Isle of Man special
The island prepares for regulatory
changes on the horizon
News • Analysis • Video • Features
Deputy editor Gary Robinson looks back on his recent visit to the Isle
Product, economic, company and jurisdiction news updates from around the globe, plus deVere Group’s Nigel Green on why developments in Catalonia are a wake up call for investors
We popped across the Irish Sea for a series of special video and editorial interviews to discuss a landmark period for the Isle of Man financial services industry
In a second extended report, Eugene Costello speaks to the decision makers within the Isle of Man regulator, the Manx Insurance Association and the Isle of Man government
The Big Interview with Fidelity International’s CIO of fixed income Charles McKenzie
Size and performance data
A listing of some of the biggest
players in offshore financial services
Editor: Helen Burggraf
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Deputy Editor & Head of Video:
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Editorial Director: Jonathan Boyd
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Correspondent: Eugene Costello
Correspondent: Ridhima Sharma
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Head of sales: Eliot Morton
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Head of marketing: Vanessa Forde
Tel +44 (0) 20 3727 9924
Marketing & events executive: Emma Dinwoodie
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Office manager & accounts: Maria Margariti
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Head of strategy: Richard Watts
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Isle of Man special editorial
“This small island situated off the Northwest of England certainly punches above its weight in more ways than one”
– Gary Robinson, head of video, Open Door Media & deputy editor, International Investment
Looking beyond stereotypes
When it comes to stereotyping jurisdictions, the Isle of Man is often one of the first to be pigeon-holed. However, when we recently popped across the Irish Sea for a series of special video and editorial interviews, International Investment found that this small island situated off the Northwest of England certainly punches above its weight in more ways than one.
In two special extended reports within this Isle of Man special edition ezine, we meet some of the key players in financial services on the Island to talk about what makes the jurisdiction special. And we also bring you an extended special report by Eugene Costello on the regulatory changes with contributions from the Isle of Man Financial Services Authority, among others.
Companies based on the Isle of Man also featured heavily at the recent 18th International Fund & Products Awards. And in our next ezine – out in a matter of weeks – we will bring you some behind the scenes videos, interviews, photographs at what was another glorious event.
Elsewhere in this edition, we feature the latest international news, an intriguing Big Interview both in video format and editorially with Fidelity’s head of fixed income Charles McKenzie. We hope you enjoy it.
Round-up of the latest news from around the globe
German 'James Bond' Werner Mauss avoids jail sentence for tax evasion
A German intelligence agent known as “the German James Bond” has been hailed a hero despite being handed a two-year suspended jail sentence after being convicted of tax evasion.
In a case that has been rumbling on for more than a year, Werner Mauss, who is known as “Institution M” and “007” in Germany, was found guilty of tax evasion, but instead of being sent to jail for six years as prosecutors had hoped for, he was released with the judge lauding his work as a 'great achievement'.
Mauss who is know for his work negotiating the release of hostages in the Middle East and Colombia, was also ordered to donate €200,000 (£178,000) to charity, according to various reports.
In rejecting the prosecutors’ call for a custodial sentence, German judge Markus van den Hövel said he had taken the 77-year-old Mauss’s record of public service into account in handing him a suspended sentence.
Werner Mauss (Sascha Steinbach/Getty)
The trial lasted more than a year and featured claims by Mauss that he was working for unnamed Western intelligence agencies against the so called Islamic State in Iraq and the Levant, according to reports in UK newspaper the Daily Telegraph.
Mauss also told the court he had personally prevented a mafia plot to assassinate Pope Benedict XVI.
In sentencing Mauss, judge Markus van den Hövel said: "His is a great achievement, for which the court has the highest respect", despite the fact that Mauss was accused of evading €13.2m (£11.8m) in taxes on profits from offshore investments over a period of ten years.
Offshore fund claims
Mauss claimed the offshore funds never belonged to him, but were in a trust fund set up by unnamed Western intelligence agencies to finance his work, according to the Telegraph report.
A list of expenses he submitted to the court included bizarre claims of spending hundreds of thousands recreating a tropical beach scene, in a conference room at a Frankfurt hotel, to allegedly stage a truce between the Thai government and rebels.
Prosecutors said Mauss had instead spent the money on a lavish lifestyle of high performance cars and race horses.
In what could be seen as a highly unsual ruling, the German judge said the court neither accepted nor rejected Mauss’s claim intelligence agencies had set up the trust fund for him.
But the judge ruled that at some point the money had passed into Mr Mauss’s possession, and that he should have declared it in his tax return.
However, the court accepted Mauss’s expenses claims and ruled that he had evaded only a maximum of €2.3m (£2m).
Mauss is seen as a legend in Germany for personally capturing a member of the far-Left Baader-Meinhof terror group and negotiating the release of hostages held by the Lebanese Hizbollah. GR
Manulife enters Chilean market
Manulife Asset Management, the global asset management arm of the Toronto-based Manulife group, has announced that a selection of its funds are now being made available to institutional investors in Chile as it looks to expand its presence in the region.
The announcement that eight sub-funds of its Luxembourg UCITS fund range – the Manulife Global Fund – are now being sold into the Chilean market comes in the wake of its signing a distribution agreement earlier this year with Banchile Administradora General de Fondos, Manulife noted.
Banchile Administradora is a Santiago-based asset manager, and a subsidiary of the Bank of Chile.
The eight Manulife sub-funds are the American Growth Fund, Asian Equity Fund, Asian Small Cap Equity Fund, Dragon Growth Fund, Global Equity Fund, Healthcare Fund, India Equity Fund, and US Bond Fund, Manulife said.
Also ahead of the launch of the sub-funds range, Manulife AM last year named Diana Stockwell, an experienced Latin American funds industry executive, to head up sales in Latin America, and oversee client relationships in the region, as part of its global expansion.
Stockwell noted that the "UCITS initiative in Chile" represented "an important milestone in our overall engagement strategy for Manulife Asset Management in Latin America". HB
ISLE OF MAN
New legislation boosts Isle of Man’s anti-fraud credentials
New legislation by the Isle of Man to combat fraud in the jurisdiction comes into effect on 1 November and will provide a boost its credentials for modernising and enhancing conduct of business, according to Home Affairs Minister, Bill Malarkey.
Malarkey said that the Fraud Act 2017 was legislation that stood as an example of "modern laws" that boost the island's reputation and standing internationally.
Aligned with UK measures
As well as specific clauses to combat fraud, the Act addresses associated links to offences such as aiding and abetting and conspiracy.
“We want to raise awareness of the new legislation, which is intended to protect members of the public and businesses from fraudsters,” said Malarkey.
“The new legislation… is intended to protect members of the public and businesses from fraudsters”
– Bill Malarkey, Isle of Man Home Affairs Minister
He said that the new laws will bring the island into line with the UK on preventative measures to combat fraud, adding "the introduction of modern laws to combat fraud will further strengthen the Isle of Man’s status as a centre for high-quality business and increase customer confidence in our financial services industry."
The Isle of Man was chosen by an independent panel of judges as Best International Finance Centre at the 18th annual International Investment International Fund & Product Awards 2017 at a ceremony at the Millennium Mayfair Hotel in London's Grosvenor Square at the beginning of October.
The Isle of Man is carrying out a consultation regarding proposed updates to the Corporate Governance Code of Practice for Regulated Insurance Entities (CGC), with a deadline for submissions of 27 October. EC
China to issue first US dollar-denominated bonds in 13 years
The Chinese government is set to issue some US$2bn in dollar-denominated sovereign bonds in Hong Kong, the first such Chinese dollar offering since 2004.
According to Bloomberg, the sale is "set to shake up" Asia's bond market after China's Ministry of Finance announced that in the coming days it would issue US$1bn in five-year notes and US$1bn in ten-year notes, listed in Hong Kong.
While China’s government doesn’t need to borrow offshore, reports Bloomberg, with a domestic debt market that’s now the world’s third-largest, its bonds will provide a new benchmark for pricing the country’s state-owned enterprises.
