The Act allows for the continued application and implementation of existing EU provisions in the Island after Exit Day; it makes provision to apply UK legislation to the Island relating to the UK’s withdrawal from the EU and the UK’s future relationship with the EU; and relating to the functions of the Department of Environment, Food and Agriculture and makes provision in relation to trade and trade agreements.

The Act received Royal Assent on 15 January 2019. European Union and Trade Act 2019 (Appointed Day)(No.1) Order 2019 made on 24 January 2019 brought a number of provisions of this Act into force on 1 February 2019.

Dormant Assets Bill 2018

The Bill will enable banks to move money from accounts which have had no customer activity for at least 15 years (and that customer cannot be traced) into a central fund called the Dormant Assets Fund (the Fund) held by the Treasury. The Fund will be used to make donations to charitable causes on the Isle of Man. Any asset holder whose dormant asset has been transferred to the Fund retains an indefinite right to reclaim the amount that was transferred.

The Bill had its third reading at the Legislative Council on 12 March 2019 and was considered by the House of Keys in light of Council amendments on 26 March 2019.

Secondary Legislation

A number of regulations due to come into force when the UK leaves the EU have made their way through Tynwald recently. These regulations make amendments to existing Isle of Man legislation necessary to ensure that Isle of Man Acts and Regulations continue to operate properly and appropriately after the UK withdraws from the EU. A non-exhaustive list of the regulations passed is set out below. We do not propose to go into substantial detail for each of these regulations in this eAlert but please feel free to get in touch if you would like further information.

Brexit related regulations

European Union and Trade Act 2019 (Deficiencies) (Cabinet Office) Regulations 2019 [SD No 2019/0056]: amends the Equality Act 2017, the Freedom of Information Act 2015, Data Protection Act 2018 and the Representation of the People Regulations 2015.

European Union and Trade Act 2019 (Retained Direct EU Legislation) (DEFA and OFT) Regulations 2019 [SD No 2019/0037]: these Regulations prescribe 408 items of EU legislation in relation to agriculture, fisheries and trade that are to be retained as having effect in Manx law after Exit Day. These regulations have subsequently been amended by the European Union and Trade Act 2019 (Deficiencies) (DEFA) (No. 2) Regulations 2019 [SD No 2019/0122].

European Union and Trade Act 2019 (Deficiencies) (OFT) Regulations 2019 [SD No 2019/0038]: modifies three Acts of Tynwald that fall within the remit of the Office of Fair Trading.

European Union and Trade Act 2019 (Deficiencies) (Treasury) Regulations 2019 [SD No 2019/0027]: makes various amendments, some of which act to restrict the territorial scope of current legislation so as to remove the EU post-Brexit.

Data Protection (Withdrawal from the EU) (UK and Gibraltar) Regulations 2019 [SD2019/0139]: allows uninterrupted flows of personal data to continue, in accordance with data protection legislation, following the UK’s (and by extension Gibraltar’s) withdrawal from the EU.

European Union and Trade Act 2019 (Deficiencies) (Enterprise) Regulations 2019 [SD No 2019/0120]: provide for technical amendments to correct deficiencies resulting from Brexit in legislation for which the Department for Enterprise is responsible. Most of the amendments are technical changes to replace terminology which will no longer be appropriate after Brexit. However some of the intellectual property legislation amended is intended to operate in a reciprocal manner and those reciprocal arrangements will no longer exist after the UK withdraws from the EU. In those cases amendments are made to the legislation to ensure that there is consistency of treatment in the EEA for works originating in the Island and in the Island for works originating in the EEA.

European Union and Trade Act 2019 (Deficiencies) (Patents) Regulations 2019 [SD No 2019/0121]: the Island does not have its own patent registry. Instead any patents registered with the UK Intellectual Property Office automatically cover both the UK and the Isle of Man and the Patents Act 1977 (of Parliament) extends to the Island. However there are also number of patent related EU mechanisms which apply both to the UK and the Island. The UK is amending EC Regulations in order to continue the operation of these mechanisms. These Isle of Man regulations mirror the changes the UK is making to the EC Regulations as they apply to the Island in order to ensure that the legislation operates correctly.

