Appleby lawyers Claire Milne and Katherine Garrood have authored the Fintech chapter for the Isle of Man as part of the 2023 update to the International Comparative Legal Guide (ICLG) to Fintech. The Guide provides a broad overview of Fintech laws and regulations in the Isle of Man as well as guidance around other topical issues including funding options for Fintech businesses in the jurisdiction, intellectual property rights and data privacy.
This guide to Fintech in the Isle of Man covers the following topics:
- THE FINTECH LANDSCAPE
- FUNDING FOR FINTECH
- FINTECH REGULATION
- OTHER REGULATORY REGIMES/ NON-FINANCIAL REGULATION
- ACCESSING TALENT
- TECHNOLOGY & INNOVATION
1. THE FINTECH LANDSCAPE
1.1 PLEASE DESCRIBE THE TYPES OF FINTECH BUSINESSES THAT ARE ACTIVE IN THE ISLE OF MAN AND THE STATE OF THE DEVELOPMENT OF THE MARKET, INCLUDING IN RESPONSE TO THE COVID-19 PANDEMIC AND ESG (ENVIRONMENTAL, SOCIAL AND GOVERNANCE) OBJECTIVES. ARE THERE ANY NOTABLE FINTECH INNOVATION TRENDS OF THE PAST YEAR WITHIN PARTICULAR SUB-SECTORS (E.G. PAYMENTS, ASSET MANAGEMENT, PEER-TO-PEER LENDING OR INVESTMENT, INSURANCE AND BLOCKCHAIN APPLICATIONS)?
The Isle of Man has a well-developed and active fintech community covering a broad range of sectors, with a welcoming and supportive government.
Insurance is the largest sector of the economy, with the Island home to world-leading brands in life insurance and a considerable captive insurance market. Insurtech is a key focus for Finance Isle of Man (one of four executive agencies of the Island’s Department for Enterprise), which ran an Insurtech Accelerator Programme during 2022/23 to bring together a cohort of international start-ups to collaborate with the Island’s insurance community to provide innovative solutions for insurance providers and encouraging a network of skill and technological development.
Similarly, Digital Isle of Man (another executive agency of the Island’s Department for Enterprise) is running a Fintech Innovation Challenge during the first half of 2023. A cohort of participants from across the world have been partnered with local industry mentors to develop ideas for digital ID and e-KYC, AI forecasting and ESG auditing, amongst other things.
eGaming is the second largest contributor to the Island’s GDP, with figures released in February 2023 showing a 79% increase in eGaming licences issued by the Isle of Man Gambling Supervision Commission (IOMGSC) over the last five years.
More broadly, the Island is also home to global payment service providers, crypto exchanges and a number of software developers, including innovative fund administration systems, e-gaming software and systems used by government registries across the world. Digital Isle of Man has also released plans to grow the Island’s eSports offering.
1.2 ARE THERE ANY TYPES OF FINTECH BUSINESS THAT ARE AT PRESENT PROHIBITED OR RESTRICTED IN THE ISLE OF MAN (FOR EXAMPLE CRYPTOCURRENCY-BASED BUSINESSES)?
There are no prohibitions or restrictions specific to fintech businesses, save that it is the policy of the Isle of Man Financial Services Authority (IOMFSA) to refuse to register persons carrying out initial coin offerings (ICO) where the coin issued provides no benefit to the purchaser other than the coin itself. Such virtual currencies are generally considered by the IOMFSA to pose an unacceptably high risk that the money raised from the ICO could be used for unanticipated and illegal purposes, as well as posing a risk to consumers.
2. FUNDING FOR FINTECH
2.1 BROADLY, WHAT TYPES OF FUNDING ARE AVAILABLE FOR NEW AND GROWING BUSINESSES IN THE ISLE OF MAN (COVERING BOTH EQUITY AND DEBT)?
The Isle of Man Department for Enterprise offers a number of grants and funding support schemes:
- Under the Micro Business Grant Scheme, new qualifying start-up businesses may be offered funding of up to £6,000 and a further £10,000 to support creation of jobs alongside training and mentoring opportunities.
- The Financial Assistance Scheme provides a range of grants and loan support of up to 40% funding toward capital and operating items for start-ups, local businesses looking to expand and off-Island businesses looking to relocate to the Isle of Man.
The Business Improvement Scheme may provide a grant of 50% towards improvement projects with a maximum of £5,000 per project to businesses wishing to undertake an improvement project. - Under the Business Energy Saving Scheme, a business seeking to improve their energy efficiency and lower their energy costs may be offered 100% interest-free unsecured loans up to £20,000.
- The Graduate Role Incentive offers businesses of any sector 20% of the first-year salary of a graduate hire up to £6,000, alongside an employer National Insurance rebate for each graduate hire.
- The Employee Relocation Incentive provides a 20% grant of up to £10,000 towards the cost of relocating an employee to the Isle of Man.
Businesses can of course also seek public sector funding, such as bank loans, private equity or venture capital investment.
2.2 ARE THERE ANY SPECIAL INCENTIVE SCHEMES FOR INVESTMENT IN TECH/FINTECH BUSINESSES, OR IN SMALL/MEDIUM-SIZED BUSINESSES MORE GENERALLY, IN THE ISLE OF MAN, E.G. TAX INCENTIVE SCHEMES FOR ENTERPRISE INVESTMENT OR VENTURE CAPITAL INVESTMENT?
See question 2.1 above.
2.3 IN BRIEF, WHAT CONDITIONS NEED TO BE SATISFIED FOR A BUSINESS TO IPO IN THE ISLE OF MAN?
There are a number of Isle of Man companies listed on stock exchanges around the world, including the Main Market and Alternative Investment Markets of the London Stock Exchange. Conditions to carrying out an IPO will be driven by the listing rules of the relevant stock exchange.
