## _cr09274 ## Source details **Canonical URL:** [_cr09274](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09274.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09274.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09274.pdf.json) --- ### Introduction and methodology - Assessment as part of an IMF Financial Sector Assessment Program (FSAP) Update for the Isle of Man (IOM) in 2008; mission visited IOM during September 2008. - Follow-up to 2002–2003 IMF Offshore Financial Center assessment. - Assessors: Peter Kruschel (BaFin) and Ronald MacDonald (banking supervision expert). - Basis: study of legal/regulatory framework; detailed discussions with government, FSC Board/staff, Bankers Association, senior bank management (IOM-incorporated and branches), auditing firms; conducted in accordance with the Basel Committee’s revised Core Principles Methodology (October 2006). - Authorities provided comprehensive documentation and an FSC self-assessment. ### Institutional, macroeconomic setting, and market structure - Constitutional and policy context: - Self-governing Crown dependency in a monetary and customs union with the United Kingdom (UK). - Economic policy: raise living standards through a stable diversified economy; budget deficits legally prohibited; “tax neutral” policy; emphasis on maintaining reputation as a safe jurisdiction. - Legal/supervisory framework: - Financial Supervision Commission (FSC) is sole supervisory authority for banks. - Legal basis: Financial Services Act 2008 (FSA 2008), consolidating earlier Banking Act 1998 (except insurance and pensions). - Banking (General Practice) Regulatory Code 2005 in force at assessment; Financial Services Rule Book 2008 (Rule Book) issued — came into force August 1, 2008 for new licenses; full applicability for existing license-holders from January 1, 2009 (except AML part effective August 1, 2008). - Macroeconomic indicators: - Annual GDP growth averaged over 8 percent over the last 10 years. - Government required to budget for a surplus and has built reserves; government has an AAA rating. - Average residential house prices rose about 8 percent per year during 2003–2007. - Unemployment negligible; inflation moderate. - Banking sector structure and business models: - Banking generates almost one-fifth of IOM’s GDP. - Except two Manx banks, local banks are branches/subsidiaries of parent banks from EU countries (mainly the UK and Ireland) and other countries. - FSC licenses only subsidiaries/branches of banks based in jurisdictions it considers well-regulated. - Business models emphasize collecting retail deposits from overseas and placements with parent banks; intra-group claims account for over 70 percent of customer deposits. - Banks do not operate trading books; liquidity typically managed by parent banks. ### Financial performance, capitalization, and crisis developments - Financial performance and ratios: - Since 2003, banks’ annual return on equity has been consistently above 15 percent. - Total assets increased from GBP 33.5 billion to GBP 68.1 billion. - For 2007: return on total assets was 0.67 percent and return on equity 16.1 percent. - Net interest income accounted for 75 percent of banks’ total income. - Average risk weighted capital adequacy ratio at end-2007 was 16.1 percent. - Paid-up share capital minimum legally required since 2005: GBP 3,500,000 or equivalent. - Crisis and safety nets: - Global financial turmoil had significant impact; at assessment time impact still small but subsequent UK bank interventions affected IOM operations; a local subsidiary of a non-EU bank had license suspended and may be wound up. - Deposit protection: compensation up to 100 percent of deposits up to GBP 50,000 per individual depositor and GBP 20,000 for corporate and other depositors; excludes inter-bank deposits and failed bank’s shareholders and directors. - Scheme funded by compulsory levies on member banks, with a maximum amount payable in any one year and ability to borrow temporarily. - No lender-of-last-resort facility. ### Preconditions for effective supervision and international standards - Legal system: IOM common-law system similar to UK; high-quality legal/accounting/business services; payment system integrated with UK. - IOM not an EU/EEA member but voluntarily follows international standards such as Basel Committee standards. - Basel II implementation: substantial progress; adopted by all banks except one that postponed until January 2009. ### Main findings — strengths, vulnerabilities, supervisory capacity - Overall: IOM maintained and improved a generally very high standard of compliance with the Basel Core Principles (BCP) since prior assessment; FSC proactive and contributes to IOM’s international reputation. - Governance and independence: - Operational autonomy enhanced under FSA 2008: Treasury’s former broad direction powers narrowed to ability to “specify policies and strategies” by order after consultation. - Reforms to Board qualifications introduced; Tynwald retains power to remove Commission members by resolution (removal without publicizing reasons). - Tynwald approval still required for new/amended FSC regulations; FSC expenditure part of government budget; FSC information systems part of government system. - Recommendation: preferable for FSC to have greater financial autonomy and flexibility to respond to unexpected pressures. - Resources and supervisory approach: - Supervisory staff relatively small but highly trained and respected; risk-based supervision combining desk-based and on-site work; every bank has risk profile and impact rating. - Use of “focus visits” and thematic visit programs. - FSC has adequate enforcement powers and broad sanctions; power to petition court for appointment of a manager. - Key vulnerabilities: - Dominant systemic risk: large intra-group exposures to parent banks — intra-group exposures dominate balance sheets and are main system vulnerability. - Exposures to related parties/parent banks generally not limited — creating solvency and liquidity risks. - Local banks’ liquidity management capacity limited; liquidity often managed by parent. ### Priority recommendations (selected) - Develop regulations and supervisory practice to address systemic importance of exposures to parent banks and related parties. - Consider requiring local banks to hold stock of highly liquid assets as marketable assets or short-term balances with non-group banks to strengthen local liquidity management. - Strengthen guidance on operational risk relating to legal risk. - Protect the term “bank” explicitly (CP 2). - Establish clear criteria for assessing proposals for major acquisitions (CP 5). - Develop limitations or explicit controls on large exposures and exposures to related parties (CPs 10 and 11). - Enhance FSC financial autonomy to ensure flexibility to respond to unexpected pressures (paragraph 18). - Develop cross-bank comparisons and system-wide stability analyses, including more regular stress testing and published analysis (CP 19). - Establish formal supervisory regime for consolidated supervision (CP 24). ### Principle-by-principle compliance highlights (selected gradings and comments) - Aggregate: Compliant (C) – 24, Largely compliant (LC) – 7, Materially noncompliant (MNC) – 0, Noncompliant (NC) – 0, Not applicable (N/A) – 0 - Selected CP gradings: - CP 1 (Objectives, independence, powers, transparency, and cooperation): C overall; sub-element 1.2 Independence, accountability and transparency graded LC due to Tynwald removal power and Tynwald approval requirement for regulations. - CP 2 (Permissible activities): LC — term “bank” should be protected explicitly. - CP 5 (Major acquisitions): LC — explicit requirement for FSC approval exists, but no established criteria for assessing proposals. - CP 6 (Capital adequacy): C — fully adequate; Basel II introduced. - CP 10 (Large exposure limits): LC — exposures to related parent banks generally not limited. - CP 11 (Exposure to related parties): LC — exposures to related parent banks generally not limited; main vulnerability. - CP 14 (Liquidity risk): LC — local banks’ liquidity management capacity limited; suggested requiring stock of highly liquid assets or short-term balances with non-group banks. - CP 15 (Operational