Covid-19 Update for Regulated Entities
Prudence in decision making
Our regulatory framework is based upon the principle that Directors of regulated entities are ultimately responsible for managing their business, within the constraints of the legal and regulatory framework. Regulated entities are operating in an environment of extreme uncertainty in terms of how their staff and business will respond to the emerging external environment, combined with uncertainty about how long the covid-19 pandemic and resultant economic threats will continue.
The Authority expects directors to fulfil their ongoing duties towards regulated entities and clients, regardless of whether they act for a standalone local business or a firm which is part of a larger group.
The Authority understands the potential for certain regulated entities to experience financial strain due to market conditions. Directors are specifically reminded of the requirements to maintain sufficient Financial Resources, both capital and liquidity as required by the regulatory framework. Directors are expected to act prudently when making decisions about dividends, upstreaming excess capital or liquidity, intercompany loans or any other decision that could materially financially weaken the Isle of Man regulated entity.
Liaison with Regulated Entities
As indicated in our 17 March Update, the Authority is continuing its outreach to regulated entities, through a mixture of focused firm specific engagement, and sector overview work.
In identifying the appropriate level of outreach the Authority considers the systemic impact and risks that individual firms or sectors may pose to the international and local financial system, how those firms interact with their customers, and the types of customer they serve. Where a business provides daily services to retail customers, such as payments, the resilience of that firm and its ability to continue servicing retail customers is important.
This approach means some firms will receive more regular contact from the Authority, and be expected to update the Authority more frequently, compared to others. In addition, even though individual firms may not pose the highest impact or systemic risk, the Authority may approach small and medium sized firms to understand the position and risks within a sector of the industry. Notwithstanding and as set out below we expect that firms will take a proactive stance in keeping the Authority informed of any material matters.
Regulated entities are reminded that they should contact the Authority immediately about any difficulties that may cause an interruption to their services to clients or endanger their ability to continue. There are also standard notification requirements in the regulatory frameworks which should be met where practicable. If delays are necessary, notifications should be made as soon as possible thereafter.
- Notification where a regulated entity is under significant financial strain If there are concerns that the financial position and ongoing viability of a regulated entity is threatened, or likely to be threatened, relevant supervisory team should be notified as soon as practicable. In the current circumstances it would not be appropriate to wait until a regulatory threshold or trigger was breached before making a notification in such a situation.
- Notification of significant operational issues Regulated entities should continue to operate as far as practicable in line with the regulatory framework and notify the Authority of any material operational issues.
Consideration of material outsourcing
Where a regulated entity has material outsourcing in place they should review the arrangements as part of the business continuity planning and consider what alternative arrangements they can put in place in the event that the outsourced party is unable to provide the outsourced service.
As you will be aware, financial services has been deemed a critical sector by Isle of Man Government. The Authority expects regulated entities to consider their business continuity arrangements and whether a specific role is necessary for the continuation of their essential public service and the guidance issued by Isle of Man Government when identifying which staff members should be key workers. Key workers must be supplied with a letter from their employer to confirm their status.
Cyber and Financial Crime
There is evidence of a rise in covid-19 related fraud attempts at the current time. Regulated entities should continue to notify us of any attempted or successful cyber-attack or fraudulent activity and comply with their obligations for suspicious activity reporting under the AML/CFT framework.
In the current circumstances, notifications are important as we use this information to identify thematic risks and emerging trends across industry.
The Financial Intelligence Unit
We draw attention to an update from the Director of the FIU about their working arrangements and focus at this time https://www.fiu.im/news/update-from-the-director/.