For answers to any of the questions below, click on your chosen question.
Yes. The Depositors’ Compensation Scheme coverage is largely in line with similar schemes in place in Guernsey and Jersey. The main feature of the scheme is that personal depositors are covered for up to £50,000 of their savings with any Class 1(1) licensed deposit taker. Most other categories of depositor (companies, trusts etc) are covered up to a maximum of £20,000 but only for deposits in Class 1(1) licenceholders.
Click here for guidance regarding the Depositors’ Compensation Scheme, and details of the full Depositors’ Compensation Scheme Regulations.
There are three separate classes of licence that permit a business operating in or from the Isle of Man to undertake deposit taking activities:
Class 1(1) retail / non-restricted deposit-takers;
Class 1(2) non-retail / restricted deposit-takers; and
Class 1(3) representative offices of foreign banks.
Class 1(2) banks may not accept deposits from retail customers, and deposits held in such banks are not covered by the Isle of Man Depositors’ Compensation Scheme.
Class 1(3) representative offices may only undertake marketing and business development activities; the foreign bank must not undertake any transactions in or from the Isle of Man.
The Isle of Man has developed a comprehensive licensing policy for its banks. This was last reviewed and updated in August 2016 and is published on the Authority’s website. Click here to view.
Whilst the policy offers some level of flexibility, its core tenets are that a Class 1(1) bank should:
- be a subsidiary company or branch of a bank licensed as part of a major banking group. That group should currently be regulated in a jurisdiction which applies regulatory standards equivalent to those applied to banks in the Isle of Man
- have no dominant controllers
- meet the financial standards laid down by the Authority
- be staffed by persons who are adequately experienced and competent in relevant areas of banking
The Authority applies prudential requirements in accordance with international standards to those banks that are incorporated in the Isle of Man (as opposed to branches – see Q11). These are consistent with international standards of banking regulation and are designed to ensure that banks incorporated in the Isle of Man remain well capitalised and have adequate liquidity levels (also see Q10 and Q11 for the links with parents / groups).
Other specific licence conditions are established for individual banks to reflect their particular circumstances. These can include such things as limitations on activities or types of customer that a bank can deal with.
There are four key areas of activity involved in supervising banks, these are:-
- monitoring banks’ compliance with regulatory requirements e.g. legislation and guidance
- on-site examinations and meetings with banks
- desk based (off-site) supervision e.g. analysing financial information
- international liaison e.g. dialogue with other regulators that supervise banking groups represented in the Isle of Man
The Authority’s supervisory approach and performance were assessed by the International Monetary Fund in 2008, and were found to be compliant, or largely compliant, with the Basel Core Principles for Effective Banking Supervision. Click here to view the IMF’s detailed assessment report.
The Authority has issued a guidance note on this subject which can be found in the ‘Consumers’ part of this website or can be viewed by clicking here. The Authority does not, however, have any arbitration powers in relation to customer complaints against banks.
The Authority does not regulate commercial decisions taken by banks in relation to the granting of credit facilities. You may wish to approach the declining bank directly with further information in support of your request or, alternatively, approach other banks which might be more receptive.
It might be worthwhile checking that your credit history is recorded correctly with credit reference agencies, because incorrect credit information could affect a lender’s decision.
Banks are regulated under the provisions of the Financial Services Act 2008 and Authority staff will be happy to provide general explanations of what activities that Act (and associated legislation) covers, and which activities require to be regulated However, Authority staff cannot provide legal advice in respect of specific circumstances and, depending on what these are, you may need to seek advice from a lawyer qualified in Isle of Man law.
The Authority considers that the following points are relevant:-
- the quality of banks operating in the Isle of Man (see Q2)
- the regulatory requirements and supervisory oversight applied by the Authority to banks in the Isle of Man (see Q3)
- the availability of a depositor compensation scheme (see Q1)
Banks normally operate their businesses on the assumption that not everyone will wish to withdraw all their access deposits at once, and generally keep sufficient reserves in hand to meet both normal and more stressed withdrawal periods. The Authority requires banks to have contingency arrangements in place to cope with increased depositor withdrawals and may also require enhanced reserves when more difficult conditions arise. However, if conditions reach a crisis level and everyone wants all their money back at once, the bank will become under great strain and may require exceptional assistance which may not always be available. There is no certainty that any bank will not fail, a fact that has become more apparent during the global financial crisis seen in recent years.