risk): C — addressed; FSC should strengthen guidance on legal risk. - Additional CPs (3, 4, 7–9, 12–13, 16–18) largely graded C with adequate regulation and supervision noted. ### Supervisory approach, techniques, reporting, and system-wide analysis (CPs 19–25) - CP19 (Supervisory approach): C — off-site supervision via quarterly returns; FSC monitors system-wide trends; recommendation to develop cross-bank comparisons and publish more analysis. - CP20 (Supervisory techniques): C — wide array including off- and on-site work; in practice on-site visits usually 1–3 days; higher-risk/high-impact institutions visited at least once a year. - CP21 (Supervisory reporting): C — quarterly returns required; returns submitted not later than 21 business days after quarter end (from 2009 final date will be one month after end of quarter); nine sections in returns for incorporated banks. - CP22 (Accounting and disclosure): C — banks required to prepare annual audited financial statements under IFRS or UK Accounting Standards; auditors must be members of UK/Ireland professional bodies; auditor indemnity insurance at least GBP 20 million. - CP23 (Corrective and remedial powers): C — FSC has full range of powers including directions, license suspension/revocation, application to High Court for receivers/manager, and power to require removal of unfit individuals. - CP24 (Consolidated supervision): LC — FSC familiar with group structures but has not established prudential consolidated standards for capital, large exposures, related-party exposures; consolidated returns required in material circumstances. - CP25 (Home-host relationships): C — good cooperation with home supervisors; MOUs in place; FSC requires evidence of effective consolidated supervision in home jurisdiction when licensing foreign subsidiaries/branches. ### Detailed technical assessments — selected principles and supervisory practice - Licensing and ownership: - Licensing criteria: Section 6 FSA — fit and proper, management and control in IOM; board decisions, review avenues exist; paid-up share capital minimum GBP3,500,000. - Transfer of significant ownership: Rule Book requires notification for transfers of 5% or more (quoted banks within five business days; other cases 20 business days before registration); acquisitions and changes in control require FSC consent and notification typically not less than 20 business days before transaction. - Notification for acquiring 10% or more of issued share capital: licenceholder must notify FSC before subscribing for/acquiring or entering contract to subscribe for/acquire 10% or more; exceptions for Class 4 and Class 5 regulated activities. - Capital adequacy (CP 6): - Legal minimum RAR lowered from 10 to 8 percent with Basel II adoption. - FSC sets separate RAR for each bank via directions based on ICAAP quality and bank/group risks. - Individual RAR guideline categories: - Lower: 8–10 (percent) - Medium: 11–14 (percent) - Higher: > 14 (percent) - FSC using Pillar II to set additional capital; non-statutory “trigger ratio” set at least one percent higher than RAR; banks must notify when capital falls below trigger. - Adoption progress: most banks adopted Basel II from January 2008; one postponed until January 2009. - Risk management, credit risk, problem assets (CPs 7–9): - Banks required to have comprehensive risk management and credit policies, annual reviews, Board approvals, and to provide policies to FSC within 21 business days of approval. - Nonperforming exposure definition: at minimum loans 90 days in arrears should be categorized nonperforming. - Assessment: CP7–9 — Compliant. - Large exposures and related parties (CPs 10–11): - Large exposure definition: exposure ≥ 10 percent of Large Exposures Capital Base (LECB); non-exempt single large exposure limit 25 percent of LECB; notification thresholds: total large exposures approaching 300 percent of LECB; total large exposures limit 800 percent of LECB. - Exemptions include exposures to parent/group credit institutions in Zone A and parental guarantees — resulting in no general prudential limits on exposures to parent institutions. - Branches: FSC does not apply large exposure limits to IOM branches of overseas banks. - Assessment: CP10 — Largely Compliant; CP11 — Largely Compliant. Comment: absence of general statutory limit on related-party exposures is unusual and a dominant vulnerability. - Liquidity risk (CP 14): - Many IOM banks rely on group treasury; FSC requires liquidity policies, reporting, mismatch limits; in some cases FSC requires specified marketable assets or liquid balances with non-group banks. - Monitoring: maturity mismatch monitoring; examples of required positive cumulative mismatch in sight to eight days band and maximum negative mismatch of minus 5 percent in sight to one-month band (as percent of total deposits) in certain cases. - All banks report liquidity quarterly on Form SR-3A. - Assessment: Largely Compliant. Comment: many banks lack day-to-day liquidity management capacity; FSC should review guidance in light of Basel Committee liquidity paper (September 2008). - Operational risk, interest rate risk, internal controls (CPs 15–17): - Operational risk included in risk management requirements; outsourcing requires prior notice to FSC for material functions; banks must maintain business continuity plans and test arrangements. - Interest rate risk: stress testing expected for 300 or 500 basis point shifts; quarterly reporting using residual maturity bands. - Internal audit and compliance functions required; FSC assesses adequacy. - Assessments: CP15–17 — Compliant. - AML/CFT (CP 18, Rule Book Part 9): - Rule Book Part 9 (effective August 1, 2008) and Criminal Justice (Money Laundering) Code 2007 impose AML/CFT requirements. - Banks must adopt risk-based approach, conduct risk assessments, carry out customer due diligence, verify beneficial owners, prohibit anonymous accounts, apply enhanced CDD where higher risk identified, maintain records, conduct staff screening/training. - FSC produced a handbook and supervises AML/CFT through off-site and on-site reviews; numerous KYC on-site visits in prior three years. - FSC can report suspicious transactions to FCU and share information with overseas supervisors for supervisory purposes. - Assessment: Compliant. Note: parallel assessment against FATF 40+9 conducted. - Supervisory reporting and IT: - Quarterly banking returns required; returns consist of nine sections for incorporated banks; branches submit sections (1), (4), (5), (6), and (7). - Banking returns submission deadline: not later than 21 business days after quarter end (from 2009 final date will be one month after end of quarter). - FSC’s FRS and internal database provide validation checks and institution-specific analysis. - FSC IT integrated with government IT; data ring-fenced; security substantially enhanced since 2003 but concerns remain about access logging and routine recording of access. ### Recommended action plan (summary of CP recommendations) - CP1(2): Remove Tynwald’s legal powers to remove members of the FSC by resolution and to veto proposed FSC regulations. - CP1(4): Consider greater use of fines beyond administrative infringements. - CP2: Make explicit that only licensed deposit takers can use the term “bank” and derivatives in names. - CP5: Develop criteria for assessing major acquisitions by locally incorporated banks. - CP10: Decide regularly whether exemptions for large exposures should be renewed. - CP11: Regularly monitor status and financial condition of parent companies of local subsidiaries; review whether exemptions of group-related exposures from concentration risk requirements should be renewed. - CP14: Consider requiring banks to hold a stock of highly liquid assets as marketable assets or short-term balances with non-group banks; keep liquidity guidance under review. - CP15: Strengthen guidance on operational risk relating to legal risk. - CP19: Develop cross-bank comparisons and system-wide stability analyses and publish more analysis. - CP24: Establish a formal supervisory regime for consolidated supervision. ### Authorities’ response and implementation timing (verbatim) - Actions and timing stated by authorities: - "planned for 2009." - "2009/early 