The Isle of Man Financial Services Authority (FSA) will implement a new fee model with effect from 1 April, introducing new change of control and other transaction fees.
The changes will affect financial services licenceholders, insurers, funds, designated businesses and pension scheme administrators, as well as their parent groups and those looking to establish or acquire regulated businesses in the Isle of Man.
The move follows announcements made in the Isle of Man Treasury’s 2020-21 budget of the intention to move to a ‘predominantly industry-funded’ model (PIFM) where the cost of regulation is borne primarily by regulated entities under the FSA’s supervision, rather than the Treasury. The move to a PIFM will represent a substantial change to the FSA’s fee structure, where the FSA is currently funded by approximately 56% fee revenue and 44% Treasury contribution.
The phased transition to a PIFM will mean an increase to fees payable to the FSA for most regulated entities, with changes to how annual fees are calculated and new transaction fees, as well as increased application fees for new businesses.
APPLICATION FEES AND ANNUAL FEES
Applications for new licences and authorisations will remain at a flat application fee, but will increase from 1 April, with further increases prescribed for the following two years.
The PIFM introduces a band system for annual fees with reference to the annual turnover for certain insurers, financial service licenceholders and registered pension scheme administrators. Annual turnover will be used to determine the fee payable for regulated entities incorporated in the Isle of Man, whereas for entities incorporated outside of the Isle of Man this will be based on the entity’s operations carried on in or from the Isle of Man only.
There will also be changes for funds incorporated in the Isle of Man, with new application fees introduced for some fund types, increases to periodical fees and a new fee charged to fund administrators in the Isle of Man for each overseas scheme they administer.
The FSA explained in the consultations for the new fees Orders that the revised fees are to reflect the costs incurred by the FSA proportionate to the sector in question.
CHANGES OF CONTROL
Until now, the FSA has not levied a fee for processing applications and notifications for changes to the control of regulated entities. For financial service licenceholders, insurers and pension scheme administrators this will change on 1 April, with new transaction fees calculated by reference to the application fee which applies to the relevant class of licence or authorisation held, increasing depending on the materiality of the change:
- Where a person acquires their first controlling interest of 50% or more in the regulated entity (Type A), this will incur a transaction fee equal to 50% of the highest application fee the regulated entity would pay on application for its licence/authorisation;
- Where a person acquires their first controlling interest of between 15% and 50% in the regulated entity (Type B), this will incur a transaction fee equal to 25% of the highest application fee the regulated entity would pay on application for its licence/authorisation;
- Where an existing controller reaches a 50% or 75% interest threshold in the regulated entity with a change of 10% or more (Type C), this will incur a transaction fee equal to 15% of the highest application fee the regulated entity would pay on application for its licence/authorisation; and
- For any other change which the FSA considers to be a material change of control (Type D), this will incur a transaction fee equal to 25% of the highest application fee the regulated entity would pay on application for its licence/authorisation.
We are not aware of any plans to implement similar fees for notifications of changes to designated businesses registered under the Designated Businesses (Registration and Oversight) Act 2015 or changes to funds registered under the Collective Investment Schemes Act 2008.
There are a number of areas which will need clarification as the regime is used in practice. For example, several FSA notification or consent requirements under existing legislation do not fall within one of the prescribed bands above so do not automatically trigger a fee (one example being a person becoming a controller of an insurer through the acquisition of a 10% interest), although the FSA may have discretion to levy a Type D fee in those circumstances. Conversely, there are prescribed fees for certain notification or consents which are not required under existing legislation.
There is a power for the FSA to waive the imposition of multiple fees for the same matter, which may be of benefit where there are changes in control of larger financial services groups including multiple regulated entities (sometimes spanning across multiple regulated sectors).
We also note that the obligation to pay change in control transaction fees is imposed on the relevant regulated entity, whereas generally in the case of insurers and pension scheme administrators, the obligation to make the notification to the FSA is in fact on the controller.
INSURANCE AND BANK TRANSFER SCHEMES
In recent years we have seen a number of court-sanctioned transfers of deposit taking and long-term insurance business in light of bank ring-fencing and reorganisation and a growing consolidation trend within the insurance industry. The PIFM introduces new fees for such transfer schemes, calculated as a percentage of the fee for a new deposit taking licence or insurance authorisation.
For deposit takers, this will be 50% of the cost of applying for a deposit taking licence. This means that a bank transferring its Isle of Man deposit taking business will face an FSA transaction fee of £13,750 (rising to £14,305.50 in 2025).
For life insurers, fees will be determined by reference to the insurer’s total accounting liabilities before and after the transfer and range from 10% to 25% of the fee for a new authorisation, so up to £12,500 (rising to £13,005 in 2025).
SUMMARY
The implementation of the PIFM and new fees Orders on 1 April will be a significant shake-up of the fees charged by the FSA.
The changes will not just impact existing Isle of Man regulated businesses, but also their controllers and parent groups with the introduction of transaction fees.
If you have any questions about the PIFM and its impact on your firm or business, please reach out to our below contacts.
For further information, please contact:
Juan Thornley, Partner, Appleby
jthornley@applebyglobal.com
