Licenceholders will be pleased to learn that a new piece of legislation, awaiting Royal Assent at the date of this article, will facilitate the transfer of their deposit-taking business by court order, without the need to obtain express customer consent.
The Financial Services (Miscellaneous Amendments) Bill 2012 (the Bill) contains, amongst other things, changes to the Financial Services Act 2008 (the FSA), which include a mechanism for deposit-taking business transfers. This mechanism is similar to that already in place for the transfer of long-term insurance business, found in Schedule 2 to the Insurance Act 2008, and brings the Isle of Man broadly in line with the position in the UK under the Financial Services and Markets Act 2000.
Currently, there is no statutory procedure in place for the transfer of deposit-taking business. Accordingly, a licenceholder wishing to transfer its business is required to effect such a transfer by obtaining the consent of customers to the novation of their accounts (through account terms and conditions or otherwise) or by seeking a Private Bill in Tynwald. Given the numbers of customer accounts that are generally involved, obtaining express consent can be both unduly time consuming and costly for licenceholders in the event that there is no pre-existing customer consent under the account terms and conditions. The court approved deposit-taking business transfer route will also provide greater legal certainty for licenceholders.
When enacted, the legislation will introduce a new Schedule into the FSA, which sets out a statutory procedure for the transfer of deposit-taking business. Approval of transfers can be sought where a person licensed under the FSA proposes to transfer the whole or part of its business (where the whole or part of the business to be transferred comprises, or includes, deposit-taking) carried on in or from within the Island to another licenceholder. Appleby lobbied for an extension in the scope of the Bill so that, rather than being restricted solely to deposit-taking business, a court approved deposit-taking business transfer scheme can also include other business conducted by a licenceholder, subject to any requirements of the FSC. Transfers can be made to transferees outside the Isle of Man provided that the transferee has the necessary authorisation in the jurisdiction to which the business is to be transferred. The transfer will require an application to the High Court, which can be made by the transferor, the transferee or both. The detailed requirements of this application will be provided in the form of regulations made by the FSC.
Safeguards have been built into the transfer mechanism to protect depositors' interests. As mentioned above, the Bill proposes that the FSC may impose requirements by regulations in connection with applications to transfer a deposit-taking business and, on an application, the FSC is entitled to be heard together with any person, including an affected depositor or an employee of either the transferor or the transferee, who alleges that he or she would be adversely affected by the carrying out of the transfer scheme.
This legislation will undoubtedly assist in achieving the FSC's regulatory objective of supporting the Island's economy and its development as an international finance centre and are designed to meet the modern commercial interests of the licenceholder. As mentioned, they will also help bring the Island's legislation into line with other jurisdictions, such as the UK, under the Financial Services and Markets Act 2000. They are an improvement on deposit-taking business transfer procedures in some jurisdictions where the deposit-taking business transfer procedure is of mandatory application, preventing a licenceholder from transferring its deposit-taking business in reliance on a power within its account terms and conditions. Until now, the Isle of Man has not had an equivalent regime for the transfer of deposit-taking business and it is anticipated that this legislation will be very well received by the Island's banking sector.
As originally appeared in the Isle of Man Regulatory Update – February 2013
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.