2010." - "annually." - "during 2009." - "either during 2009 or early 2010." - "during 2009/early 2010." - "already being done" - "This has been implemented." - Specific responses (verbatim summaries): - CP1(2): Commission will ask Treasury to take forward amending legislation to address recommendation. - CP1(4): Consideration will be given to adopting wider civil penalties in Rulebook update planned for 2009; Civil Penalties for submission of late returns introduced as first stage. - CP2: Commission will ask Treasury to take forward amending legislation. - CP5: Commission can demonstrate criteria used in assessing a major acquisition and will review/formalize criteria during 2009/early 2010. - CP10: This will be done annually. - CP11: Already being done but more formalised procedures will be adopted. - CP14: Discussions in 2008 continued into 2009; "This has been implemented." - CP15: Strengthening guidance will be done during 2009. - CP19: Develop cross-bank comparisons/system-wide analyses during 2009 or early 2010. - CP24: Establish a formal consolidated supervision regime during 2009/early 2010. *Source: IMF FSAP Update assessment chapter "Summary of Compliance with the Basel Core Principles—Detailed Assessments" (IOM), September 2008 mission materials (content unit _cr09274).* ### 1. Summary of Compliance with the Basel Core Principles—Detailed Assessments.............10 ### 1. Summary of Compliance with the Basel Core Principles—Detailed Assessments ### Introduction and Methodology - Assessment undertaken as part of an IMF Financial Sector Assessment Program (FSAP) Update for the Isle of Man (IOM) in 2008; mission visited the IOM during September 2008. - Assessment follows up on a previous BCP assessment performed in the context of the 2002–2003 IMF Offshore Financial Center assessment of the IOM. - Assessors: Peter Kruschel (BaFin) and Ronald MacDonald (banking supervision expert). - Assessment basis: - Study of the legal and regulatory framework. - Detailed discussions with government representatives, the Board and staff of the Financial Supervision Commission (FSC), the Bankers Association, senior management of banks (both IOM-incorporated and branches), and auditing firms. - Conducted in accordance with the Basel Committee’s revised Core Principles Methodology (October 2006). - Authorities provided comprehensive documentation and an FSC self-assessment of compliance with the BCPs. ### Institutional, Macroeconomic Setting and Market Structure - IOM status and policy environment: - Self-governing Crown dependency in a monetary and customs union with the United Kingdom (UK). - Economic policy aimed at raising living standards through a stable diversified economy; budget deficits are legally prohibited. - “Tax neutral” policy and emphasis on maintaining reputation as a safe jurisdiction. - Supervisory authority and legal framework: - The Financial Supervision Commission (FSC) is the sole supervisory authority for banks in the IOM. - Legal basis: Financial Services Act 2008 (FSA 2008), consolidating earlier Banking Act 1998 and other financial regulation (except insurance and pensions funds). - Banking (General Practice) Regulatory Code 2005 was in force at assessment; the Financial Services Rule Book 2008 (the Rule Book) had been issued and would replace prior requirements (Rule Book: came into force August 1, 2008 for new licenses; full applicability for existing license-holders from January 1, 2009, except AML part effective August 1, 2008). - Macroeconomic performance: - Annual GDP growth averaged over 8 percent over the last 10 years. - Unemployment is negligible; inflation moderate. - Government required to budget for a surplus and has built reserves; government has an AAA rating. - Average residential house prices rose about 8 percent per year during 2003–2007. - Banking sector structure and activity: - Banking generates almost one-fifth of IOM’s GDP. - With the exception of two Manx banks, local banks are branches and subsidiaries of parent banks from EU countries (mainly the UK and Ireland) and other countries. - FSC licenses only subsidiaries or branches of banks based in jurisdictions it considers well-regulated. - Business models emphasize collection of retail deposits from overseas and placements with parent banks; intra-group claims account for over 70 percent of customer deposits. - Banks do not operate trading books; liquidity is typically managed by parent banks. - Financial performance and capitalization: - Since 2003, banks’ annual return on equity has been consistently above 15 percent. - Total assets increased from GBP 33.5 billion to GBP 68.1 billion. - For 2007: return on total assets was 0.67 percent and return on equity 16.1 percent. - Net interest income accounted for 75 percent of banks’ total income. - Average risk weighted capital adequacy ratio at end-2007 was 16.1 percent. - Crisis developments: - Global financial markets turmoil had a significant impact; at assessment time impact was still small. - Since assessment, some UK banks with IOM operations underwent interventions; a local subsidiary of a non-EU bank had its license suspended and may be wound up. - Safety nets: - Deposit protection scheme provides compensation up to 100 percent of deposits up to GBP 50,000 per individual depositor and GBP 20,000 for corporate and other depositors; excludes inter-bank deposits and failed bank’s shareholders and directors. - Scheme funded by compulsory levies on member banks, with a maximum amount payable in any one year and the ability to borrow temporarily. - No lender-of-last-resort facility. ### Preconditions for Effective Supervision - Legal system: - IOM has its own common-law legal system; legislation in commercial/financial fields similar to UK law; courts follow comparable Commonwealth jurisdictions. - High-quality legal, accounting, and business services; payment system integrated with the UK. - International standards: - IOM is not an EU or EEA member; has voluntarily followed international standards such as Basel Committee standards. - Implementation of Basel II: - FSC made substantial progress with Basel II; adopted by all banks except one that postponed until January 2009. ### Main Findings (Summary of strengths, vulnerabilities, and supervisory capacity) - Overall assessment: - IOM has maintained and improved on a generally very high standard of compliance with the BCP since the previous assessment. - FSC is proactive in establishing and enforcing high supervisory standards, contributing to the IOM’s reputation as an international banking center. - Independence and governance of FSC: - Enhanced operational autonomy: Treasury’s previous broad direction powers under Banking Act 1998 narrowed under FSA 2008 to the ability to “specify policies and strategies” by order after consultation. - Board qualification reforms introduced (e.g., Board members not to be members of Tynwald or civil servants), but Tynwald retains right to remove Commission members by resolution for any reason (removal without publicizing reasons). - Tynwald approval still required for new or amended FSC regulations. - FSC’s expenditure forms part of government budget and requires approval for staff/expenditure increases; FSC information systems remain part of government system. - Recommendation noted: preferable for FSC to have greater financial autonomy and flexibility to respond to unexpected pressures. - Resources and supervisory approach: - Supervisory staff levels are relatively small but broadly adequate; staff are highly trained and respected. - Supervision is risk-based, combining desk-based work and on-site visits, with a risk profile and impact rating for every bank to determine supervisory resources. - Use of “focus visits” and thematic visit programs to assess particular risks across banks. - FSC has adequate enforcement powers and a broad, flexible range of sanctions; power to petition court for appointment of a person to manage a bank’s business. - Key vulnerabilities and risk factors: - Major risks relate to large exposures towards parent banks; intra-group exposures dominate balance sheets and are the main system vulnerability. - Close relationships with parent banks are risk-mitigants in normal times but powerful risk-transmission channels when parents are