European Union and Trade Act 2019 (Retained Direct EU Legislation) (Customs) Regulations 2019 [SD No 2019/0064]: applies certain EU regulations, EU decisions and EU tertiary legislation in relation to customs matters that are in force as at Exit Day directly into Isle of Man legislation.

European Union and Trade Act 2019 (Retained Direct EU Legislation) (Sanctions) Regulations 2019 [SD No 2019/0078]: these regulations preserve, on and after Exit Day, certain EU Regulations concerned with UN and EU sanctions.

European Union and Trade Act 2019 (Deficiencies) (Isle of Man Financial Services Authority) Regulations 2019 [SD No 2019/0097]: these will continue to apply certain legislation to the UK after its withdrawal from the EU as if it were still a member state. These regulations amend the Collective Investment Schemes (Definition) Order 2017, Register of Recognised Auditor Regulations 2010, the Accounting (Recognised Auditors) Regulations 2010 and the Public Oversight of Recognised Auditors Regulations 2010.

Non-Brexit related regulations

Collective Investment Schemes (Fees Order) 2019 [SD 2019/0030]: by this Order, the application and annual fees payable by entities regulated under the Collective Investment Schemes Act 2008 will be raised by 3.5% (rounded up to the nearest £1).

This Order comes into operation on 1 April 2019.

Designated Businesses (Fees) Order 2019 [SD 2019/0031]: by this Order, the application and annual fees payable in respect of designated non-financial businesses and professions overseen by the Isle of Man Financial Services Authority (FSA) under the Designated Businesses (Registration and Oversight) Act 2015 will be raised by 3.5% (rounded up to the nearest £1). The Order will amend references to superseded legislation.

This Order comes into operation on 1 April 2019.

Income Tax (Common Reporting Standard) (Amendment) Regulations 2019 [SD 2019/0079]: the regulations amend those approved by Tynwald in 2015 to introduce a requirement for relevant financial entities to complete a return providing the OECD’s Common Reporting Standard information required by the Assessor for compliance purposes. They also provide for a penalty to be applied if inaccurate information is supplied in the return. In addition, the regulations make it an offence for a person to knowingly or recklessly make a statement that is misleading, false or incorrect in a material particular when making a self-certification under regulation 6 of the 2015 Regulations.

The regulations came into operation on 20 March 2019.

Business Support (Revocation) Scheme 2019 [SD 2019/0029]: under the Business Support Scheme 2004 the Department for Enterprise provides grants to businesses for consultancy support in order to improve the efficiency and growth of those businesses. However the Department has determined that the support can be provided by the Department under the Enterprise Act 2008 and that the 2004 Scheme can therefore be revoked.

The Scheme came into operation on 1 March 2019.

Online Gambling (Software Supplier Licensing) Regulations 2019 [SD 2019/0035]: the regulations create a central register of games and associated services which the Gambling Supervision Commission (GSC) will maintain. Isle of Man gambling licensees will be able to deploy any game or service listed on the register without having to first provide certificates to the GSC and await their permission.

This will be achieved by issuing licences to the software suppliers directly and requiring them to deliver game fairness certificates directly to the GSC for noting on the register. Licensees who choose to use this streamlined method of registering their software will be held to account directly through licensing if their games develop problems.

The regulations came into operation on 22 February 2019.

Income Tax (Periodical Payments) (Temporary Taxation) Order 2019 [SD 2019/0026]: this Order inserts three sections into the Income Tax Act 1970 which address the tax treatment of periodical payments made under an order of the High Court on awarding damages for future pecuniary loss in respect of personal injury. The sections specify the payments that are to be exempt from income tax, as well as the individuals entitled to receive those payments, and the tax treatment of payments made from lifetime trusts to injured individuals. The measure is required in order to prevent the specified payments from being taxable income for the purposes of the Income Tax Acts.

This Order came into effect on 20 February 2019.