It is also worth reflecting on how a bank’s assets are valued. Typically its external auditors will audit its annual accounts and these will show the bank’s affairs on a going concern basis, which means that assets (including loans) will be valued according to what they are judged likely to realise over a period of time. However, if a bank hits a funding crisis as described above and is placed in liquidation, there is always a danger that assets being realised on a forced sale basis (rather than being worked out over a longer time period) may not realise what was shown in the accounts. This means that a shortfall can arise which means some depositors might not receive back all their money.
There is no ultimate safeguard and depositors are advised to review and consider all sources of information available to them on any bank that they are considering depositing money with (see Q11).
The Authority's website lists all banks (deposit takers) and other entities which it regulates. Click here to go direct to the relevant page. This will include details of the relevant bank's licence and also any conditions which we have imposed on the bank.
If the bank you are looking for does not appear on the list but is advertising itself as being registered in the Isle of Man, please let us know as it might represent some form of fraudulent activity.
In general, almost all banks, in their deposit-taking activities, are involved in accepting deposits from customers, often on a short term basis, and lending this money to other customers, often for quite long periods such as with mortgages. This process is essential for an economy to function adequately.
Class 1(1) and Class 1(2) banks in the Isle of Man operate in a similar way but, because they are based in a geographically small international finance centre, the money they receive as deposits far outweighs the borrowing needs of their local (and international) customers. They therefore (generally) lend the majority of surplus funds to their parent banks or other group companies. In doing so, they act as valuable suppliers of funding to their groups and, in turn, this creates lending books of relatively low risk in the Isle of Man (as long as the parent / group itself remains financially sound). In return, the bank in the Isle of Man will rely on its parent / group for its liquidity needs.
If you deposit money in a bank account, in law you are lending your money to the bank (except in some rare cases). As such, money you hold in a bank account is owed to you by the bank under the terms of the account.
Different banks in the Isle of Man provide different types of accounts, products and services to customers and have different areas of business. Particular examples include:
- transactional banking facilities for local and international (non-resident) customers
- private banking and wealth management services
- full retail banking facilities (current accounts, debit cards, cheque facilities, mortgages, loans and overdrafts)
- business and corporate banking facilities
- savings (higher interest) accounts
When a bank wishes to provide a new product or service it must notify the Authority in advance of its intention to do so. When a bank advertises deposit products it must ensure that the advertisement contains a fair and accurate indication of the product and does not hide, diminish or obscure important statements or warnings. Banks are also expected to follow the Authority’s guidance on advertising. Click here to view.
Click here for an explanation of some of the common deposit products that banks offer to the public.
Click here for an explanation of structured deposits and how they differ from structured products.
A member of the public will rarely have cause to be aware of the status of a Class 1(1) bank in this respect when dealing with it. (Class 1(2) banks are not permitted to market their products and services to retails customers/the general public). A bank's status as a branch of a bank incorporated elsewhere is not immediately apparent from its name.
In the case of a branch, the Authority normally relies upon the overseas regulator in the country where the bank has its head office to undertake supervision of the bank’s financial strength. This is normal international practice and reflects the practical difficulty of separating the financial affairs of a branch from the wider company of which it is a part. In such cases, to gauge the safety of placing funds with the Isle of Man branch, depositors are well advised to review information available about the ‘head office’ and the company. That company’s website, and that of its home regulator, can be useful places to start in this respect. More generally, comfort can be gained from the high entry requirements applied to banks wanting to operate in the Isle of Man (see Q2) and the existence of a depositor compensation scheme for customers of Class 1(1) banks (see Q1).
In the case of banks that are incorporated in the Isle of Man (i.e. they are Isle of Man companies) the Isle of Man’s regulatory regime has established requirements designed to protect a bank’s viability. The international standard, Basel II, was adopted in the Isle of Man in line with all main European and other jurisdictions in January 2008. In addition to applying standard minimum capital requirements for a range of risks, Basel II facilitates the specific analysis of each bank’s full risk profile and enables their capital requirements to be increased to reflect these. The Authority is currently considering the implementation of Basel III in the Isle of Man which is the revised international standard in relation to capital and liquidity.