2.4 HAVE THERE BEEN ANY NOTABLE EXITS (SALE OF BUSINESS OR IPO) BY THE FOUNDERS OF FINTECH BUSINESSES IN THE ISLE OF MAN?
Yes, a number of Isle of Man fintech companies have carried out IPOs. In some cases (Playtech PLC and Kape Technologies PLC), listed Isle of Man fintech companies have seen subsequent takeover offers.
The M&A market for more traditional financial services businesses has also been very active in recent years, with a number of notable insurance acquisitions including Quilter International’s sale to Utmost.
3. FINTECH REGULATION
3.1 PLEASE BRIEFLY DESCRIBE THE REGULATORY FRAMEWORK(S) FOR FINTECH BUSINESSES OPERATING IN THE ISLE OF MAN, AND THE TYPE OF FINTECH ACTIVITIES THAT ARE REGULATED.
The applicable regulatory framework will depend upon the activities undertaken by the business:
- Online Gambling – online gambling activities are regulated by the IOMGSC under the Online Gambling Regulation Act 2001.
- Online Gambling Software – although not mandatory, suppliers of software and related services used in online gambling can apply to the IOMGSC for a software supply licence, which has the benefit of their products being listed on a register maintained by the IOMGSC.
- Investment Business – providing custody services, investment advice or discretionary management services, and dealing or arranging deals in investments are activities which are regulated by the IOMFSA under the Financial Services Act 2008 (FSA08).
- Collective Investment Schemes – funds are regulated by the IOMFSA under the Collective Investment Schemes Act 2008, including those investing into fintech business or issuing security tokens.
- E-money – the issuance of e-money is regulated by the IOMFSA under the FSA08.
- Payment Services – the provision of payment services is regulated by the IOMFSA under the FSA08.
- Lending – lending is regulated by the Isle of Man Office of Fair Trading under the Moneylenders Act 1991 and is also a designated business as discussed at question 3.2 below.
- Insurance business – insurance business is regulated by the IOMFSA under the Insurance Act 2008.
- Cryptocurrencies – cryptocurrency businesses that are not otherwise regulated by the IOMFSA or IOMGSC are overseen by the IOMFSA as described at question 3.2 below.
3.2 IS THERE ANY REGULATION IN THE ISLE OF MAN SPECIFICALLY DIRECTED AT CRYPTOCURRENCIES OR CRYPTOASSETS?
There is no district regime for cryptocurrencies or cryptoassets; rather the property of the token and the activities undertaken by the business will dictate the applicable regulatory regime. For example, as discussed at question 3.1, where a cryptoasset is analogous to a security or e-money, this could trigger a licensing requirement under the FSA08.
Other businesses carrying out “convertible virtual currency activity” that are not otherwise regulated by the IOMFSA or the IOMGSC must register as a “designated business” with the IOMFSA under the Designated Business (Registration and Oversight) Act 2014 (DBROA). The definition of “convertible virtual currency activity” is very broad and will capture almost every business operating in the cryptocurrency/cryptoasset sector.
Registration under the DBROA is not full regulation and there are no protections for consumers, no capital or liquidity requirements and no conduct of business rules. However, a designated business must comply with anti-money laundering and countering the financing of terrorism (AML/CFT) legislation including the Anti-Money Laundering and Countering the Financing of Terrorism Code 2019 (AML/CFT Code), as discussed at question 4.5 below.
3.3 ARE FINANCIAL REGULATORS AND POLICY-MAKERS IN THE ISLE OF MAN RECEPTIVE TO FINTECH INNOVATION AND TECHNOLOGY-DRIVEN NEW ENTRANTS TO REGULATED FINANCIAL SERVICES MARKETS, AND IF SO HOW IS THIS MANIFESTED? ARE THERE ANY REGULATORY ‘SANDBOX’ OPTIONS FOR FINTECHS IN THE ISLE OF MAN?
Policymakers are very receptive to fintech innovation and new technology-driven business, as demonstrated by their support of the Fintech Innovation Challenge and InsurTech Accelerator Programme noted at question 1.1 above.
As a member of the Global Financial Innovation Network (GFIN), the IOMFSA has sharpened its focus on innovation and dynamic regulation, launching an innovation hub on its website to offer guidance to businesses seeking authorisation using innovative technology in delivering regulated activities.
A regulatory sandbox is available, allowing financial services products to be tested in a controlled environment with reduced risks to consumers. The IOMFSA has the power to apply exceptions or modifications to rules by imposing relevant conditions on a financial services licence as a means of mitigating the risks to the public whilst permitting limited testing. However, currently the power to apply exceptions or modifications is limited to persons carrying on activities that would otherwise be licensed under the FSA08, so the sandbox is not available to insurers.
3.4 WHAT, IF ANY, REGULATORY HURDLES MUST FINTECH BUSINESSES (OR FINANCIAL SERVICES BUSINESSES OFFERING FINTECH PRODUCTS AND SERVICES) WHICH ARE ESTABLISHED OUTSIDE YOUR JURISDICTION OVERCOME IN ORDER TO ACCESS NEW CUSTOMERS IN THE ISLE OF MAN?
There are no mutual passporting rights into or out of the Isle of Man, so whether a business licensed in another jurisdiction can offer products and services to customers in the Isle of Man will depend upon the specific circumstances. If the business is deemed to be carrying out a regulated activity “in or from” the Isle of Man, then authorisation may be required.
For further information, please contact:
Claire Milne WS, Partner, Appleby
cmilne@applebyglobal.com
