Q&A with Laurence Skelly, Minister for Economic Development, Isle of Man

IFC: How important is the financial services sector to the Isle of Man economy?

LS: In a nutshell, the financial and professional services sectors are the bedrock of our economy, accounting for around a third of National Income and nearly 25 per cent of employment.

The sector now spans banking, funds management, insurance, fiduciary, trusts, corporate service providers and the many varied professional and legal services that support them.

The sector overall plays a key role in maintaining thousands of jobs in our supporting sectors, such as retail, leisure services and hospitality.

IFC: Could you give me a brief history of the development of the Isle of Man as an international finance centre?

LS: Up until the 1970s our GDP per capita was only around 75 per cent of the UK’s and our primary sector was tourism which accounted for 20 per cent of GDP but was dwindling rapidly due to the rise in popularity of package holidays to the Mediterranean.

This led to a low point in our economy. In the early 1980s, unemployment exceeded 10 per cent and GDP per capita dropped to 55 per cent of that of the UK.

This coincided with the beginnings of the Island as an international finance centre with deposit banking becoming a growth sector although it wasn’t until the mid-1980s that the Isle of Man Government decided to pursue a strategy of diversification.

Other key dates were the establishment of the Financial Supervision Commissionin 1983, the Isle of Man Ship Registry in 1984 and by 1991 the Depositor Compensation Scheme was in place, Government Income was rising and GDP was on an upward trend.

The Department of Economic Development now supports over 20 wealth-creating sectors, which we have categorised into: financial and professional services;   established sectors such as manufacturing and the visitor economy, which provide vital employment to thousands; and emerging sectors such as e-business, offshore energy and biomed, which have provided vital growth in recent years and offer great potential.

Our financial services sector still underpins much of our economy. It has diversified in tandem with the broader economy in response to both changing market needs and the conscious development of niche areas for our international client base.
IFC: What would you perceive to be the Isle of Man’s unique selling point amongst international finance centres (IFCs)?

LS: I would say that our greatest strength and advantage is the strong relationship and level of co-operation between Government and industry. This is true for every sector and particularly financial and professional services.

This co-operation over the past 25 years has led to the creation of an outstanding environment in which to do business.

The Island provides a secure base for investment built on political and economic stability, a clear and simple taxation regime and a firmly established fiscal and regulatory environment, independent of the UK. Furthermore, it is an English speaking jurisdiction, in the GMT time zone with a world class telecommunications infrastructure, making it attractive as a platform to conduct business globally.

IFC: IFCs have developed something of a negative reputation, how does the Isle of Man manage its reputation and rebut the negative spin put on IFCs in the media?

LS: The Isle of Man Government has a proactive public affairs and public relations programme in place. This aims to raise awareness of the Isle of Man, its economy and constitution and its status as an internationally responsible and economically enterprising nation which benefits the UK economy.

Specifically, the Department of Economic Development’s PR programme showcases the Isle of Man’s capabilities as an international business centre across its diverse range of sectors.

IFC: How important is the Isle of Man to the UK’s economy and within the global financial architecture?

LS: The UK is the Isle of Man’s key trading partner and we feel that the Island is able to deliver proven benefits to the UK as well as the broader global economy.

A report conducted by Ernst and Young in 2012 found that the Isle of Man was also an important and reliable partner in providing liquidity during the financial crisis of approximately £35bn to the UK financial system during first quarter 2008 and second quarter 2011 when it was most needed.

Our strategy for economic growth also supports many of the goals of the UK’s national growth strategy. For example, by supporting companies who wish to list on AIM. This has helped the UK in its relationships with emerging markets and attracting FDI as many Isle of Man AIM-listed companies were from emerging economies such as India and China, bringing in investment to Britain which might have been diverted elsewhere without the Isle of Man’s infrastructure.

IFC: The Isle of Man was among the first to sign up to an IGA with the UK, how important is FATCA to the Isle of Man? How will it impact on business?

LS: FATCA is a game changer no doubt. For well regulated and transparent jurisdictions like the Isle of Man the costs of regulation will undoubtedly rise.

The Island has long been committed to playing its part in the development of a new global standard in automatic information exchange and going back a few years it was one of the first non-EU countries to automatically share bank account information with European Union member states.

