Isle of Man

Banking System

There are currently some 54 banks established on the Isle of Man, and although this figure has fallen slightly over the last 5 years, the caliber and scale of banking operations has been showing marked improvement. The total deposits of the Isle of Man banks on 31.12.04 were standing at about 30 billion pounds sterling. The Royal Bank of Scotland, Barclays bank, Merrill Lynch have all moved to the Isle in the last few years and HSBC has ring-fenced its offshore business by moving to the Island.

Several international banks with branches on the island offer global payment-processing solutions, and Manx Telecom offers an Island-based secure e-payment platform, which can take multi-currency and Sterling-based transactions, enabling Island businesses to market their products globally.

Manx Internet banking operations tended initially to share the rather limited success that attended Internet banking operations generally. One of the more high-profile Isle of Man Internet banks was F Sharp, a subsidiary of the Bank of Ireland, and in October 2001 it was merged back into the offshore operations of its parent, Bank of Ireland, to be known in future as Bank of Ireland F Sharp. In recent years, however, most of the better known Manx banks have begun to offer Internet facilities.

The Island’s banking industry is dominated by subsidiaries or branches of the main UK clearing banks and some foreign banks. The majority of banks in the Isle of Man are engaged in providing private banking services to UK expatriates and to foreign nationals. The services offered often extend beyond deposit taking to establishing and administering trusts and managing the underlying companies and assets held by those trusts, including investment management. The growth in other areas of the Island’s finance sector, including captive insurance, life assurance, collective investment schemes, investment management and ship management, means that these organizations have sums of money to invest and therefore require investment management services. Some banks also act as trustees to collective investment schemes.

Banks operate under either a full or restricted banking license. The Financial Supervision Commission regulates the banking and investment industry under the powers created by the Financial Supervision Act 1988 and the Investment Business Act 1991. To obtain a domestic license a bank must have a real presence on the island, while an Offshore Banking License allows banking business to be conducted from outside the island through a locally-incorporated bank on a managed basis.  The FSC has a system of supervision based on quarterly or half-yearly financial returns. This is reinforced by annual audited accounts, which must be audited by qualified accountants who have effected professional indemnity insurance currently at £10 million.

For taxation purposes a “managed bank”, in accordance with the Banking Act 1975, signifies that the bank has no local premises or staff but is operated on the island by an approved local bank. Since 12th July 1989 the Treasury may exempt, for a specified period, all or part of the profits or income of a “managed bank” from income tax. Where such exemption exists, the Assessor cannot require deduction of income tax from payments to non-residents and cannot pursue income tax liability of non-residents on such payments.
An application for exemption is submitted to the Financial Supervision Commission. Exemption must not be granted unless the Treasury is satisfied that the bank:

- does not transact, directly or indirectly, any banking business with any Isle of Man resident other than a bank;
- has been granted a license under the Banking Act 1975, and
- is managed by the holder of such a license.

Fees for exemption applications can be prescribed by order by the Financial Supervision Commission. A bank which has been granted exemption must produce accounts, etc. if required. Unlicensed banking operations remain a problem and have become known as ‘brass plate’ companies. These ‘rogue’ operations are, when reported, investigated by the Enforcement Division of the FSC.

The Banking Act (as amended) recognizes the contractual duty of a banker to keep the affairs of his customer confidential and the customers’ entitlement to confidentiality. There are very few limited exceptions to these principles, set out in the Financial Supervision Act 1988, and these include circumstances where disclosure is required to assist criminal proceedings or to enable the FSC to discharge its statutory functions.

All banking license holders are required to participate in the Depositors Compensation Scheme. The FSC is the Scheme Manager. The Banking Business (Compensation of Depositors) Regulations 1991 extends to all licensed banking institutions, except those listed by name in the Schedule. Deposits are protected up to 75% of the first £20,000 per depositor and the Scheme extends to the sterling equivalent of foreign currency deposits. Compensation is not available with regard to secured deposits or deposits, which had an original term to maturity of more than five years.

List of bank licensed with Financial Supervision commission:

Abbey National PLC
AIB Bank (Isle of Man) Limited
Alliance & Leicester Commercial Bank PLC
Alliance & Leicester International Limited
Anglo Irish Bank Corporation (I.O.M.) PLC
Bank of Bermuda (Isle of Man) Limited
Bank of Ireland (I.O.M.) Limited
Bank of Scotland International Limited
Barclays Bank PLC
Barclays Private Clients International Limited
Barclays Private Bank & Trust (Isle of Man) Limited
Bradford & Bingley International Limited
Britannia International Limited
Cayman National Bank & Trust Company (Isle of Man) Limited
Celtic Bank Limited
Close Bank (Isle of Man) Limited
Close Trustees (Isle of Man) Limited
Conister Trust PLC
Coutts (I.O.M.) International Limited
Coutts (Isle of Man) Limited
Duncan Lawrie (IOM) Limited
Fairbairn Private Bank (IOM) Limited
Habib European Bank Limited
HSBC Bank International Limited
Irish Nationwide (IOM) Limited
Irish Permanent (IOM) Limited
Isle of Man Bank Limited
Lloyds TSB Offshore Limited
Merrill Lynch Bank and Trust Company (Cayman) Limited
Nationwide International Limited
RBSI Custody Bank Limited
Standard Bank Isle of Man Limited
The Co-operative Bank PLC
The Royal Bank of Scotland International Limited
The Royal Bank of Scotland PLC
The Standard Bank of South Africa
Zurich Bank International Limited