GDPR and LED Implementing Regulations (Amendment) Regulations 2018 [SD 2018/0309]: the regulations make technical amendments to the GDPR and LED Implementing Regulations 2018 to incorporate feedback from both the Information Commissioner and a public consultation carried out by the Cabinet Office from 10 October until 7 November 2018.

Most changes seek to add further detail and clarity to specific regulations and to widen the scope of certain definitions. These amendments do not reflect any change in existing policy.

There are also changes to the enforcement provisions that provide investigatory and corrective powers to the Information Commissioner to enable him/her to carry out tasks. These were mostly amendments but it also introduces new policies such as the proposal that the offence for failure to comply be removed as this is covered in other regulations.

The regulations came into operation on 1 February 2019.

Beneficial Ownership (Civil Penalties) Regulations 2018 [SD 2018/0310]: the regulations will introduce civil penalties for contraventions of certain provisions of the Beneficial Ownership Act 2017. There are two contraventions for which a civil penalty for non-compliance will apply:

(a) failure to disclose beneficial ownership information on receipt of a notice to do so; and

(b) knowingly or recklessly providing information that is false or misleading in a material particular.

A financial penalty of £5,000 is proposed to be applied for both contraventions. This penalty will be reduced by 30% if the relevant person co-operates with the FSA, remedies the contravention and pays the civil penalty in full within 14 days of notice of it.

The regulations came into operation on 1 February 2019.

Enterprise Development Scheme 2018 [SD 2018/0292]: the Scheme revokes and replaces the 2015 Scheme, making a number of changes to the way in which financial assistance is provided and managed.

The Scheme establishes a committee which will make decisions regarding support for businesses, with all such decisions requiring unanimous approval. Applications will be dealt with by the Department for Enterprise and investment advisers and investment managers may be appointed to assist where required.

The eligibility conditions are similar to the 2015 scheme and include probity and disclosure requirements.

The Scheme came into operation on 18 January 2019.

Trade Marks (Isle of Man) (Amendment) Order 2018 [SI 2018/1157]: the Order is made by the Privy Council and makes technical changes to the Trade Marks Act 1994 (of Parliament) with no major changes in policy. It ensures that the regime for registration of trade marks (particularly for EU trade marks) is up to date and is in line with UK legislation.

The Order came into force on 14 January 2019.

The Employment and Equality Tribunal Rules 2018 [SD 2018/0314]: the Rules incorporate the recent replacement of the Employment Tribunal with the Employment and Equality Tribunal. The new Rules are largely based on the current 2008 Rules with certain areas being modernised and new provisions being introduced. The new provisions are derived from Schedule 1 of the UK’s Employment Tribunals (Constitution and Rules of Procedure) Regulations 2013. These provisions are procedural and relate to case management powers, hearings, decisions and reasons, costs and how a complaint may be initiated.

The Rules came into operation on 1 January 2019.

The Equality Act 2017 (Remedies) Order 2018 [SD 2018/0289]: this Order incorporates modifications required due to the replacement of the Employment Tribunal by the Employment and Equality Tribunal.

The Order came into effect on 1 January 2019.

Income Tax (Substance Requirements) Order 2018 [SD 2018/0263]: in December 2017 the EU published a list of jurisdictions which were considered to be non-co-operative for tax purposes. The Isle of Man avoided being blacklisted at that time because it made a high level commitment to address the EU’s concerns regarding its taxation system. This commitment included introducing legislation by 31 December 2018.

The Order requires Isle of Man tax resident companies within certain business sectors to demonstrate an ‘adequate’ level of substance in the Island in relation to economic activity and presence. The relevant business sectors are: banking, insurance, shipping, fund management, finance and leasing, headquartering, holding companies, distribution and service centres and intangible property.

The substance requirements are set out in the legislation and some of the requirements vary according to the business sector. Most affected companies will be required to have adequate employees, expenditure, physical presence, and be managed and directed in the Island as well as conducting their core activities there. If an applicable company fails to meet the requirements, progressive sanctions will be applied. These include civil penalties, disclosure of relevant information about the company to a connected foreign tax official and the potential to be struck off the Isle of Man Companies Register. The corporate income tax return will be amended to collect the additional information required.