A successful deal will pull down borrowing costs, and may fuel further sales after what has already been record issuance so far this year, market analysts said.
Investors in China have shown great appetite for dollar securities, and Goldman Sachs predicts that within as little as three years, 80% of Asian debt outside of Japan will be Chinese. “This new issue is going to set a credit benchmark for other Chinese issuers,” the South China Morning Post quoted Westpac Banking head of Asia macro strategy Frances Cheung as saying.
“It is a clear sign of China’s determination to move into the international financial markets and play a role commensurate with the size of its economy”
– Geoff Lewis, Manulife Asset Management
Hong Kong-based senior strategist for Asia at Manulife Asset Management Geoff Lewis said of China’s sovereign bonds sale, in an interview with Bloomberg Television: "It will certainly have scarcity value, and I imagine it will be snapped up pretty quickly."
He added: "It is a clear sign of China’s determination to move into the international financial markets" and play a role "commensurate with the size of its economy". EC
Guernsey's PraxisIFM adds Dutch outpost to growing global footprint
PraxisIFM, a Guernsey-based corporate services, trust and fund services provider with nine overseas outposts already, has announced that it has acquired a Dutch rival, Kompas International.
Based in Amsterdam, Kompas is a trust and corporate services provider which currently employs ten people, PraxisIFM said in a statement. Once the deal completes, it will be known as PraxisIFM Netherlands BV.
Like PraxisIFM, Kompas International has numerous overseas offices, including Cyprus, Malta, Luxembourg, the UK, Canada, the UK, China, Hong Kong and Singapore, according to its website.
Financial details of the transaction, including the price being paid, weren't given, and the deal is described as being subject to regulatory approvals and other closing conditions.
Simon Thornton (left) with Brian Morris, PraxisIFM's Jersey-based group management committee chairperson
The deal represents PraxisIFM's first acquisition since it listed earlier this year on the International Stock Exchange – which, like PraxisIFM itself, is headquartered in Guernsey.
Between April 2016 and April 2017, PraxisIFM made a total of four other acquisitions: Dubai-based Ryland Gray; Switzerland- and Mauritius-based Ampersand Management SA; Geneva-based Balmor Management SA; and Guernsey-based Cavendish Corporate Investments PCC.
In a statement announcing the Kompas acquisition, PraxisIFM chief executive Simon Thornton said the Dutch company had “great experience in an area that offers high growth potential for us”, and noted that the Netherlands was “a strategically advantageous jurisdiction in Europe”.
As reported by International Investment, PraxisIFM was formed in 2015 by the merger of Guernsey-based Praxis Group and Jersey-based IFM Group.
At the time, the newly created group was described as having more than US$30bn in assets under administration, and looking after clients through nine offices employing some 200 people worldwide. HB
Protestors for Catalonian independence take to the streets of Barcelona on 11 September 2017 (Shutterstock.com)
Catalonian ‘chaos’ is a wake-up for investors: deVere Group CEO
The chaos in the Spanish region of Catalonia should act as a wake-up call for global investors, according to Nigel Green, founder and chief executive of deVere Group.
Green's comments follow on from the president of the Catalan government, Carles Puigdemont's, recent speech, in which he said Catalans had “won their right to become an independent country” from Spain following the disputed referendum on 1 October.
The Catalonian premier added that he will first seek to open a dialogue with Madrid, but despite an apparent partial climb down Green believes that the aftermath of geopolitical events of this magnitude have the potential to significantly influence capital markets.
Up until now the “chaos in Catalonia” had been largely dismissed by global investors as a regional issue, he pointed out.
“Now that Mr Puigdemont is effectively saying that Catalonia will become independent come what may, a considerably heightened game of cat and mouse between Barcelona and Madrid has been started – and this could have far-reaching economic consequences,” said Green
“In the short-term there will be ongoing and increasing uncertainty, which is likely to create turbulence in the domestic and regional financial markets.
“In the longer term, if Catalonia splits, Spain’s economy could lose 20% of its revenue. Plus the process could adversely affect investment into both Spain and Catalonia.”
Green argues that Catalonia's independence crisis could push Spain’s recent economic progress back and, as a result, would inevitably weaken the wider eurozone’s economic stability by pushing the Euro bloc into “another era of grinding uncertainty”.
“A considerably heightened game of cat and mouse between Barcelona and Madrid has been started – and this could have far-reaching economic consequences”
– Nigel Green, deVere Group
He believes that this issue is “especially concerning” as we have recently had the German election, with Angela Merkel returning but with a lower majority, and there is also an Austrian election forthcoming, with the Italian one next year.
“And this is all against a backdrop of the British prime minister, Theresa May, being urged to walk away from Brexit negotiations in Brussels if they fail to make progress this month,” the deVere CEO added.
“The chaos in Catalonia is a wake-up call for global investors to ensure that they are properly diversified across asset classes, sectors and regions, in order to mitigate the risks of the fallout of this and other key geopolitical events.” GR
Click here to view our recent Big interview video with Nigel Green
Muttrah Bay, Muscat, Sultanate of Oman (Marcin Szymcza/Shutterstock.com)
Oman moves to mandatory health insurance
The Gulf state Oman is preparing to join a number of its regional neighbours in requiring nationals and expatriates working in the private sector to have health insurance.
The announcement was made by the Sultanate's minister of health, Dr Ahmed bin Mohammed bin Obaid Al Sa’eedi, and carried on the website of the Times of Oman and other regional publications' websites. The new regulation will come into force from the early part of next year, according to the reports.
Currently only 9% of Omanis and 10% of expats in the private sector are said to be insured, suggesting a potentially large market for private health insurance providers.
As reported here last year, growing numbers of countries are requiring foreigners arriving to work on their shores to prove they've got a health insurance policy, whether purchased by the individual or paid for by their employer, before allowing them in.
Last year's report included Oman among a number of countries that were known to be considering making health insurance a requirement for foreigners and expatriates.
Joe Thomas, April International’s UK business development director, told International Investment that in the Middle East, Abu Dhabi was the first jurisdiction to introduce mandatory health insurance regulations, "but now the Dubai Health Authority and most other major Middle Eastern expat destinations are imposing the rule rigidly”.
According to the Times of Oman, the Omani health minister said the intended effect of the new health insurance plan was "to raise the quality and efficiency of the private health sector, which must compete with the public health sector, and this cannot happen unless there is proper financing in the private health sector, which could come from health insurance".
Speaking at a health conference in Muscat, the minister added: “We must find new ways to finance the health sector.”
According to the report published in the Times of Oman, health insurance is currently already mandatory in Oman, but the law is not widely enforced. HB
• To read the Times of Oman's report in full on the newspaper's website, click here.
SDM aims to revolutionise diamond trading
A Singapore company has created an investment product it's hoping will help to make diamonds an investor's best friend – or failing that, perhaps, at least a solid, easily tradeable investment. The Singapore Diamond Mint Company (SDM) claims its new product, which it calls "Diamond Bullion", will boost the ability of investors to buy and sell diamonds by creating what it calls a “standardised, liquid, and exchange-listed format” for trading the distinctive gemstones.
Until now the buying and selling of diamonds has been a relatively slow and specialised business, because the stones, unlike gold or other precious metals, vary dramatically in value, depending on their size and quality.
The Diamond Bullion is a credit card-sized package of investment-grade diamonds in what the company describes as “a tamper-resistant sintered zirconia case, with a unique optical signature recognition system and serial number”. The optical signature recognition system and serial number “enable instant authentication of the product, using a secure mobile app”, according to the company.
A “proprietary unique inscription technology”, provided by the International Institute for Diamond Grading and Research of the De Beers Group – the London-based diamond mining and marketing giant – is also incorporated into the Diamond Bullion.
Trades will be recorded in the SDiX Electronic Central Depository, while digital ledger services will be available via blockchain in the future, SDM said. HB
ISLE OF Man
Building a safe haven for investors
Fireworks over Douglas, Isle of Man (Shutterstock.com)
The financial services industry Isle of Man – like many of its international counterparts – is going through a period of significant change either through regulatory or through industry consolidation.
