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Leading law firm Appleby has written to Ministers and other politicians to express its ‘deep concern’ over ‘onerous’ proposals to introduce civil penalties for individuals working in the island’s financial services sector.
The island’s largest private practiced law firm says the move threatens to harm the island’s economy and could lead to businesses shifting some operations elsewhere.
There’s been growing unease in the sector at how the Financial Services Authority (FSA) has been handing out huge fines to businesses for often tick-box breaches of compliance with the anti-money laundering code.
Critics contrast this with what they say appears to be the relaxed regulation of the island’s egaming industry – leading to claims of ‘two-tier-regulation’.
The FSA has been consulting on proposed changes that would enable it to impose fines not just on regulated businesses but also on those who hold or have held key roles with them, where there is evidence of misconduct or regulatory failings.
This would include directors and employees with significant decision-making power or control.
It says this would bring the Isle of Man into line with ‘long-established international expectations’ and would help ensure the island is ‘well-positioned’ for future external assessments, such as the upcoming review by MoneyVal.
MoneyVal is a Council of Europe body that evaluates how well countries comply with international standards to combat money laundering and terrorist financing.
But Appleby says it is ‘firmly opposed’ to the move and has forwarded its concerns to the Chief Minister, Ministers and members of the Legislative Council.
Isle of Man Today has seen its consultation feedback and a covering letter from Appleby partner Garry Manley, on behalf of the law firm, who says there is a widely-held perception that the FSA has become ‘increasingly unaccountable’.
He says: ‘Regulated businesses in the Isle of Man already face exceptional challenges in staffing compliance roles.
‘The Authority is widely perceived as having taken an unfair and draconian approach to imposing civil penalties on regulated businesses in recent years.’
He says there is a perception that the FSA has moved away from engaging with businesses to remediate any technical shortcomings, and now imposes ‘harsh, unreasonable and disproportionate’ penalties even for technical breaches where there is no suggestion of negligence or deliberate non-compliance.
‘Local regulated businesses (and their owners, directors, employees and officers) are seriously concerned that, if given these new powers, the Authority would adopt the same approach for individuals,’ he says.
In his email to the politicians, Mr Manley acknowledges it is unusual to send feedback of this nature to Tynwald members but said the law firm wanted to reflect the concerns of financial services clients, which many of them were reluctant to express directly to the FSA.
His covering letter says the reason for this approach is not to criticise the FSA but because Appleby ‘cares passionately about the Isle of Man’s continued success as an international financial centre’.
Finch Hill House, the headquarters of the island’s FSA (Media IoM)
He says that Appleby is ‘deeply concerned’, from conversations with clients and other contacts, that this success is being severely undermined by the widely held perception that the FSA is overlooking its statutory objectives and is ‘increasingly unaccountable’.
And Mr Manley warned there are a number of significant financial services groups – major employers in the Isle of Man – that are considering their options to restructure some of their operations to other jurisdictions.
He said this was in view of the perception that, in the interests of being perceived by MoneyVal to be firm, the FSA is ‘overlooking the need to be fair and is disregarding the need for any sanctions that it issues to be reasonable and proportionate’.
Appleby says the proposed provisions are ‘vastly more onerous and wide-ranging’ than those in other jurisdictions, and in the UK, Jersey and Guernsey there are key limitations on the regulator’s powers to impose civil penalties on individuals.
In its consultation submission, Appleby claims that the proposals could prove counter productive as it could prevent businesses from finding skilled and qualified compliance staff.
If civil penalties for individuals are to be introduced, they should be applied only where there has been a ‘significant and material’ breach of rules by a business and the individual was knowingly concerned in that contravention, Appleby added.
In a statement, the FSA said: ‘All the submissions are being carefully considered, and a feedback statement will be published.
‘A separate consultation exercise on the secondary legislation needed for changes to the civil penalties regime will provide an opportunity for further industry, political and public scrutiny.
‘The government is committed to keeping pace with evolving international standards as part of the co-ordinated national approach to combatting financial crime. External specialists have highlighted the absence of powers to impose civil penalties on key individuals as a significant weakness.
‘The proposed change would provide the authority with an additional regulatory enforcement option already available to financial regulators in other international finance centres such as Jersey and Guernsey.
‘For example, the Authority would have the ability to impose a civil penalty on an individual for a serious regulatory failing in circumstances where a prohibition or criminal prosecution is considered too severe.
‘The Authority is not an enforcement-led regulator and the use of any of its powers is subject to a rigorous review process and rooted in a desire to be fair, consistent and pragmatic.’
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