- How the Authority is currently operating
- The need to ensure activities stay within regulatory permissions
- Outreach to regulated entities on financial stability monitoring
- The importance of Director prudence when exercising fiduciary obligations
- Notifications to the Authority
The Authority continues its work with industry during the pandemic
The Authority is working predominantly from home. We appreciate the assistance of industry in providing materials to us electronically; this has helped us to remain responsive and avoid unnecessary delays.
During this time we have continued our normal activities with some minor modifications, including authorisation, supervision and enforcement. It is worth noting that we are dealing with licence enquiries and licence applications received after the start of the pandemic lockdown.
Whilst we are not currently undertaking onsite inspections of regulated entities, our desk based work includes consideration of entity, sector and industry risk. Where appropriate we will continue to ask entities for additional detailed information to support this work.
We have convened special working groups to consider internal and external risks posed by the pandemic to the Authority, our regulated sectors and the Isle of Man economy. To inform our risk assessments we are closely monitoring recommendations from International Standard Setters and steps taken by other regulators.
Whilst we have not been able to conduct face to face meetings, our staff remain contactable by email, phone and video/ audio conference call and this has allowed our work to progress.
The Authority is, to the extent possible, continuing business as usual whilst working in this unprecedented economic and physical environment.
The need to ensure activities stay within regulatory permissions
We are aware that regulated entities are receiving an increased volume of enquiries from their existing customers about how the economic situation may impact the client’s financial position. In some cases clients may be very concerned or distressed, particularly where the value of their assets has been affected by stock market downturns, and may push staff for their opinion.
The Authority reminds regulated entities that providing advice on specific investments is a class 2(7) regulated activity under the Financial Services Act 2008.
- Any entities that do not hold this permission should not deliberately or inadvertently stray into giving advice, or allow a client to gain the impression that they have been advised about what to do with their investments. This includes situations where the value of a life assurance policy is linked to the value of external assets.
- Where firms hold requisite permission they must ensure that only staff who are allowed to provide advice provide such advice.
Outreach to regulated entities on financial stability monitoring
The Authority’s statutory objectives include “maintenance of confidence in the Island’s financial services, insurance and pensions industries through effective regulation, thereby supporting the Island’s economy and its development as an international financial centre”. When discharging its functions the Authority is required to consider factors including “the impact of its decision on the stability of the financial system of the Island”.
Clearly, the Island is not immune from the Global Economic downturn resulting from the international response to the Covid-19 pandemic. When assessing industry resilience, in the light of the current situation and ongoing economic uncertainties surrounding the Covid-19 pandemic, a key focus of the international business community has been on short and medium term cash flow forecasts against stress scenarios.
The Authority therefore needs to understand the impact of the current situation to ensure that it can be supportive of industry and balanced in its approach to the current situation. The resilience of industry will be a key factor in the Island’s future economic success.
There is already a strong focus on prudential resilience and stress testing in the Banking and Insurance sectors. The Authority continues to work closely with these sectors at this time.
The Authority’s standard financial reporting and regulatory requirements for other sectors is partly based on audited financial figures, and as such is focused on historic trends. The new environment means that historic trends and data, whilst still very important, may not be a reliable guide to the current economic environment.
The Authority has therefore commenced work to further its understanding of the potential impact of the Covid-19 pandemic on regulated entities’ businesses and cash flow and how they may readjust their business model and operations. We do not believe that this will result in significant additional work for the regulated entities we approach, as they will already be closely monitoring their own cash flow and resilience against potential stress scenarios.
This work is being undertaken on a representative sample basis of relevant firms in the investment and fiduciary sectors. The Authority is not asking for information from all entities at this time.
The importance of Director prudence when exercising fiduciary obligations
There remains very significant uncertainty about the ultimate impact of the pandemic and the timeframe before normal economic patterns return. In our press release of 3 April we highlighted the ongoing need for prudence in directors’ decision making at this time. We would like to take this opportunity to remind directors of regulated entities of their fiduciary obligations in managing the business through this time of uncertainty. As such the Authority expects that the Boards of regulated entities will act prudently, taking account of the risks and threats, when considering 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.
Notifications to the Authority
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.