In this special report Gary Robinson visited this diminutive but significant Crown Dependency base in the Irish Sea, to speak to some of the key financial services players about how they preparing for the proposed changes.
When you are speaking about financial services on the Isle of Man, two words that almost always crop up – community and pride.
The Oxford English dictionary describes community as “the condition of sharing or having certain attitudes and interests in common. A group of people living in the same place or having a particular characteristic in common.”
But balancing these commonalities within a competitive financial services industry must be difficult, as competing businesses bid to stand out from rival companies. Even more difficult when you could be likely to spot your rivals across a restaurant table, at the golf club or in the local supermarket.
But balance it they do. And some might say that many even thrive under such circumstances. As for pride, there is plenty of that to go around as well.
Pride in what the collective financial services industry on the Isle of Man stands for and pride in the island itself. It is not a coincidence that many of the key players have been in their positions for several years and clearly love living there. And this is despite very few of them being born and bred ‘Manxmen’.
Fundamental to identity
Earlier in the year International Investment asked about what importance the Isle of Man has as a base for its business, Hansard’s chief operating officer Leslie Wong called it a “fundamental element of Hansard’s identity”.
“Not only is it a robust and well-regulated territory with a business-friendly approach, but it is also a beautiful place – and has a good supply of enthusiastic, hard-working and well-educated people.
“There is a real community spirit on the island, and we are proud to be part of it,” he said.
Click below to watch a video interview with RL360°’s Denzil Williams.
Denzil Williams, infrastructure director, RL360°, makes the point that the Isle of Man has become a really well-respected and well-organised place to deliver financial services from.
“We’ve been doing it here for 30-odd years so there is a big pool of people of people who know what they are doing.
“There is a big number of companies that support one another. And because of that there are a lot of people working in that environment. It is still the number one private sector employer on the Isle of Man.
“Many thousands of people across the different [financial services] organisations, whether it is banking, whether it is insurance, funds, corporate services providers, they are all working to support one another, even though, time to time we can appear to be competitors.
Financial services companies based on the Isle of Man are surprisingly spread out, mainly across the capital Douglas with some in the centre of town, some near the coastline and a growing number based outside of town on the Cooil Road business park.
Mike Foy, chief executive of Utmost Wealth Solutions, which has its headquarters based on the edge of the island’s capital Douglas looking out across the Irish Sea, points to the island’s growing importance and standing within the international financial services industry.
“The Isle of Man has been a leading light in the offshore life assurance sector for over 30 years and has a highly developed legislative and regulatory system including strong policyholder protection.
“This heritage has ensured that there is a wealth of experience amongst the Island’s life assurance sector and wider support services.”
Foy adds that a succession of reviews by the UK government and agencies, such as the OECD, have noted the island’s advanced and proactive commitment to maintaining and evolving the high standards that have resulted in what he calls its "leading position".
RL360°’s Williams also believes that the relationship between the insurance providers and the banks and regulator on the Isle of Man is “really very good”.
Are the forthcoming regulatory changes in IoM needed?
He also calls it fluid, in that the Isle of Man FSA is an organisation that welcomes comment both from the industry and their trade bodies, which in the case of the Isle of Man is the Manx Insurance Association.
“The merger of the FSC and the IPA towards the end of 2015 to create the FSA has made a much stronger group,” says Williams. “[There is] a much more dynamic group of regulatory staff for us to work with. We found that really helpful and a really positive move by the Isle of Man government to do that.”
Looking at the Isle of Man as a place to live and do business, what is it like to be part of such a close-knit community? Foy says that there is an excellent quality of life, which, he can be a key factor in attracting quality employees.
“The close-knit nature of the community enables industry issues to be discussed amongst peers and competitors through formal channels such as the Manx Insurance Association and its related sub-committees and through more informal channels,” says Foy.
“The island has an advanced infrastructure and support services which, coupled with our ability to work together, have helped to ensure that the Isle of Man has been able to react to regulatory and economic changes over the years and to develop solutions to the challenges and opportunities that have arisen.
“This has maintained the island’s status in the offshore life assurance sector.”
‘There is a limit to how much regulation is needed’
For Sean Christian, MD, Canada Life International, the ‘birth’ of financial services in the Isle of Man goes back to the early ’80s’ legislation introduced to bring offshore life industry to the island.
“Most companies began their life here on the island around that time when there was birth of the offshore life industry,” he says
“For a long time the island enjoyed the biggest number of life companies. (Continues on next page.)
Click below to view a video interview with Sean Christian, MD, Canada Life International
A unique perspective
The Isle of Man has businesses of all shapes and sizes.
And The QROPS Bureau, which is based in the island’s capital, Douglas, is no financial giant. But the fact that it has worked with many of the island’s big guns in an advisory capacity on a number of matters, usually pensions related, gives it a unique perspective.
David White, chief executive of The QROPS Bureau, is in full agreement with the assertion that the fact that the Isle of Man is so small and close-knit is a real positive for business relationships.
As there are a lot of people who have worked in financial services on the Isle of Man for some time who know each other, this can make it easier to work together.
The close-knit element also means that providers are encouraged to have “active dialogue” with regulators and government bodies, says White.
“The Isle of Man is now a long-standing financial services jurisdiction, with a strong reputation in the international community. This enables it to be a hub as a financial centre – its products and services are sold globally.
“The Isle of Man now has a deep pool of experienced staff and IOM benefits from a strong but pragmatic regulator who will work with the industry. The regulator and government are therefore able to make decisions quickly.”
White does have a criticism though as he bemoans that transport links to the UK could be improved and can often be expensive.
As International Investment found out recently during a visit, there are numerous ways to come in and out of the Isle of Man.
‘There is a limit to how much regulation is needed
“A number of us now are probably in business over 30 years on the island. We ourselves at CLI employ 180 people directly and 150 of those live on the Isle of Man. 30 of those are in Dublin and we have a sales and marketing team in the UK which equates to about another 70 people. The Isle of Man is very much the heart of CLI.
“Regulation is going only in one direction, it is not easing. It is on the increase and on the increase globally. I think the Isle of Man regulator especially needs to keep at the forefront of international developments and it is doing so.
“Companies need to support that and generally we do we embrace it, but clearly there is a limit to how much regulation is needed.”
Christian makes the point that some would argue more vociferously than others that regulation is getting “a little bit heavy”. This is primarily because, like many firms, CLI has to deal with regulation and regulatory change from many different angles and jurisdictions.
“It doesn’t necessarily always come from our prime regulator here on the island. We also comply with EU legislation and UK legislation. And being part of a Canadian group then we indirectly have to comply with the Canadian regulations as well. Having those additional places to comply with would, I think, pretty much apply to every other company here.”
When flights out of the island were cancelled due to fog and were not guaranteed the next day, the ferry or hovercraft to Liverpool and a train to London had to be deployed instead. After a slightly bumpy exit from the choppy waters of the island’s coast, the two-hour journey was a breeze, with the Irish Sea almost like a mill pond in places.
Smooth sailing is not always on the horizon when dealing with regulatory reform, but the fact that there is less of a “them and us” feeling on the Isle of Man helps to smooth out any undulations.
Peter Kenny, chief executive of Old Mutual International perhaps has a unique insight into the thought processes behind the latest raft of regulation, having been on the board the island’s regulator previously.
“I’ve been on the island now for some 28 years,” he says.
“I worked with some of our competitors and I was also on the board of the regulator. I joined OMI in August last year. Our business has been on the Isle of Man for 30 years.
“Why are we there? A number of reasons. Economic and political stability and from the business point of view, good access to government and decision makers.”
This access and common approach to change, working together is emerging a main theme.
But can being "just down the road” from the government and the regulator make a big difference with ongoing dialogue?
“Why are we there? A number of reasons. Economic and political stability and from the business point of view, good access to government and decision makers”
– Peter Kenny, chief executive of Old Mutual International
Kenny calls the access “terrifically important”, not only from the point of view of OMI business but generally for the Isle of Man itself.
