Taking the Lead in a New Sector
The Isle of Man is once again looking to take the lead in a new sector with the proposed launch of the Alternative Banking Regime (ABR).
If enacted, the new legislation will give groups the opportunity to take control of their own banking and will encourage entrepreneurism and funding for new and expanding businesses.
The Alternative Banking Regime
It is proposed to introduce the ABR in the Isle of Man later this year. This rather underwhelming title conceals one of the most exciting opportunities for family offices and large treasury groups, and some commentators believe that it could revolutionise banking for high net worth clients and large corporations.
The ABR seeks to provide an opportunity for individuals and companies to take control of their finances rather than relying on third party financial institutions.
Opportunities for Family Offices and Corporations
The ABR will provide the opportunity for a family office or corporation to have its own, relatively inexpensive, banking licence.
The advantages that this offers include:
- The opening of banking facilities for a new venture would be virtually instant.
- Management of counter party risk would be under the control of those who are in charge of the ABR bank.
- It is likely to reduce third party compliance demands (especially for complex groups).
- Control of the distribution of due diligence is limited to within the family and/or group .
- Other financial institutions would view the family office or organisation as a bank which is likely to reduce cost and risk.
- Increased prestige and access to other financial institutions.
- The speed of refinancing, and its associated cost, would be reduced.
- Access to better deposit rates and FX (Foreign Exchange) rates via consolidation.
- The speed of transaction will be increased.
- The treasury function is likely to be simpler, and more efficient.
Legislation in More Detail
The proposed ABR framework is the result of months of consultation and industry collaboration. When introduced, the ABR will expand the existing Class 1 (deposit taking) banking licence to include:
- Class 1(1) – for the typical existing bank and any institutions taking retail deposits.
- Class 1(2) – for non-retail deposit takers - those that provide services to a very limited class of individuals, and corporate organisations.
- Class 1(3) – for representative offices of foreign banks not able to take deposits on the island.
The New Class 1(2) Sector
The Class 1(2) non-retail (or wholesale) banks (including private/merchant banking) would comprise a new banking sector in the Isle of Man.
Class 1(2) would only be available to corporate depositors and a very limited class of individuals with a high minimum entry criteria.
Status and Future Progress
A Discussion Paper, issued by the Isle of Man Financial Services Authority, has recently closed and is currently being reviewed. Subject to this process, it is anticipated that the ABR will be in place in the summer of 2016.
Assuming that the Isle of Man converts this draft legislation to the statute book, it presents the potential to revolutionise corporate and private banking for high net worth clients.
It may also, to some extent, reduce risk in the general retail banking sector because it will encourage the separation of investment banking and retail banking, which has been a goal of the banking industry since 2008.
Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority
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