Deposit-Taking Business Transfers And The Financial Services (Miscellaneous …

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

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

This legislation will undoubtedly assist in achieving the
FSCs regulatory objective of supporting the Islands
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
Islands 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 Islands banking sector.

As originally appeared in the Isle of Man Regulatory Update
– February 2013

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