“On an island that is so small we rely on working together for economic development. Our interests are very much aligned.
“The ability to access the regulator and government is very important.
Click above to view a video interview with Peter Kenny, chief executive, Old Mutual International
Speaking on regulation, having worn both hats, what advantages does that bring to OMI as a business?
“A good question,” says Kenny. “I have been on the board of the regulator. I don’t see very much difference [in our aims].
The regulator can get bad press sometimes and I think it is unjust.
“The regulator is working principally to put in place a framework of robust regulation in the interests of consumers and we absolutely support that.”
The value of advice
2017 has been a particularly busy year for OMI but he points to the work that the company is undertaking with financial advisers through the company’s Future Fit programme so that they can change their business models in preparation for this regulation
“We absolutely believe in the value of advice and more importantly independent advice.
“For better customer outcomes and for customers to understand more fully what it is that they are buying, we think it is important they get independent financial advice.
“For independent financial advice to be available in the future, that is what it is all about.
“We are helping these businesses to get future fit.”
Regulation has been the backdrop to 2017 and according to the QROPS Bureau, there will be even more changes into 2018.
“I think there will be an increasing pressure on commission-based models and the international financial service community will continue to move towards a fee-based approach,” he says. “This is taking longer than perhaps anticipated as regulators will sometimes dilute their initial stance or extend the implementation period for changes following pressure from the industry.”
“Regulation is here to stay!” agrees Mike Foy, chief executive, Utmost.
Click above to view an interview with RL360° CEO David Kneeshaw on industry acquisition opportunities
David White, the QROPs Bureau
Conduct of business changes
We asked some of the key players with the Isle of Man Financial Services community for their views on how will Isle of Man Conduct of Business (CoB) changes impact the industry in general?
The QROPS Bureau
The industry is moving towards an RDR, fee-based model that is resulting in better value products and services for the consumer.
In the long-term the CoB will help the Isle of Man to continue to be recognised as a responsible jurisdiction that wishes to ensure that policyholders receive fair value from the products and services they purchase. The CoB will ensure that the Isle of Man’s regulations are seen as consistent with the international financial services standards.
In the short-term the changes will give the Isle of Man and the companies operating from the Isle of Man gives issues to manage – particularly around the proposals to ensure that charges and commission are fully disclosed.
They will need time to update systems and processes.
The proposed changes will impact most on those companies who promote their service outside of the UK.
However, the regulator is pragmatic and will recognise that the Isle of Man financial services companies are large employers, financial services is the second biggest industry in the Isle of Man after e-gaming.
This will give the financial services companies some influence over the regulator and the government, that should help to ensure that new regulations are introduced in a way that allows the Isle of Man companies to adapt.
Some advisers on a commission-based model may use financial services companies in other jurisdictions in the short- to medium-term but in long-term are likely to be forced to a fee-based approach as other jurisdictions develop their regulation.
Some life companies may move their base to other jurisdictions or set up branches to allow them to continue to offer commission-type products, but again this approach is likely to have a limited shelf life.
Most companies will be able to adapt their models to fit with how things are changing.
There are some inconsistencies between regulation in different jurisdictions and the International Association of Insurance Supervisors has an important role to play in this respect.
Sean Christian, MD & Executive Director - International Businesses,
Canada Life International
We enjoy a very good relationship with the regulator. That has always been a very strong selling point for the island.
The regulator is there primarily to regulate, but also what the regulator does extremely well for the island is to work with businesses in order to grow and develop the sector as well.
That is quite unique nowadays for a regulator.
For ourselves, the Conduct of Business Code will have quite a minimal impact on our business. If we were like some of the other companies (on the island), maybe used to doing business in overseas jurisdictions, the impact would be far greater.
This is because our business model is focussed on the UK market and as such we are very much in line with UK legislation, we follow UK legislation and UK best practice.
Most of what has gone into the new code mirrors what already exists in the UK. So for ourselves actually it will have a very minimal impact on our business
Denzil Williams, RL360°
We are very supportive of the principles behind regulatory improvements. They are likely to lead to better consumer outcomes. The detail with these things is often the real challenge and the pace of them.
Clearly as the detail comes through we better understand what is required of us and we better understand what is required in terms of creating the technology and the materials to deliver what the regulators are looking for.
But we are fully behind it, we believe that a lot of these things will deliver better customer outcomes and that has got to be a good thing.
The Isle of Man in recent years and months has made changes to its regulatory framework. Other countries have some catching up to do in that respect.
One of there things that we are aware of is the possibility of regulatory arbitrage, where Isle of Man is highly professional and perhaps some other areas of the world are less so. And perhaps that may that attract a certain type of business to those areas. But we are clear what we want which is really good quality business excellent service for out clients wherever they may be in the world
Utmost Wealth Solutions
The proposals from the IoM FSA are in line with the direction of travel of global regulation and not dissimilar to the regulatory position, actual or proposed, in most major markets.
Indeed, discussions between the FSA and the Insurance Authority in Dubai highlight the inevitable convergence of conduct of business across major markets. Overall, we support any movement towards greater product transparency and better customer outcomes.
The Isle of Man is home to many varied product providers, all of whom will be impacted in different ways.
There will be little impact on our business as we only promote our products in to the UK, which already has robust COB rules.
Where we support partners’ businesses in other jurisdictions such as Hong Kong, regulation is already in place that is not dissimilar to that proposed.
Full cross-border providers will likely be impacted most but, given time, the industry has an ability to deal with changes such as this and absorb them.
Mike Foy, Utmost
The Isle of Man’s future insurance framework
The Isle of Man Financial Services Authority (IOMFSA) has signalled its intention to bolster corporate governance regulations relating to insurance companies based on the island, with a consultation document published in August set to close mid-November
Eugene Costello spoke to some of the key individuals involved about this landmark change
“All parties recognise that the roadmap will result in significant changes to the insurance regulatory regime on the Island”
– Gill Marples, chair of the Manx Insurance Association
The consultation focuses on proposals to update the existing Corporate Governance Code of Practice for Regulated Insurance Entities (CGC), which was issued in 2010.
The first “Roadmap” for updating the island’s insurance industry framework was published in 2013, and it has been updated at least annually ever since.
In May of this year the IOMFSA published the final draft of its most recent “Roadmap” update, which contained a new Conduct of Business Code.
What is interesting, however, is that all stakeholders involved and affected by the proposed new regulations are working in close association and that there is a remarkably high degree of agreement between regulator and regulated as to what changes are needed and desirable.
At the end of August, when the consultation document was published, Gill Marples, chair of the Manx Insurance Association (MIA) told International Investment that the association had “no concerns” regarding the process.
Marples pointed out that the consultation paper had been expected, and that the IOMFSA had committed to publishing during August and had “delivered in line with that commitment”.
Marples stated that MIA members were “broadly supportive of the Roadmap”, which, she said, had been designed to ensure that the island keeps pace with the global direction of regulatory development.
And David Kneeshaw, chief executive of Isle of Man-based RL360, gave the proposals contained in the consultation document a cautious welcome.
“We were expecting this to be published,” he told International Investment at the time: “Overall, it is what we would have expected, and RL360 is supportive.”
He noted that because it was a consultation document, RL360 and other insurers “will, together with the MIA, have time to peruse the finer details”.
Finally, Marples made the wider observation that the IOMFSA “appears to be committed to a principles- rather than a rules-based regulatory approach”, a pragmatic strategy that she said broadly matched the wishes of her association’s members.
For this special report, International Investment spoke to representatives of the three main agencies representing and regulating insurers on the island.
Representing the insurers, Gill Marples of the MIA; for the regulator, Karen Badgerow, chief executive of the IOMFSA; and speaking for the government, Simon Pickering, head of financial services for the Department of Economic Development.
International Investment: It would be useful to have some insight into whether there were any specific issues that you felt had to be overcome between the three sides to ensure a unified approach.
Gill Marples: From an industry perspective, we have always had established lines of communication with both government and our regulator.