stressed. - Exposures to related parties and parent banks generally not limited, creating solvency and liquidity risks. - Local banks’ liquidity management capacity is limited given typical business models; liquidity often managed at parent level. - Recommendations and supervisory priorities (drawn from findings): - Authorities should prioritize development of relevant regulations and supervisory practice to address the systemic importance of exposures to parent banks and related parties. - Consideration should be given to requiring local banks to hold a stock of highly liquid assets in the form of marketable assets or short-term balances with non-group banks to strengthen local liquidity management. - FSC should strengthen its guidance on operational risk relating to legal risk. - The term “bank” should be protected explicitly (permissible activities—CP 2 comment). - Establish clear criteria for assessing proposals for major acquisitions (CP 5 comment). - Limitations or more explicit controls on large exposures and exposures to related parties should be developed and prioritized (CPs 10 and 11 comments). - Enhance FSC financial autonomy to ensure flexibility to respond to unexpected pressures (paragraph 18). - Supervisory practice and technical strengths: - FSC incorporates best international practices and has cooperated regionally (Guernsey and Jersey) on Basel II implementation. - Regulatory and supervisory coverage is comprehensive in many areas: licensing criteria, capital adequacy, risk management, credit risk, problem assets and provisioning, country and transfer risks, market risk, operational risk (with scope to improve legal-risk guidance), interest rate risk in the banking book, internal control and audit, and AML/CFT measures. - FSC uses enforcement powers in practice; fines used primarily for administrative infringements at time of assessment. ### Principle-by-Principle Compliance Highlights (selected CP gradings and comments) - CP 1 (Objectives, independence, powers, transparency, and cooperation): C — FSC has wide powers and autonomy; sub-elements: 1.2 Independence, accountability and transparency graded LC due to Tynwald removal power and requirement for Tynwald approval of regulations. - CP 2 (Permissible activities): LC — term “bank” should be protected explicitly. - CP 5 (Major acquisitions): LC — explicit requirement for FSC approval exists, but no established criteria for assessing proposals. - CP 6 (Capital adequacy): C — fully adequate; Basel II introduced. - CP 10 (Large exposure limits): LC — exposures to related parent banks generally not limited. - CP 11 (Exposure to related parties): LC — exposures to related parent banks generally not limited; constitute main vulnerability. - CP 14 (Liquidity risk): LC — local banks’ liquidity management capacity limited; suggested consideration to require stock of highly liquid assets or short-term balances with non-group banks. - CP 15 (Operational risk): C — addressed; FSC should strengthen guidance on operational risk relating to legal risk. - Additional CPs (3, 4, 7–9, 12–13, 16–18) largely graded C with comments indicating adequate regulation and supervision. *Source: IMF FSAP Update assessment chapter titled "Summary of Compliance with the Basel Core Principles—Detailed Assessments" (IOM), September 2008 mission materials.* ### 19. Supervisory approach C Cross-bank comparisons and system-wide ### 19. Supervisory approach C Cross-bank comparisons and system-wide ### Supervisory findings and ratings - 19. Supervisory approach C Cross-bank comparisons and system-wide stability analyses should be developed, for example, through more regular stress testing, evaluation of systemic developments, and review of the distribution of financial soundness indicators. - 20. Supervisory techniques C The FSC makes use of a array of supervisory techniques, including sophisticated off- and on-site supervision. - 21. Supervisory reporting C Supervisory reporting is fully satisfactory. It is important to ensure that strict control continue to be maintained to prevent unauthorized access to confidential data. - 22. Accounting and disclosure C Banks maintain a high level of accounting and disclosure. - 23. Corrective and remedial powers of supervisors C The authorities enjoy a full range of corrective and remedial powers, which they have exercised when the occasion has demanded. - 24. Consolidated supervision LC Although not currently of great materiality for the IOM, the FSC should establish an adequate supervisory regime for consolidated supervision. - 25. Home-host relationships C The FSC actively pursues constructive cooperative relationships with home supervisors. - Aggregate: Compliant (C) – 24, Largely compliant (LC) – 7, Materially noncompliant (MNC) – 0, Noncompliant (NC) – 0, Not applicable (N/A) – 0 ### Recommended Action Plan (summary of CP recommendations) - CP1(2) Remove Tynwald’s legal powers to remove members of the FSC by resolution and to veto proposed FSC regulations. - CP1(4) Consideration should be given to more use of fines other than for infringement of purely administrative requirements. - CP2 Make explicit that only licensed deposit takers can use the term “bank” and derivatives thereof in relevant names. - CP5 Develop criteria for assessing major acquisitions by locally incorporated banks. - CP10 Decide on a regular basis whether or not an exemption for large exposures should be renewed. - CP11 Regularly monitor the status and financial condition of parent companies of local subsidiaries, and review whether exemptions of group-related exposures from the concentration risk requirements should be renewed. - CP14 Consider requiring banks to hold a stock of highly liquid assets in the form of marketable assets or short-term balances with non-group banks. - Keep liquidity guidance under review in light of evolving international standards in this area. - CP15 Strengthen guidance on operational risk relating to legal risk. - CP19 Develop cross-bank comparisons and system-wide stability analyses, and publish more analysis. - CP24 Establish a formal supervisory regime for consolidated supervision. - Note: "Note that several recommendations are included under CPs that are assessed as fully compliant." ### Authorities’ response to the assessment (by Core Principle) - CP1(2) Remove Tynwald’s legal powers to remove members of the FSC by resolution and to veto proposed FSC regulations. - The Commission will ask Treasury to take forward amending legislation to address these recommendations. - CP1(4) Consideration should be given to more use of fines other than for infringement of purely administrative requirements. - Consideration will be given to adopting this recommendation in an update to the Rulebook which is planned for 2009. Civil Penalties for submission of late returns was introduced as a first stage of a Civil Penalties regime. - CP2 Make explicit that only licensed deposit takers can use the term “bank” and derivatives thereof in relevant names. - The Commission will ask Treasury to take forward amending legislation to address this recommendation. - CP5 Develop criteria for assessing major acquisitions by locally incorporated banks. - The Commission can demonstrate the criteria that was used in assessing a major acquisition by a locally incorporated bank. This will be reviewed and formally adopted as the criteria to be used in the future during 2009/early 2010. - CP10 Decide on a regular basis whether or not an exemption for large exposures should be renewed. - This will be done annually. - CP11 Regularly monitor the status and financial condition of parent companies of local subsidiaries, and review whether exemptions of group-related exposures from the concentration risk requirements should be renewed. - This is already being done but more formalised procedures will be adopted. - CP14 Consider requiring banks to hold a stock of highly liquid assets in the form of marketable assets or short-term balances with non-group banks. - Keep liquidity guidance under review in light of evolving international standards in this area. - This has already been discussed during 2008 and these discussions will continue in 2009. - This has been implemented. - CP15 Strengthen guidance on operational risk relating to legal