The Order came into force on 12 December 2018 and has effect in respect of accounting periods commencing on or after 1 January 2019.

Corporate Governance Code of Practice for Commercial Insurers [SD 2018/0247]: the Code forms part of the FSA’s regulatory development work to introduce more detailed corporate governance requirements to complement and update the Island’s existing regulatory framework. It applies to all long term insurers as well as to any non-long term insurers carrying on insurance business the majority of which falls within Classes 3 to 9 of the Insurance Act 2008 (IA08).

The Code came into operation on 1 January 2019.

Insurance (Conduct of Business) (Non Long Term Business) Code 2018 [SD 2018/0290]: the Code applies to non-long term insurers selling contracts of insurance in respect of which any of the Classes 3 to 9 IA08 where authorisation would be required. It requires that such insurers put in place measures to ensure the fair treatment of any third party policyholders before, during and after the point of sale.

The Code came into operation on 1 January 2019.

Insurance (Conduct of Business) (Long Term Business) Code 2018 [SD 2018/0291]: the Code requires insurers authorised by the FSA to carry on long term business under Class 1 or Class 2 IA08 to put in place measures to ensure the fair treatment of its customers before, during and after the point of sale. It applies a range of principles to insurers’ business practices in order that policyholders of such insurers are treated fairly, including:

(a) consideration of the customers’ interests when developing, marketing and promoting insurance products;

(b) standardised information to be provided to customers in the form of a Key Information Document or a Summary Information Document which must be acknowledged by the customer;

(d) creating cancellation rights for long term insurance products and ensuring that customers are made aware of these; and

(e) prompt and fair treatment during the claims process.

The Code came into operation on 1 January 2019 with the exception of paragraphs 7 to 14 which come into operation on 1 July 2019.

Consultations

Proposed amendments to the Proceeds of Crime Act 2008 and the Anti-Terrorism and Crime Act 2003 in respect of Tipping-off

The MONEYVAL Mutual Evaluation Report identified that current legislation in relation tipping-off was set too narrowly. Tipping-off currently only occurs when disclosure of a suspicious activity report having been made to the Financial Intelligence Unit is ‘likely to prejudice any investigation that might be conducted’. This is not in line with FATF Recommendation 21 which does not specify that any investigation needs to be underway for tipping-off to take place. The proposals would align the legislation with the FATF recommendation.

This consultation closes on 11 April 2019.

AML/CFT Framework CP19-01/T19

The consultation sets out proposed changes to harmonise and update the Island’s AML/CFT framework. The main proposals include the introduction of a new 2019 code, amendments to certain sections of AML and CFT legislation to add clarity and usability, and the addition of new civil penalties for non-compliance.

By way of summary, the Anti-Money Laundering and Countering the Financing of Terrorism Code 2019 addresses amendments highlighted by MONEYVAL and officers at the FSA. This includes bringing some provisions into the Code for the insurance sector which are currently contained in the Insurance (AML) Regulations. Matters relating to specified non-profit organisation and gambling activity will be removed into discrete AML/CFT Codes, which are being consulted on separately. Other amendments and updates relate to (among others): verification of customers; sources of funds and sources of wealth; registration of relevant persons on a specific platform (currently called Themis) in relation to external disclosures; widening of the current technology risk assessment; expanding the requirements for introduced business; identification and verification of beneficial owners; requirement to retain a register of disclosures in relation to section 24 of the Financial Intelligence Unit Act 2016; and adding clarity to certain provisions.

It is also proposed that the range of sanctions in relation non-compliance with the 2019 Code be extended by the introduction of civil penalties. Currently, criminal sanctions are the only option. Such penalties would be introduced by the Anti-Money Laundering and Countering the Financing of Terrorism (Civil Penalties) Regulations 2019 under which there will be two levels of penalty. The first level allows the imposition of a £50 penalty per contravention and the second level charges up to eight percent of the relevant person’s income.

This consultation paper closed on 27 March 2019.