However, we recognise that improvement is always possible and recent discussions have identified a number of areas in which industry and government can work in a more cohesive manner on coordinated promotion both of the industry and the Island.
One area being discussed is a strategy to continue to attract a skilled workforce to the Island.
All parties recognise that the roadmap will result in significant changes to the insurance regulatory regime on the Island. The approach to change has been based around consultation and discussion to promote an understanding of the issues faced by industry, the IOMFSA and government.
Karen Badgerow: While we did not feel there were any specific issues to be overcome at the outset of our regulatory development work, we did recognise the significance of the work required and thus we were acutely aware that continued effective engagement with industry through the MIA and with government more broadly would remain key to successful implementation.
II: In terms of the update to the CGC, what are the chief changes? How will it affect current regulation?
KB: The existing CGC came into operation on 1 October 2010 and represented a significant formal addition to the Isle of Man insurance regulatory framework at that time. This included setting initial requirements as a foundation for more detailed later developments in key areas such as risk-based capital and conduct of business.
While the latest consultation proposes a range of updates to the CGC, the main focus of changes being put forward is to develop measures supporting the introduction of risk-based capital requirements. The chief changes are:
- The formalisation of an Own Risk and Solvency Assessment (‘ORSA’);
- Some further detail as to aspects of the Enterprise Risk Management (“ERM”) framework;
- More explicit reporting requirements to the Authority, particularly of events that impact an insurer’s risk profile, financial condition and the treatment of policyholders;
- The introduction of requirements in respect of the actuarial function for insurers.
“We expect the changes to further strengthen the consumer protection afforded to policyholders of Isle of Man insurance businesses”
– Karen Badgerow, chief executive of the IOMFSA
It is worth noting that life insurers are already required to have Appointed Actuaries and the Appointed Actuary will oversee the actuarial function. The update to the CGC reflects a refresh to the requirements of the actuarial function, such as contributing to the ORSA process.
GM: Members are still assessing the proposed changes to the existing CGC which as Karen notes we have been working with for some time.
An initial review indicates that the new code enhances some areas in line with developments to international corporate governance practice.
II: Has there been a good response to the consultation document, Karen? I note the closing date has been extended to November 17.
KB: We have received a small number of initial queries but expect more formal responses from industry as the cut-off approaches.
GM: Following a review of the code MIA will decide if there is a need for a consolidated industry response; I would also expect most members to respond individually.
II: Which jurisdictions do you see the Island as being in competition with in terms of attracting international business to the Island?
GM: The main international provider competitors, as opposed to domestic based providers, are Dublin, Cayman, Luxembourg, Guernsey and Mauritius.
KB: The Authority recognises the importance of reviewing regulatory developments in other jurisdictions; the provider jurisdictions listed by Gill, plus other key markets where Isle of Man insurers distribute products, have been taken into account as part of the Authority’s consideration of the developments needed to our own framework.
II: Why is the Isle of Man Conduct of Business change necessary?
Is there too much regulation?
- Yes, there is too much
- It is about right
- No, there needs to be more
KB: In line with work as set out in the Roadmap, the initial stimulus for a review of the framework was the significant revision by the International Association of Insurance Supervisors (“IAIS”) of its Insurance Core Principles (“ICPs”) in October 2011, in response to developments in insurance markets and supervisory standards.
Given the degree to which standards had developed, the Authority’s gap analysis identified several areas where its framework would need to be amended to maintain a high level of observance with the ICPs.
One such area was conduct of business where the Authority recognised that more detailed requirements were needed to supplement its existing supervisory processes to ensure appropriate customer outcomes.
The requirement for insurers to embed the fair treatment of customers into their business culture and to implement policies and procedures which reflect fair treatment as a key strategic objective is consistent with our regulatory objectives of securing an appropriate degree of protection for policyholders and maintaining confidence in the Island’s insurance sector in light of current international standards.
GM: From an industry perspective, we recognise the need for the Island’s regulatory regime to keep pace, while not overtaking, the global direction of regulatory travel. There is an increasing trend for regulation to be designed around customer outcomes and it is appropriate for the Island to reflect these developments.
II: Can you bring us up to speed about where the COB changes are?
KB: We consulted on the proposed Conduct of Business Code in its final form in June of this year, including our proposals for the timing of implementation of the Code. We have engaged with MIA member firms on matters raised in that consultation and will be formally responding to industry later this month.
That response will clarify our policy in a number of areas, particularly around jurisdictional equivalence, and provide additional guidance where it has been requested; we do not anticipate there being any significant changes to the Code and remain committed to implementation in January 2019.
GM: A major change for some members will be the introduction of commission disclosure, this is already mandatory in some key markets.
“As a government, we are nimble enough to work closely with business and adapt quickly to their needs”
– Simon Pickering, head of financial services for the Department of Economic Development
As reflected in the answer above, the COB Code will introduce a regulatory requirement for consideration of client outcomes throughout the life-cycle of a product.
While this is already happening in many cases, the COB code will formalise these requirements
The COB Code will also require insurers to consider the regulatory status and professional standards of intermediaries; again, this already happening in many cases but regulation will formalise requirements.
II: How will the proposed changes impact both on clients and on the industry in general?
GM: As not all competitor jurisdictions have been as proactive in keeping pace with regulatory developments, it is recognised that the changes have the potential to impact, at least temporarily, on business levels for MIA members.
Enhanced transparency of product features should assist clients to assess recommendations made by their adviser.
Among the key elements contained in the proposals to amend the Corporate Governance Code of Practice for Regulated Insurance Entities are:
- New provisions requiring an enterprise risk management (“ERM”) framework, including a risk appetite framework which is an integral part of the insurer’s business strategies and plans;
- As part of the ERM framework, the requirement for an own risk solvency assessment (“ORSA”);
- The introduction of requirements in respect of the actuarial function for insurers; and
- More explicit reporting requirements to the FSA, particularly of events that impact an insurer’s risk profile, financial condition and the fair treatment of its policyholders.
KB: We expect the changes to further strengthen the consumer protection afforded to policyholders of Isle of Man insurance businesses, through the principles of fair treatment and enhanced transparency established in the Code.
We recognise that for some insurers, business models will need to be developed to address the changes being proposed. Accordingly, we have made significant efforts over the life of the project to trail our developments with industry through formal discussion and consultation exercises with a view to ensuring an effective transition to the new requirements over time. We have, where possible, made adjustments to accommodate for these changes, for example by extending the timeline for implementation of certain requirements.
II: What makes the Isle of Man unique as a financial services centre? At the recent International Investment International Fund & Product Awards, the Isle of Man was judged best international centre for financial services.
GM: As an industry, we benefit from a highly skilled, experienced workforce. We are a long-established centre of excellence giving us an in-depth understanding of the international insurance market.
The Island is a well-regulated jurisdiction which, via communication between industry, government and regulator, can react to changes and development.
KB: A robust and up-to-date regulatory approach continues to play a key part in enhancing the attractiveness of the Island to responsible financial services businesses. Ensuring that our framework remains proportionate to the Island’s insurance sector, recognises the needs of policyholders and is up to date with international standards is therefore one of our current key priority initiatives.
II: Why is it important to work with other jurisdictions?
KB: In light of the international, cross-border nature of the Island’s insurance market, the Authority recognises the importance of establishing and maintaining effective relationships with other supervisory authorities internationally. Appropriate and timely exchange of information and views not only facilitates the supervision of individual firms and on a group-wide basis, but also assists in the effective development of policy on a forward-looking basis.
Accordingly, among other bodies, the Authority is a member of the International Association of Insurance Supervisors (IAIS), the International Organisation of Securities Commissions (IOSCO) and the International Organisation of Pension Supervisors (IOPS) and has been accepted as a signatory to both the IAIS and the IOSCO Multilateral Memoranda of Understanding in respect of cooperation and the exchange of information, as well as a number of bilateral Memorandums of Understanding with other authorities.