risk. - This will be done during 2009. - CP19 Develop cross-bank comparisons and system-wide stability analyses, and publish more analysis. - This will be done either during 2009 or early 2010. - CP24 Establish a formal supervisory regime for consolidated supervision. - This will be done during 2009/early 2010. ### Implementation timing stated by authorities (verbatim) - "planned for 2009." - "2009/early 2010." - "annually." - "during 2009." - "either during 2009 or early 2010." - "during 2009/early 2010." - "already being done" - "This has been implemented." ### Detailed assessment note - 25. The methodology makes a distinction between “essential” and “additional” criteria. However, in accordance with the usual standards applied in the case of assessments which are conducted as part of an FSAP, this assessment takes into account the essential criteria only in determining the level of compliance. *Source: _cr09274 - 19. Supervisory approach C Cross-bank comparisons and system-wide* ### 26. The methodology provides that supervision of an individual principle is considered ### _cr09274 - 26. The methodology provides that supervision of an individual principle is considered ### Methodology: Compliance Categories - Compliant: all essential criteria are generally met without any significant deficiencies. - Largely compliant: only minor shortcomings observed, which do not raise concerns about the authority’s ability and intent to achieve full compliance within a prescribed period of time. - Materially non-compliant: despite progress, shortcomings are sufficient to raise doubts about the authority’s ability to achieve compliance. - Non-compliant: no substantive progress toward compliance has been achieved. - Not applicable: assessors consider the principle does not apply given a country’s structural, legal, and institutional features. ### Principle 1 — Objectives, autonomy, powers, and resources (overview) - An effective system requires clear responsibilities and objectives for each authority, operational independence, transparent processes, sound governance, adequate resources, accountability, a suitable legal framework, powers to address compliance and safety and soundness, legal protection for supervisors, and arrangements for sharing and protecting confidential information. ### Principle 1(1) Responsibilities and objectives - Description: - The FSC was established in 1983 as a statutory body. - The commission’s functions are described in the FSA, which came into force on August 1, 2008. - The FSA provides for regulation and supervision of persons undertaking regulated activities (deposit-taking, investment business, services to collective investment schemes, fiduciary services, money transmission services) in or from the IOM, maintenance and development of the regulatory regime, oversight of directors and persons responsible for management, administration or affairs of commercial entities, and operation of the Companies Registry. - FSC responsibilities do not extend to insurance and pensions industries (supervised by the Insurance and Pensions Authority). - Regulatory objectives: securing an appropriate degree of protection for customers of persons carrying on regulated activity, reduction of financial crime, and supporting the IOM’s economy and development as an international financial centre. - Work overseen by seven commissioners appointed by the treasury, subject to approval of Tynwald. The chief executive is a commissioner. - Legislation defines responsibilities and objectives of the FSC and provides a framework of prudential standards that banks must meet. - Banking laws and regulations have been updated recently and remain effective and relevant. - Laws are in place for the single banking authority; responsibilities and objectives are clearly defined and publicly disclosed. - Assessment: Compliant - Comments: (none provided) ### Principle 1(2) Independence, accountability, and transparency - Description: - FSC composition: not less than seven qualified persons appointed by the treasury, subject to Tynwald approval. - Schedule 1, section 1 (2) FSA: treasury appoints chairperson and deputy chairperson. Restrictions on membership (Tynwald members, civil servants, employees of departments/statutory boards cannot be members, except Chief Executive Officer). - Commissioners serve five-year terms; may be removed if cease to be a qualified person; may be removed from office by resolution of Tynwald (Schedule 1, section 1 (4)). - Treasury may by order specify policies and strategies for the FSC after consulting the FSC and affected banks; practice has resulted in effective public consultation process. - Cooperation modalities set out in MOU between FSC and treasury: accountability arrangements, circumstances for sensitive information flow, treasury representation in Tynwald, treasury sets legal framework including core corporate governance and the “Overriding Regulatory Strategy,” MOU states FSC operates independently and treasury does not interfere on bank-specific issues but sets the “Overall Regulatory Strategy,” regular meetings, all FSC regulatory proposals require Tynwald approval. - FSC income and expenditure part of general revenue account of IOM government. During 2007–08 the FSC levied fees amounting to GBP 12.6 million, expenditure amounted to GBP 3.9 million leaving a surplus of GBP 8.7 million for government. Income composition: Companies Registry GBP 10.9 million; banking license fees GBP 0.7 million. FSC working on revised scale of license fees due to new definition of “regulated activities” in FSA. - FSC operates within a headcount restriction set centrally; expenses met from government budget. FSC identifies expenditure needs annually and agrees budget with treasury; treasury includes FSC budget in overall government budget to Council of Ministers for approval; supplementary budget applications to treasury possible but never required. - FSC payments and receipts handled by government; revenue and expenditure audited annually by government external auditors and subject to government internal audit review. - FSC budget provides staff in sufficient numbers and with skills commensurate with size and complexity of supervised institutions. - Learning and development strategy: benchmark of 10 days per annum set aside for each member of staff. - Supervisory authority and staff have credibility based on professionalism and integrity. - Assessment: Largely Compliant - Comments: - Chairman is no longer a political person; treasury and other governmental authorities shall not give orders regarding specific supervisory cases. - Treasury can “by order specify policies and strategies” and sets the “Overall Regulatory Strategy”; objectives of financial sector policy set by democratically-elected Tynwald via government while FSC has operational independence in specific cases. Boundaries of “policies and strategies” versus specific measures are not explicitly defined in legislation. - Commissioners can be removed by Tynwald; reasons not specified in the act and Tynwald not formally required to publish an explanation (Tynwald debates are public). - FSC empowered to issue secondary legislation, but Tynwald can reject it. - FSC is still funded by the budget and staffing levels are controlled by the treasury. ### Principle 1(3) Legal framework - Description: - The FSA gives FSC power to grant, refuse, and revoke licenses and impose conditions. - FSA empowers FSC to set prudential rules concerning regulated activities, conduct of business, services and products, relationships with customers, corporate governance and risk management; those rules can be rejected by Tynwald. - Law/regulations empower supervisor to obtain information from banks and banking groups in form and frequency it deems necessary. - FSC guidance notes provide guidance on operation in particular circumstances; extensive consultation with industry in policy guidance and best practice. - Comprehensive system for assessing banking license applications; recently reviewed licensing policy for companies holding or seeking financial services license. FSA provides seven classes of license for regulated activities including deposit taker, financial and investment advisor, discretionary portfolio manager, custodian, and