The Financial Services Authority is reviewing the framework for monitoring unregulated funds.

Treasury Minister Alfred Cannan said at present the FSA’s main role was to supervise such funds’ appointed Isle of Man functionaries, who are regulated, and to register the unregulated schemes.

He said: ’Being unregulated, these collective investments schemes are typically of higher risk and the authority’s remit is to seek that these risks are made known to potential investors and also that those involved in the promotion, management or administration of such funds are properly licensed and experienced in accordance with the authority’s supervisory approach.

impact

’This is based on risk and impact assessments of licence-holders and the use of a supervisory tool kit including visits and desk-based supervision.

’It is, however, worth noting that the authority will be undertaking a review of these types of funds, and the framework that applies, and make appropriate recommendations for change.’

Mr Cannan was responding to House of Keys questions from Lawrie Hooper (LibVannin, Ramsey) who wanted to know what protection there was for clients who invest in schemes that were not authorised collective investment schemes.

He said qualified, specialist and funds were not licensed, authorised or regulated by the FSA so were referred to as ’unregulated’.

’It is very important to note that, because such schemes are unregulated, they cannot be sold to the general public.

’The authority has taken preventative steps to forestall retail investors accessing unregulated funds. Access to such funds is only available to investors who confirm that they meet the fund type’s minimum entry criteria.’

The authority does not indemnify investors in unregulated collective investment schemes nor is there any statutory compensation scheme.

compliance

Mr Cannan said there was no specific monitoring of the unregulated schemes, but added: ’Procedures the licence-holder has in place to ensure such schemes are not sold to the public and compliance with those procedures would potentially be reviewed by the authority during visits.’

Minimum entry criteria for investors ’includes a statutory certification that they have read the scheme’s offering document and understand and accept the specific risks associated with that type of fund, such as risks surrounding the underlying investments associated with these types of funds and the risk that investment could result in a loss of a significant proportion or all of the sum invested’.

The minister added: ’The island has various scheme types ranging from more regulated funds designed for retail clients - such as authorised collective investment schemes and regulated funds - to the unregulated funds designed for experienced/qualifying/specialist investors.

’The level of regulation is commensurate with the experience level and knowledge of the investor.

’Under both Isle of Man and UK legislation, financial advisers who advise clients are required to satisfy themselves that the product is suitable for the particular client’s individual circumstances, requirements and attitude to risk.

review

’If Isle of Man unregulated funds are sold by Isle of Man financial advisers, the authority would potentially review the suitability documentation during visits to the financial advisers.’