The benefits of international cooperation have been evidenced through the Authority’s Roadmap project work, for example through the development of the concept of jurisdictional equivalence for certain elements of the Conduct of Business Code.
GM: It is important that forward-looking jurisdictions work together to ensure a degree of consistency of approach and to promote an exchange of ideas.
II: Is there a threat of ‘over-regulation’ in the industry generally (i.e. with PRIIPs and MiFID II etc elsewhere)?
KB: Given the international nature of the Island’s insurance sector the Authority recognises the need to take account of regulatory developments in other jurisdictions and this has been one of the key considerations underlying our development work outlined in the Roadmap.
Jurisdictions will interpret developments in international standards in different ways and, as noted above, it is particularly important where insurers operate on a cross-border basis to avoid conflicting or duplication of regulatory requirements, as this will inevitably erode any consumer protection being sought to be achieved.
The identification of “equivalent” regimes in other jurisdictions with a focus on outcomes, and the policy to develop corresponding exemptions based on such equivalence is an example of our efforts to ensure that our framework is proportionate.
GM: There is a threat of regulatory inconsistency and duplication. It is frustrating for an industry committing significant resource to ensuring compliance to sometimes face conflicting regulatory requirements and/or duplication of reporting.
The opportunity must exist to streamline regulation while maintaining consumer protection, another reason for jurisdictions to work together.
II: In the UK in particular, has the FSA gone too far with its wave of changes?
GM: It’s important to avoid regulation for regulation’s sake and keep the objective of protecting consumers and eliminating financial crime and so on at the heart of developments.
II: Will greater product transparency lead to better customer outcomes? And if so why?
GM: Improved customer outcomes should result from improved customer understanding of product features; greater transparency is only one way of achieving this.
KB: Greater transparency is one element of promoting positive consumer outcomes. The developments advocated in the Authority’s Conduct of Business Codes, for both life and non-life insurers, will seek not only to improve transparency before, during and after the point of sale, but also to ensure that insurers and intermediaries develop products in line with the needs and interests of target customers, use distribution methods appropriate to their products and policy-holder needs and ensure that products are serviced appropriately though to a claim. Insurers will be required to monitor on an ongoing basis the performance with respect to the fair treatment of policyholders.
We consider that all these developments are aligned with achieving positive customer outcomes and are to the benefit of the long-term health of the Island’s insurance industry.
The Isle of Man is home to many varied product providers, all of whom will be impacted in different ways.
II: How do you bring together ‘catch-all’ legislation?
KB: We recognised at an early stage of our project work that the developments being proposed in the Roadmap would have varying levels of impact across the Island’s regulated insurance businesses. As mentioned earlier, for some insurers, business models will need to be developed to address the changes being proposed.
It was important for us to recognise those workstreams which presented the most significant degree of change and prioritise our work in those areas. As a result, our work around developing risk-based capital and solvency requirements, formalising a group supervisory framework and enhancing conduct of business requirements for long-term insurers were the first on which we focused our efforts. For these workstreams, our work started with formal discussion exercises and quantitative impact studies in 2014.
In adopting this approach, our aim has been to give stakeholders early sight of our considerations and ensure appropriate transition periods to the new requirements over time.
Engaging with the Island’s trade associations, including the Manx Insurance Association, has been a key part of that process.
“The excellent quality of life sits alongside a vibrant and growing economy that has seen a boom in entrepreneurialism”
– Simon Pickering, head of financial services for the Department of Economic Development
II: How important is it that with COB changes that the industry has an ability to deal with changes such as this and absorb them?
GM: It is key that industry has the resource, time, systems and personnel to deal with changes in an intelligent, proportionate and compliant manner.
Our ability to respond is influenced by access to a skilled workforce; hence the on-going dialogue with government outlined earlier
KB: To a degree we have answered this question above, but would echo the views of the MIA that it is important to the Authority that industry has the operational capacity to be able to implement change in an orderly way.
We have consulted with industry and this is reflected in a number of the phased transitional dates we have incorporated in our proposals, which we feel will provide space for a sensible and controlled transition into the new requirements.
II: Do you think that the IOM financial services industry has been given enough time to deal with the changes?
GM: The original timeframe of 1 January 2018 was considered a little tight to allow the comprehensive systems changes that will be required to comply with new regulations. This was extended by one year following discussions with the FSA which has granted more time for changes to be managed
It is important to remember that members are not only responding to IOM regulatory change; there has also been significant regulatory/legislative change in other key markets and areas such as GDPR.
“We have consulted with industry and this is reflected in a number of the phased transitional dates we have incorporated in our proposals”
– Karen Badgerow, chief executive of the IOMFSA
II: How important is parity and consistency with regulation in other major markets and how do you ensure that the Isle of Man providers do not find themselves at an obvious competitive disadvantage against bigger jurisdictions with more resources?
GM: we talked earlier about consistency of approach; I’m not sure this is an issue of bigger jurisdictions, more an issue of some jurisdictions not taking the same responsible approach.
KB: The Authority recognises that the timelines over which jurisdictions move forward with developing legislation may not be perfectly aligned. However, we feel that the direction of travel in standards is quite clear and we consider our developments in areas such as risk-based capital, enhanced governance standards and the strengthening of conduct of business provisions as being proportionate but also consistent with trends in regulatory developments on a broader international basis.
II: Is this regulation change a game-changer for the industry or just another piece of the regulatory jigsaw?
GM: We cannot deny that the regulation has the potential to be a game-changer; all parties are making every effort to ensure that the change is positive rather than negative in the long-term. There have historically been many examples where it has been predicted that regulation will result in decline of industry but, in reality, changes have been absorbed and processes adapted allowing industry to move forward.
The MIA will be making every effort to ensure regulation is just another piece in the ongoing regulatory jigsaw and that it enhances rather than destroys business.
KB: The Authority has acknowledged that the developments set out in the Roadmap are significant and has taken steps to ensure that we have been engaged with industry throughout the process. We see the project as a sensible evolution of the existing framework to further enhance the protection afforded to policyholders.
II: Turning to Simon Pickering, speaking on behalf of the Government, can you tell us what makes the Isle of Man special as a financial services centre?
Simon Pickering: The Isle of Man is a forward-thinking and hi-tech Island with low unemployment and a stable and supportive business ecosystem. The Island is home to 30 sectors of industry, all of which are underpinned by the Island’s strong professional and financial services sectors. As a government, we are nimble enough to work closely with business and adapt quickly to their needs. We focus on creating the skills, expertise and products needed to support a global client base and changing international markets. The reason is simple; we create more jobs and opportunities on the Isle of Man by increasing our appeal to new and expanding businesses.
II: And finally, Simon, why is the Isle of Man a good place to live, work and raise families?
SP: It’s hard to talk about the Isle of Man and not mention the excellent quality of life that can be found here. The diversity of the Island’s businesses is reflected in its population with more and more people discovering the benefits of the Island’s unique way of life. With one of the lowest crime rates in Europe, a relaxed way of life and access to miles of stunning coastal scenery and countryside the Isle of Man is fast becoming the best thing for those seeking the ultimate work-life balance.
The excellent quality of life sits alongside a vibrant and growing economy that has seen a boom in entrepreneurialism and more new businesses calling the Isle of Man their home. Last year the Isle of Man launched a number of new initiatives to attract new businesses and nurture development of local enterprise on the Island.
Fund manager Profile
Charles McKenzie, CIO of fixed income, Fidelity International
Charles McKenzie CIO of fixed income, Fidelity International
Being judged on their performance on a daily basis might not be most people’s idea of fun. But to Charles McKenzie, chief investment officer for fixed income at Fidelity International, it is his ideal job. Gary Robinson met up with him at Fidelity’s London headquarters and found, in a rollercoaster year on the geo-political stage, someone that is more than happy to enjoy the ride
“I’ve always been on the buy side of asset management in my career and always been fixed income and I’ve been doing this now for over 25 years. I’ve very much enjoyed those 25 years,” McKenzie begins.
“Some of the initial reasons why I got into this career was really because I love this idea of being constantly measured about what you do.