stockbroker. - Assessment: Compliant - Comments: (none provided) ### Principle 1(4) Legal powers - Description: - FSA provides range of powers: licensing responsibilities, warnings, conditions, directions. - FSC may take appropriate action for breaches of conditions and/or directions; instruments used regularly. - FSC may require a bank to pay a penalty for contravention of administrative requirements (e.g., timely submission of statistical returns); regulations could be amended to allow fines for other contraventions of the FSA. - FSC may undertake action for breaches of the Rule Book. - FSC may apply to the high court for appointment of a manager to manage affairs of persons insofar as those affairs relate to carrying on a regulated activity. - FSC may require a bank person to provide a report by an accountant or other professional on matters relating to the affairs of the bank. - Law and regulations permit FSC to apply qualitative judgment in safeguarding safety and soundness. - Law/regulations empower supervisor to obtain information from banks and banking groups in the form and frequency it deems necessary. - Assessment: Compliant - Comments: - Consideration should be given to more use of fines other than for infringement of purely administrative requirements. ### Principle 1(5) Legal protection - Description: - Section 33 of the FSA: FSC employees are not liable in damages for any act or matter unless the act or matter is shown to have been in bad faith. - Officers protected by the Statutory Boards Act 1987: paragraph 11, Schedule 2 states an officer shall not be personally liable for acts done in performance of functions if acted reasonably and in honest belief duty required/empowered him to do it; board may indemnify an officer against damages ordered to be paid or incurred. - Assessment: Compliant - Comments: (none provided) ### Principle 1(6) Cooperation (information sharing and confidentiality) - Description: - Schedule 5 of the FSA regulates disclosure of information; persons appointed/authorized under the act subject to restrictions; several authorities excluded from restrictions. - FSC not permitted to disclose customer affairs information unless customer consents; FSC may consent to disclosure if satisfied it is appropriate given functions and regulatory objectives, confidential nature of information, and purpose for which required. - Contravention of duty of restriction on disclosure is an offense. - When releasing information to a foreign supervisor, FSC specifies information must remain confidential to receiving agency and not be disclosed to any third party without prior written consent of the FSC. - FSC can deny any demand (other than a court order or legislative mandate) for confidential information in its possession. - FSC IT infrastructure integrated within IOM government IT; risk that confidential information (banks, customers, internal documents) may be accessed by unauthorized persons; access to data is not routinely recorded. Questionable whether adequate protection for confidential information exists. - Assessment: Compliant - Comments: (none provided) ### Principle 2 Permissible activities - Description: - Deposit taking defined as a financial services activity in Section 3 of the FSA. FSA also defines investment business, any service to a collective investment scheme, corporate services, trust services, any service/activity involving money transmission. Other financial services/activities of specified kind may be defined by order. - Permissible activities of institutions licensed and subject to supervision as banks are not defined. - FSC publishes and keeps a list of licensed banks including foreign banks operating in jurisdiction. - Term “bank” is not defined in laws or secondary regulations. Some protection derived from Registration of Business Names Act; FSC may refuse registration of undesirable/misleading names. Practice Note on Registration and Continuance of Business Names: power extends to inclusion of word “bank.” Art. 36 of the FSA makes it an offense to make false or misleading statements to induce another to make a deposit or enter an investment agreement. - Assessment: Largely compliant - Comments: - To be strictly compliant, use of the term “bank” should be expressly limited to licensed and supervised entities, and banking activities should be defined clearly in legislation or regulation. Protection of the term “bank” is consumer protection; use of terms indicating “bank” or “banker” or “carrying on a banking business” should be restricted to appropriately licensed entities unless expressly authorized by the FSC. It may be sufficient to set out in regulation that only licensed deposit takers may use the term “bank” and derivations in a name connected to financial services. ### Principle 3 Licensing criteria - Description: - Basic licensing criteria set out in Section 6 of the FSA: license will not be issued unless FSC is satisfied applicant is fit and proper to carry on regulated activity and provide services described; any controller or director of applicant is fit and proper; other persons who appear to FSC to be key persons are fit and proper; applicant is managed and controlled in the IOM. - In assessing fit and proper, FSC examines integrity, competence, financial standing, structure and organization of applicant; integrity, competence and financial standing of any controller or director and key persons; and description of business proposed. - A license may be issued in respect of one or more regulated activities; different conditions may be imposed for different activities. Commission may make a license subject to conditions. - Decision to grant license made by FSC Board. Aggrieved applicants may seek review by Council of Ministers’ Review Committee. - FSC issued a general licensing policy: any office in the IOM representing an off-island deposit taking business is required to hold a license. - FSC expects banks to start business within 6 months of date of issue of license. - Paid-up share capital of a license-holder must not be less than GBP3,500,000 or its equivalent in another currency. - Licensing authority has power to reject application if criteria not fulfilled or information inadequate. - Assessment: Compliant - Comments: (none provided) ### Principle 4 Transfer of significant ownership - Description: - Section 10 of the FSA 2008 refers to “Controllers”; Section 48 defines a Controller as one who alone, or with an associate, is entitled to exercise or control 15 percent or more of voting power at any general meeting of the license-holder or of another body corporate of which it is a subsidiary. - Rulebook, section 7.4 “Changes in ownership”: - (1) A licenceholder must notify the Commission of — (a) any transfer of 5% or more of its voting shares; or (b) any other transfer of its voting shares which has a material effect on immediate or ultimate control of the licenceholder. - (2) Notification timing: (a) where shares quoted on recognised stock exchange, within 5 business days after licenceholder becomes aware of transfer; (b) in all other cases, 20 business days before the transfer is registered. - (3) Licenceholder must notify Commission of any change in ownership structure between it and its ultimate parent company; or any material change in its ultimate ownership. - (4) Notification timing under (3): (a) if practicable, not less than 20 business days before change takes place; or (b) otherwise, as soon as practicable. - Rule 7.5 “Acquisitions etc. of business” applies to mergers, takeovers/acquisitions, purchases of assets/liabilities of another business, acquisition of controlling interest or change in existing controlling interest; licenceholder must not enter into such transaction without FSC consent. - Notification timing for transactions under 7.5: if practicable, not less than 20 business days before transaction takes place; or as soon as practicable. - Previously, Banking Guidance Note BGN 1.2 required at least 21 business days prior notification of change in ownership structure between bank and ultimate parent, including intermediate layers; changes in capital structure also 21 business days in advance. - Quoted-bank requirement: inform FSC within five days of discovery of any transfer of 5 percent or