We believe that FATCA represents a significant step towards the development of a new global standard in automatic information exchange. By committing to it early on, the Isle of Man is reinforcing the message to its neighbours and the wider world that the Island is a responsible centre for top quality international business.

IFC: Is the jurisdiction in favour of automatic tax information exchange or does the island prefer a request system, as required through TIEAs?

LS: The Isle of Man has been at the forefront of engaging with both forms of tax information exchange, and operates both systems. We led the way in helping the OECD to develop the model Tax Information Exchange Agreement (TIEA) a decade ago, and since then we have signed 42 international tax co-operation agreements meeting the OECD standard.

The Isle of Man was one of the first non-EU countries to automatically share bank account information with European Union member states. We automatically share certain tax information with the United States under its FATCA legislation, and also with the United Kingdom, having been the first Crown Dependency to sign such an agreement with the UK. 

IFC: What is the government’s position on calls from Prime Minister Cameron to introduce a Beneficial Ownership registry?

LS: The Isle of Man has a robust regime in place to ensure the identification of the beneficial ownership of companies. As part of our G8 Action Plan we are committed to reviewing existing provisions to consider whether the introduction of a centralised registry holding this information would improve transparency, and we are currently consulting on this matter.

IFC: The Isle of Man has recently received the top rating on compliance by the OECD, how important is this for those conducting business on the island?

LS: The OECD rating was welcomed as it was yet another reinforcement of our position as one of the world’s leading international business centres.  

Such achievements are very important as they can only help to reassure business that the Isle of Man is an internationally responsible and stable nation which is continuing to enhance its standing in the global community and no longer be regarded as a ‘tax haven’.

IFC: Has the increased global regulation of the financial services industry impacted on business in the Isle of Man?

LS: There has certainly been some consolidation in terms of Corporate Service Providers but as we thought, new opportunities are being created in the industry to diversify further. We have actually seen an increase in professional services employment despite some contraction in banking and retail finance. Employment overall in financial and professional services is up on 2011.

IFC: What is the plan going forward to keep the Isle of Man competitive and to continue its economic growth?

LS: Earlier this year the Isle of Man Government launched Vision2020, which details our ambitious plans for economic growth over the next six years across the whole economy with forecast growth at three to four per cent per annum.    

Vision2020’s strategy for the financial and professional services sectors is incorporated within an innovative ‘Clients First’ strategy, which acknowledges the dual needs of protecting vulnerable investors and giving opportunity and choice to the more sophisticated and less risk-averse.

To ensure we keep the Isle of Man competitive we are updating consumer protection, protecting and enhancing the current tax regime and embracing different business models as well as ensuring that we maintain our adherence to the continuing regulatory challenges.

We are also increasing our capabilities to engage with businesses from overseas and the UK regions. We have been particularly successful in engaging with China, and have set about re-engaging with businesses in the North West of England.

The Isle of Man enjoyed a successful six-week presence at this year’s International Festival for Business in Liverpool. This is a major global event and is expected to attract 250,000 professionals from 125 countries – a very useful showcase for demonstrating the Isle of Man’s credentials as a diverse and successful international business centre.

IFC: The Island has made inroads in to a number of hi-tech industries – what is the long term plan with regard to such economic diversity?

LS: We are very much committed to our policy of diversification. As markets change to meet ever evolving customer requirements we need to ensure that we equip local firms with the ability to do so.

Vision2020 acknowledges this and commits us to developing further the Island’s capabilities in e-business and high-tech manufacturing, both of which are sectors that already thrive in the Isle of Man.

We want the Isle of Man to be known as the ‘Tech Isle’ and a leading centre for innovative e-businesses to relocate to. We have the excellent infrastructure for them, supportive financial and professional services sectors and an existing cluster of high profile firms here already.

Our manufacturing capability has become increasingly well-known in recent years. Our aerospace cluster is an integral part of the UK aerospace supply chain and our firms are also involved in diverse niches such as watchmaking, diving equipment and thermostatic controls for kettles.

What both sectors have in common is that long term success will require access to skilled professionals. We are already tackling this. We are looking to better align the school IT curriculum with the needs of the economy and Government has invested £1million in an Engineering Centre of Excellence to ensure that our thriving manufacturing sector has access to skilled home grown engineers.