“You are making decisions every day, every week or every month and you can immediately see if that decision is a good one or a bad one because those numbers and those decisions are immediately impacted on performance figures and that always struck me as a very rewarding way of following a career and that stuck with me.
‘The rush for yield’
Fidelity International is a global fixed-income house and it has large teams in London and a very strong presence in Hong Kong and increasingly strong presence in Shanghai.
McKenzie’s responsibility is making sure that those teams in those different areas are “functioning well” and delivering performance for clients. Part of that process has been positioning the company in what has been dubbed “the rush for yield” throughout 2017.
“That hunt for yield has been a really strong theme for several years now and this year it has continued, that hunt is a very strong dynamic,” he says. “People are looking to put more yield and more income into their portfolios.
“And it is almost as if it has been a non-stop wall of money moving into the asset classes. That hunt is still on [and] the technicals driving the market are still very supportive. The supply of bonds coming into the market is healthy but it is being dwarfed by the amount of money being put into these types of asset classes.”
The underlying fundamentals of a lot of the credit markets are, McKenzie says, “OK” but a big question mark remains around valuations. Because of that hunt for yield, spreads have tightened across the credit markets which means that the industry has to constantly ask, is there the appropriate value in buying credit markets is?
Some parts of the market valuations look “far too stretched”, says McKenzie, but his team is still finding opportunities at the individual security level
So how does he ensure that risk is nullified, particularly in the emerging markets regions?
“You have to make sure that you do your homework on those individual countries and securities,” he says.
“It is even more apparent in some of the more unexplored areas of the marketplace. Some of the emerging markets, corporate debt or high yield securities really do necessitate a lot of research being undertaken.
I think it is very important that fund managers have a strong analyst team that does that homework because as you go into the more esoteric areas of the markets to grab that yield that is so attractive, at the same time, as custodians of our clients’ money that we ensure that we are not putting that money at risk, or too much at risk.”
An over-arching role
As CIO, McKenzie is the gatekeeper, but Fidelity places “great importance” on individual fund managers having responsibility for putting individual bonds into and out of portfolios. As CIO he takes an over-arching role, acting as a referee for the portfolio managers to make sure that risks are not excessive at an active level.
While it is tough having to say no, having ongoing dialogue and managing positions up and down, often leads to what he calls “healthy debate”.“Fund management is all about healthy debate to try to resolve those issues,” he says.
McKenzie is not one to dwell too much on the past, but is clear he enjoyed his previous posts, particularly Morgan Grenfell Asset Management, “a super firm”, that were taken over by Deutsche.
But what were his defining moments and decisions that he made in his career to lead him to where he is today?
“A piece of advice I pass on is something that was said to me [is] to just say yes to as many opportunities as you possibly can and don’t think too much about the short-term consequences and the short-term disruption because the experience will be invaluable because it is change and new and exciting and you can draw on that experience as your career develops. I found that to be very true for me.
People for example said why would you want to work in Continental Europe at that time. I put my hand up and said I’d very much like to do that.
I got stuck into that for two to three years and I loved it. The first few months were difficult but I loved it after that. I’ve had other overseas assignments as well.
“I would say that my advice is – especially at the start of your career. Just say ‘yes’. Just grab hold of those opportunities. Because, guess what, they will pay back dividends in the future,” he says.
Looking to the future
Looking towards the end of 2017 and into 2018, McKenzie points to the prospects of tapering from the ECB in terms of their quantitative easing programme as being “very much on the cards”.
As a result, there will be a “hefty amount” of bonds being bought by the ECB.
“We are still constructing for European credit but obviously as far as that ECB buy tails off, we have to be aware as that attractiveness starts to dissipate. But we still think it is too early to get too concerned about tapering just yet.”
Looking globally to Trump, Brexit and North Korea, how does he prepare for unexpected changes? And how much has he learned from the past, now he is looking to the future?
“It is very difficult because it is so unknown and so uncertain,” he says. “Recent history shows that an awful lot of commentators and forecasters have got these things horribly wrong so it is very difficult.
“So, it is difficult to put that sort of news into an investment decision. It is very difficult to capture that.”
With such high geopolitical stresses within the world today, this means a more cautious approach and interest in asset classes that are likely to benefit if tensions escalate, such as core government bonds both in the US, Europe and Japan.
In terms of the recent past market reactions to previous events have been “very rapid” says McKenzie.
There might be a lot of volatility in the first few days then it calms down and that period of that volatility picking up has got shorter and shorter after these events. He doesn’t expect that to always happen, but as an observation it is “quite interesting”, he sayss
Into 2018, the question marks around what is to be the future for fixed income is one that fixed income investors have asked for many years is “is this the end of the bond bull markets?”
And despite the fact that [in the US] the FED will be raising rates and there will be quantitative tapering, McKenzie points to some “serious structural issues” in the global economy, as evidence that the bull will remain.
“The amount of global debt is just staggering,” he says. “The amount of aging populations and the demographics if what that means for keeping yields low is really quite significant.
“The amount of global debt is just staggering”
– Charles McKenzie, chief investment officer for Fixed Income at Fidelity International
“Also, productivity levels remain very low. Despite the view that global economies are recovering and that is a good thing. There are significant structural issues still at play that will dampen a huge rise in interest rates and yields so we remain constructive for fixed income markets which means that the question about duration – i.e. should people move all their money out of bonds and into cash.
“That so is probably not the right thing to do. Cash really isn’t king. It is just yielding at such marginal levels. We still think that there are opportunities within fixed income.
“And, one must not forget that by giving up on duration, you are also giving up on your diversification benefits compared to equities.
“The great thing about having duration in one’s bonds portfolios is that it acts as a great insurance edge against what might happen in the equities markets. So, in terms of balance portfolio contexts, fixed income and duration still have a part to play.”
Who says bonds are boring?
“Not me!”, laughs McKenzie.
Measuring size and performance
Mutual funds and ETFs
How it works
Using data provided by Morningstar, the funds chosen for our monthly data roundup are a carefully filtered selection of funds drawn from the global universe of open-end and exchange traded funds available to investors.
Beginning with Morningstar data covering some 100,000 open-end funds and over 10,000 exchange traded funds domiciled anywhere in the world, we have applied a series of quantitative screens. Additionally, we have allocated funds to regions based on their country of domicile.
Quantitative Screen: Funds selected for inclusion must have a minimum three-year track record, a fund size of at least $10m, and a four- or five-star Morningstar Rating (also known as the “Star Rating”). The Morningstar Rating brings load-adjustments, historical performance and risk together into one evaluation.
To determine a fund’s Morningstar Rating, the fund’s risk-adjusted return is plotted on a bell curve: If the fund scores in the top 10% of its category, it receives five stars; if it falls in the next 22.5% it receives four stars.
The Overall Morningstar Rating for a fund is a weighted average of the available three-, five-, and 10-year Morningstar Ratings.
Funds are then ranked, with the top ten funds by fund size in USD and by the three-year total return for the fund’s oldest share class displayed. All return figures are annualised and calculated in USD.
The Morningstar Category identifies funds based on their actual investment styles as measured by their underlying portfolio holdings.
We also include each fund’s Morningstar Analyst Rating which provides a summary expression of Morningstar’s forward-looking analysis of a fund. Morningstar analysts assign Analyst Ratings on a five-tier scale with three positive ratings of Gold, Silver, and Bronze, a Neutral rating, and a Negative rating.
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A listing of some of the biggest
players in offshore financial services
Canada Life International, Canada Life House, Isle of Man Business Park, Douglas, Isle of Man IM2 2QJ
Tel: +44 (0)1624 820200; Fax: +44 (0)1624 820201
e-mail: firstname.lastname@example.org. Web: www.canadalifeint.com
Profile: Canada Life International Limited (CLI) established 30 years ago remains one of the leading offshore providers with assets under administration of £14.3bn (as at 31 March 2017). CLI is the only offshore insurer to maintain a five-star AKG Annual Financial strength rating for 14 consecutive years. Through CLI Institutional Limited, institutional and UHNW clients have a level of policyholder protection that isn’t otherwise available in the UK offshore market. In 2015, CLI also completed the acquisition of Legal and General International (Ireland). This has enhanced the choice available to UK investors by providing them with a choice of jurisdictions within one compelling offshore proposition.