more of voting shares or any lesser transfer with material effect on immediate or ultimate beneficial control. - In assessing new owners FSC applies “fit and proper” criteria as in licensing; wide range of measures (e.g., revoking license) to block unsuitable transfers. - Accuracy of FSC information on significant shareholders checked against annual financial statements of license-holders and parents. FSC does not receive periodic return on shareholders. Under new legislation, an ownership schedule has to be submitted annually. - Assessment: Compliant - Comments: (none provided) ### Principle 5 Major acquisitions - Description: - Rulebook contains Rule 7.5 “Acquisitions etc. of business” (applies to merger, takeover/acquisition, purchase of assets/liabilities, acquisition/change in controlling interest). Licenceholder must not enter into such transaction without FSC consent. - Licenceholder must notify FSC of any transaction to which this rule applies, if practicable, not less than 20 business days before the transaction takes place; or, as soon as practicable. - Assessment: (assessment not explicitly provided in supplied text) - Comments: (text ends after introducing Rule 7.7 - Acquisition of shares of company) *Italic: IMF staff report content unit _cr09274 - 26. The methodology provides that supervision of an individual principle is considered* ### 1. A licenceholder must notify the Commission before subscribing for or acquiring, or ### 1. A licenceholder must notify the Commission before subscribing for or acquiring, or ### Notification requirement - Paragraph (1): A licenceholder must notify the Commission before subscribing for or acquiring, or entering into a contract to subscribe for or acquire, 10% or more of the issued share capital of a company. ### Exception for Class 4 and Class 5 regulated activities - Paragraph (2): Paragraph (1) does not apply to a subscription for shares, undertaken in the course of regulated activities falling within Class 4 or Class 5, by a licenceholder licensed to carry on those activities or an officer or employee of such a licenceholder. *Source: _cr09274 - 1. A licenceholder must notify the Commission before subscribing for or acquiring, or* ### 3. A notification under paragraph (1) must be given — ### _cr09274 - 3. A notification under paragraph (1) must be given — ### Notification timing and Rule 7.8 — Subsidiaries, branches, representative offices - A notification under paragraph (1) must be given: - if practicable, not less than 20 business days before the event; or - otherwise, as soon as practicable. - A licenceholder incorporated in the Island must not, without the consent of the Commission, acquire or establish a trading subsidiary, branch or representative office in the Island or elsewhere. - Historical practice (Banking Guidance Note BGN 1.2): prior notification of at least two months where practical for proposals to establish or acquire subsidiaries or branches; at least 21 business days’ notice for proposals to establish representative offices in other jurisdictions; two months notification also applicable where banks intend to acquire a nonbanking company. - Assessment: Largely Compliant. - Comment: The FSC must be notified of major acquisitions and has powers to review such transactions; however, the regulations are new and explicit evaluation criteria for whether a major acquisition exposes a bank to undue risks or hinders supervision have not yet been developed. ### Principle 6. Capital adequacy - Description and implementation: - FSC requires all banks to maintain a minimum risk asset ratio (RAR) calculated in accordance with the Basel Committee’s recommendations. - Adoption of Basel II: most banks expected to adopt Basel II from January 2008 and submit revised reports from end-March 2008; all banks have adopted except one allowed to postpone until January 2009. - Pillar I: Standardized Approach for credit risk as the norm; Simplified Standard Approach allowed if warranted; operational risk minimum: Basic Indicator Approach; Standardized Approach acceptable if adequate segregation and reporting; market risk: no capital charge for trading books in equities or interest-bearing instruments (not considered present), but capital charges applied for FX, commodities price risk, and settlement risk. - Pillar II: every bank required to produce a documented Internal Capital Adequacy Assessment Process (ICAAP); FSC reviews ICAAPs and sets Pillar II capital charge. Five ICAAPs received; aim to approve all banks’ ICAAPs before end-year. - Pillar III: FSC considers Pillar III disclosures not applicable to majority of locally incorporated banks (subsidiaries of overseas banks); disclosures expected at overseas parent level. - Legal minimum and supervisory practice: - Legal minimum RAR lowered from 10 to 8 percent as part of Basel II adoption. - FSC sets separate RAR for each bank via directions, based on ICAAP quality and bank/group risks (credit concentration, interest rate risk in banking book, strategic risk). - Individual RARs guideline: - Lower: 8–10 (percent) - Medium: 11–14 (percent) - Higher: > 14 (percent) - Despite legal minimum 8 percent, FSC is not setting new RARs below 10 percent until ICAAP reviews complete. - Overall capital adequacy monitored as: eligible capital should not be less than: - 8 percent of risk-weighted assets (statutory requirement and Pillar I); plus - the amount required by Pillar II (equal to the RAR minus 8 percent of risk-weighted assets). - FSC reports and monitors surplus capital beyond requirements. - FSC sets a non-statutory “trigger ratio” for each bank at least one percent higher than the RAR; banks must notify FSC when capital adequacy falls below trigger level and advise remedial action. - Since 2005, all banks legally required to have an absolute minimum share capital of GBP 3.5 million or its equivalent. - Assessment: Compliant. - Comment: Detailed adoption of international capital adequacy standards; new legislative framework entering fully into force in January 2009; Basel II adoption progressing and should be substantially completed by end-2008. ### Principle 7. Risk management process - Legal/structural requirements: - Sections 42 and 87 require banks to have comprehensive, annually reviewed risk management policies covering delegation, separation of functions, reconciliations, safeguarding assets, and independent audit/compliance. - Detailed Guidance Note on Corporate Governance in Banking Institutions issued by FSC. - Board responsibilities (must): - understand significant risks; - establish appropriate and prudent risk management policies; - establish risk management and compliance procedures for regulatory matters and timely reporting; - review policies at least once a year; and - obtain regular reasonable assurance of ongoing effective risk management and adherence. - Senior management responsibilities (must): - identify, measure (aggregate basis), and assess risks (on- and off-balance sheet; direct or via subsidiaries); - develop appropriate risk management policies including aggregate exposure limits; - submit policies to Board for approval and review at least annually; - manage risks per policies and establish controls and monitoring; - provide timely, relevant, accurate, and complete reports to the Board to assess ongoing effectiveness. - Supervisory approach: - FSC employs high-level, risk-based supervision: assess inherent business risk, assess governance/systems mitigation, combine to produce composite rating (higher, medium, lower). - Impact rating for every bank combined with risk rating determines supervisory visit frequency (e.g., high impact & higher risk → business meeting + compliance visit at least once every year). - FSC conducts thematic visits (e.g., credit risk) to examine management of particular risks. - Assessment: Compliant. ### Principle 8. Credit risk - Regulatory requirements: - Current requirements in Section 32 of the code (from 2009 in Part 8 of the Rule Book). - Banks must have credit risk policy appropriate to nature and scale of business covering limits (geographical, economic, sectoral), connected and related party lending, sanctioning limits, authorization procedures, permissible collateral, monitoring, arrears, provisioning. - Policy reviewed