In the event of a crisis, the Authority would be better able to ring fence the assets of a bank that is incorporated in the Isle of Man, in order to protect its depositors, than it would be able to in the case of a branch. A greater reliance on the actions of the ‘home regulator’ therefore occurs in the case of a branch (although see Q7). However, inter-dependence between Isle of Man incorporated banks and their parent banks is generally very high (especially where surplus funds are placed with parent banks – see Q9) and it would be difficult to separate the fortunes of one from the other.
A depositor will clearly wish to consider matters such as quality of service, pricing, delivery channels (i.e. internet and telephone banking), convenience and the overall relationship they have with a bank. These matters are very broad in scope and the Authority would generally not consider them, except where there is evidence of a bank not:
- complying with the Authority’s Guidance Note for Deposit-Takers in respect of Deposit Advertising or
- adhering to the disclosure and advertising requirements within the Financial Services Rule Book 2016
The comments that follow are confined to matters that will help a depositor to consider the safety of his or her money (see also Q1 reference to the Isle of Man Depositors’ Compensation Scheme).
Most banks on the Isle of Man are part of international groups and are either established as branches or subsidiaries of a bank incorporated elsewhere. They often operate through brand / business names, which reflect their group. Their financial stability will depend to a greater or lesser degree upon the parent company or group. Banks in the Isle of Man are required to disclose the relationship between themselves and their wider group when they advertise for deposits to the public.
Information to consider differs for banks that are incorporated in the Isle of Man and branches of banks that are incorporated elsewhere (see Q10). In the case of a branch, depositors need to consider the stability etc of the company as a whole and may wish to consider the financial information that it publishes. In many cases, that company is part of a large group and similar considerations of the group / ultimate parent will also be relevant.
Such consideration of the group / parent bank will also be relevant when considering the standing of a bank incorporated in the Isle of Man. In addition, financial information is published in respect of all banks incorporated in the Isle of Man.
All banks licensed in the Isle of Man (whether branches or incorporated in the Isle of Man) are required to produce and make available on their premises and on their website (or if there is not one, the most appropriate group website) their latest annual audited company accounts.
Click here to view a table which provides a summary of the group hierarchy of banks that are licensed in the Isle of Man as deposit takers.
Relevant information sources in respect of banks are:
- Annual audited financial statements – these provide a comprehensive description of the bank’s / parent’s / group’s financial performance for the previous year and its financial strengths and commitments at the year end. They can be accessed via the bank’s / parent’s / group’s website or, in relation to any banks licensed in the lsle of Man, viewed at that bank’s premises.
- Interim financial reports – these provide similar but more limited information to that seen in annual audited financial statements and can be accessed on the parent’s / group’s website. They usually represent the most recent published financial information available.
- Bank / parent / group website – wider news about the bank / parent / group and its activities, ownership and geographical spread can also be accessed.
- Media – for latest news, both specific to individual banks / banking groups and the broader economy, financial trends and advice on managing your money, you may wish to review all forms of media, but particularly the financial press and websites focused on finance. These provide a huge range and quantity of information that can help to form a balanced view, including market information, such as the share price.
- For those who register with them, credit rating agencies provide assessments of individual banks for both the short and longer term outlook, together with detailed reports that are typically made available on a subscription basis. The Authority permits banks incorporated in the Isle of Man to use Fitch, Standard & Poor’s and Moody’s for capital adequacy calculation purposes. Where available, the Authority considers that rating agency reports are a valuable source of up-to-date analysis. The rating agency reports will often be at the parent / group level rather than for a bank incorporated in the Isle of Man (although some banks incorporated in the Isle of Man do have their own independent credit ratings).
- Home regulator websites – these will give information on the regulatory regime applicable to the bank / parent / group, possibly also news of any relevant current economic circumstances and related developments plus cross references to other information sources.
- Other international bodies – these provide information and commentary on individual countries, including the results of their own assessment exercises, which can provide an indication of the quality of financial regulation applied in home jurisdictions. They include:-
- The Authority's website www.iomfsa.im – this provides broader information on the Isle of Man’s regulatory regime, including details of public statements issued, such as warnings against scam banks, and a list of all banks registered to accept deposits in the Isle of Man. Cross references to relevant legislation are also provided.
Click here for a glossary of terms for consumers using banking services in the Isle of Man.