventative steps to forestall retail investors accessing unregulated funds.
“Access to such funds is only available to investors who confirm that they meet the fund type’s minimum entry criteria.”
No specific monitoring
Cannan said there was no specific monitoring of the unregulated schemes, but added: “Procedures the licence-holder has in place to ensure such schemes are not sold to the public and compliance with those procedures would potentially be reviewed by the authority during visits.”
The minimum entry criteria for investors “includes a statutory certification that they have read the scheme’s offering document and understand and accept the specific risks associated with that type of fund, such as risks surrounding the underlying investments associated with these types of funds and the risk that investment could result in a loss of a significant proportion or all of the sum invested”.
He added: “The island has various scheme types ranging from more regulated funds designed for retail clients – such as authorised collective investment schemes and regulated funds – to the unregulated funds designed for experienced/qualifying/specialist investors.
“The level of regulation is commensurate with the experience level and knowledge of the investor.
“Under both Isle of Man and UK legislation, financial advisers who advise clients are required to satisfy themselves that the product is suitable for the particular client’s individual circumstances, requirements and attitude to risk.”
Cannan said: “If Isle of Man unregulated funds are sold by Isle of Man financial advisers, the authority would potentially review the suitability documentation during visits to the financial advisers.”