Offering: Canada Life International Limited (CLI) offer a wide range of regular and single premium investment bonds, tax and estate planning solutions and whole of life protection solutions. Our investment options include full open architecture, links to over 40 platforms and over 150 discretionary investment managers as well as over 150 internal linked funds. Our team of technical specialists offer more than 200 years of experience in taxation, trusts, estate planning and pensions between them. In addition, we publish and back our service standards with a no quibble, non-performance penalty system.
Generali Worldwide, PO Box 613, Generali House, Hirzel St, St Peter Port, Guernsey, Channel Islands GY1 4PA
Tel +44 (0) 1481 712 108; Fax +44 (0) 1481 712 424
Profile: Generali Worldwide is a wholly owned subsidiary of the Generali Group. Founded on the strength of this international presence and wide-ranging expertise, Generali Worldwide specialises in offering life insurance-based wealth management and employee benefit solutions to a global audience, including multinational organisations, international expatriates and local resident populations in licensed territories.
The company’s head office is based in Guernsey, a premier international financial centre, and is a registered insurer under the Insurance Business (Bailiwick of Guernsey) law, 2002 (as amended). It is also an authorised insurer in the Bahamas, British Virgin Islands, Cayman Islands, Hong Kong, Jersey and Singapore.
Offering: A range of individual unit-linked regular and single premium-based savings, retirement and investment plans and an open-architecture portfolio bond along with group retirement and savings products, group life and disability and healthcare products.
Harbour Court, Lord Street, Box 192, Douglas, Isle of Man IM99 1QL
Tel: +44 (0)1624 688 000
e-mail: email@example.com; Web: www.hansard.com
Profile: Hansard International has been providing innovative financial products and services for international clients since 1987 and forms part of Hansard Global plc, which is listed on the London Stock Exchange. We administer assets in excess of US$1bn for over 500 financial advisor businesses with over 40,000 client accounts, in over 155 countries. We are celebrating our 30th anniversary in 2017, and already planning ahead for the next 30 years.
Offering: In the ever-changing landscape of financial services, Hansard International prevails as a steady and constant presence. Whilst other providers around us have changed their name, ownership, identity and focus over the years, Hansard International has remained committed to providing innovative financial products and services for financial advisers and their international clients. This strong heritage, which is coupled with exceptional levels of service and a focus on innovation through the use of technology, makes us an exceptional proposition in our marketplace.
Canella Court, Camana Bay, PO Box 32203, Grand Cayman KY1-1208, Cayman Islands
Tel: +1 (305) 603 1400
e-mail: firstname.lastname@example.org; Web: www.investors-trust.com; LinkedIn: www.linkedin.com/company/investors-trust
Profile: Investors Trust Assurance SPC (ITA) is an international insurance company licensed and regulated by the Cayman Islands Monetary Authority. ITA has gained a leadership position in the international insurance markets by specialising in the provision of investment-linked insurance products and class leading customer service. With service offices established around the world, ITA offers an array of opportunities to its policyholders by providing access to the global financial markets. ITA is constantly innovating and investing in technology giving clients online multi-language (English, Spanish, Portuguese, Chinese, Japanese and Russian) access to manage their investment-linked products.
Offering: ITA works with some of the world’s top asset managers under its convenient open architecture platform. It provides clients with greater investment choices and the ability to provide for their families as well as plan for a comfortable retirement. Specialising in medium to long term unit-linked investment products, ITA is proud to offer a range of flexible, tax-efficient products, including regular and single premium annuities, designed to suit various income levels and financial planning needs.
Tel: +44 (0) 1624 655555
e-mail: email@example.com; Web: www.oldmutualinternational.com
Profile: Old Mutual International provides offshore and cross-border investment solutions for both expatriate and local investors across the world. Old Mutual International is the international arm of Old Mutual Wealth, a leading retail investment business encompassing managed investment portfolios, platform services and a range of financial products including tax savings propositions. Old Mutual Wealth is part of Old Mutual Plc, a FTSE 100 group that provides life assurance, asset management, banking and general insurance. Old Mutual is trusted by more than 19.4 million customers across the world and has a total of £394.9bn assets under management (as at 31 December 2016).
Offering: Our award winning propositions, designed around customer needs, are underpinned by a wide choice of investments and online tools, to help advisers monitor and manage the entire investment process for the benefit of their clients. Each proposition is designed to be relevant to the needs of the local market and compliant with the regulatory environment. Because everyone’s needs are different, we don’t sell directly to customers or give advice on our products. Instead we rely on advisers, who understand their clients’ financial goals, to recommend us because of our reputation and the quality of the products we offer.
4th Floor, Rodus Building, Road Reef, Road Town Tortola, British Virgin Islands
Tel: +1 305 443 9610
e-mail: firstname.lastname@example.org; Web: www.premiertrustglobal.com
Profile: Premier Trust offers a uniquely tailored suite of unit-linked products that grant international investors the opportunity to create a portfolio of investments in a simple and sustainable manner. Premier Trust, part of PA Group’s Life and Investment division, provides clients access to some of the world’s leading fund and asset managers as well as best-in-class custodians. From protecting our clients’ health with worldwide coverage to helping them achieve a successful financial future, PA Group creates financial security road maps for life’s most significant events. For over 18 years, PA Group has guided and protected our clients with comprehensive health and wealth accumulation solutions.
Offering: Our investment products include regular savings and lump sum premium plans with principal protection in multiple currencies (USD, AUD, EUR, GBP), as well as plan options with a broad selection of investment funds and ETFs. With a dedicated administration team and a proprietary online platform, Premier Trust delivers personalised customer service with multi-language support to advisers and clients in over 40 countries. For more information on Premier Trust’s investment solutions, visit www.premiertrustglobal.com.
RL360 House, Cooil Road, Douglas, Isle of Man, IM2 2SP
Tel: +44 (0) 1624 681682
e-mail: email@example.com; Web: www.rl360.com
RL360° is one of the fastest growing international life companies, with offices around the globe and policyholders residing in 170 countries at all points of the compass.
We’re part of International Financial Group Limited (formerly RL360 Group), which has 70,000 policyholders, in excess of US$10 billion assets under management and 335 staff.
Investing with RL360° means choosing a financially strong and uniquely structured company. We have a B+ rating from actuarial consultancy AKG, as well as 4 stars for service. And you can take great confidence from our Isle of Man location, a well-established global financial centre with an outstanding reputation for investor protection and security.
Royalty House, Walpole Avenue,, Douglas, Isle of Man, IM1 2SL, British Isles
Tel: +44 (0) 1624 643 468 (Telephone calls may be recorded)
e-mail: firstname.lastname@example.org; Web: www.utmostwealth.com
Profile: With a 25-year heritage, Utmost Wealth Solutions is a provider of award-winning offshore bonds for high-net-worth UK residents. Having recently opened a Dublin office to complement our long-established Isle of Man base, we can now offer a choice of jurisdiction in addition to a range of investment options, including a bond with full discretionary management. Recognising the complex and continually changing financial planning landscape, our highly-respected technical support can help you consider appropriate solutions for your high-net-worth clients. With £12bn funds under management and 36,000 policyholders (31 December 2016), we’re here to make a wealth of difference.
Offering: Flexibility and choice are at the heart of our single premium bonds. Our Isle of Man-based Evolution offers access to a wide range of investment options. The Estate Planning Bond, also Isle of Man-based, is combined with a discounted gift trust and is designed for IHT planning. We also have two Dublin-based life assurance bonds. Selection offers access to a wide range of open architecture investment options, while Delegation provides access to all the investment flexibility offered via a discretionary fund manager. Utmost Trustee Solutions, our in-house trustee service delivers expert support in all trust administration matters