annually and approved by Board. - Board must provide FSC with copy of policy within 21 business days of board approval and inform FSC of significant amendments within 21 business days; board must confirm to FSC within four months of each year-end that policy was up to date and appropriate at last full board meeting. - FSC issued guidance: Credit Risk, Arrears & Provisions (March 2006) and Guidance on Corporate Governance (December 2006). - Supervisory activity: - 2005–06 on-site program covered credit policies, new lending acceptance, sanctioning, limits, security adequacy, monitoring, reporting, exceptions, arrears, provisioning. - Assessment: Compliant. - Comment: On-site visits have considerably strengthened credit risk supervision. ### Principle 9. Problem assets, provisions, reserves - Requirements: - Code/Rule Book requires each bank to have an arrears and provisioning policy appropriate to nature and scale; board reviews annually and confirms to FSC. - Banks must have adequate provisions for specific bad and doubtful debts and submit quarterly reports to FSC. - FSC guidance: Credit Risk, Arrears & Provisions Management (March 2006) — includes: - definition of nonperforming exposure: at minimum loans 90 days in arrears should be categorized nonperforming; policy to document circumstances where more conservative approach is prudent; - procedures for arrears, deterioration of security, borrower breaches; - prescription of calculation, review, and authority for provisions. - Supervisory activity: on-site provisioning reviews included under CP7. - Assessment: Compliant. - Comment: Considerably strengthened since previous assessment. ### Principle 10. Large exposure limits - Definitions and coverage: - Code defines “an exposure” as a claim on an individual counterparty or group of closely related counterparties; “large exposure” = any exposure which is 10 percent or more of a bank’s Large Exposures Capital Base (LECB). - LECB = bank’s regulatory capital according to most recent audited financial statements and agreed with FSC. - Rule Book expands exposure definition to include off-balance sheet items. - FSC Banking Guidance Note on Large Exposures (April 2007) provides further detail. - Exempt exposures (do not count toward regulatory limits/reporting), include: - exposures of one year or less to Zone A banks (excluding multilateral development banks) not related to the bank, provided no charge and part of normal treasury operations; - exposures to or guaranteed by central governments and central banks from Zone A countries; - exposures to Zone B central governments denominated in local currency and funded by liabilities in same currency; - exposures secured by cash (including certificates of deposit issued by lending bank) held by lender; - exposures to other group companies that are credit institutions in Zone A countries; - exposures with parental guarantees. - Notification requirement: bank must notify FSC before incurring any exempt exposure except category (1). - Regulatory limits (non-exempt exposures): - may not incur a large exposure which exceeds 25 percent of its LECB; - must notify FSC if total of large exposures is about to exceed 300 percent of LECB; - must limit total large exposures to 800 percent of LECB; - must notify FSC if it breaches the 25, 300, or 800 percent limits or its LECB falls below agreed level. - Policies and reporting: - Banks required to have large exposure policy appropriate to nature/scale; policy reviewed and approved by Board; policy must include exposure limits by customer, counterparty, country, sector; sanctioning limits; monitoring; reporting. - Banks must be able to monitor exposures daily and report large exposures quarterly to FSC. - Branches of overseas banks: - FSC does not apply limits to large exposures of IOM branches of overseas banks; Regulatory Code requires documented controls/procedures in accordance with head office; must report ten largest bank and nonbank exposures related to IOM operations. - Supervisory findings: - Credit risk on-site program (2005–06) found generally low levels of nonbank credit concentration. - Assessment: Largely Compliant. - Comments: - Effective limits for counterparties other than parent banks; exemption (5) (exposures to other group credit institutions in Zone A) implies no general prudential limits on exposures to parent institutions — dominant vulnerability of IOM system. - FSC should decide regularly whether exemptions for large exposures should be renewed. ### Principle 11. Exposures to related parties - Definitions and rules: - No definition of “related parties” in FSA, current code or new Rule Book; FSC provides comprehensive definition in Section 4.5 of Banking Guidance Note on Large Exposures (includes group undertakings, associated companies, directors, controllers, shareholders, non-group companies associated with these individuals, and companies lent to on preferential terms). - No specific statutory/regulatory limit on exposures to related parties (large exposure limits still apply). Exposures exceeding 25 percent of LECB are subject to prohibition on non-exempt large exposures. - Rule Book requires credit policies to contain provisions on connected and related party lending. - FSC Guidance Notes explain banks should have particular sanctioning procedures and related lending justified only with clear commercial advantage and negotiated on arm’s length basis. - Supervisory powers and measures: - FSC reviews banks’ policies and quarterly reported related exposures. - FSC can limit individual bank’s related party exposures via license conditions or directions. - Mitigating measures: require specified related exposures to be deducted from regulatory capital or given additional 50 percent risk weighting. - Assessment: Largely compliant. - Comments: - Absence of general limit is unusual; many home supervisors apply strict limits but allow case-by-case concessions. FSC is reassessing approach due to market pressures and has begun considering regulatory limits on exposures to related banks; FSC will need to monitor parent companies and review exemptions regularly. - Market pressures have called into question quality of liquidity that group exposures represent for local banks (see CP14). ### Principle 12. Country and transfer risks - Requirements and supervisory practice: - Code/Rule Book requires banks to have geographical lending limits within overall credit policy, with procedures for monitoring and controlling exposures and provisions. - Compliance included in off-site review and on-site visits. - FSC places limits on banks’ exposure to parent banks when material country risk exists in parent country; power exercised from time to time. - No prescribed provisioning levels/percentages for country risk; banks consider provisions and must satisfy external auditors of sufficiency; failure likely to produce qualified audit opinion. - Risk characteristics: - Many banks employ large proportion of funds in parent country: UK, other Crown dependencies, Ireland. Transfer risk close to nonexistent for these assets. Country risk in lending elsewhere insignificant. - Assessment: Compliant. ### Principle 13. Market risk - Market risk exposure and requirements: - IOM banks do not incur significant market risk; do not trade in marketable securities or derivatives materially; no regulatory requirements/guidance issued for price risk. - Some FX trading for customer transactions; most FX exposure backed into parent bank treasury which manages FX risk at group level. - Code/Rule Book requires every bank to have a prudent FX risk management policy appropriate to nature and scale with specific limits; Board review/approval annually; policy and significant amendments to be shared with FSC. - Guidance Note on Foreign Exchange Risk Management (March 2006) issued. - FSC guidance and expectations: - FSC does not impose specific limits for FX exposure but states banks should not assume risk that a 10 percent adverse movement in exchange rates would cause a loss equivalent to 10 percent of a bank’s LECB. - Banks expected to carry out periodic (minimum six monthly) stress testing to assess potential cost of a shock 20 percent movement in exchange rates as appropriate. - Capital treatment: - FSC does not impose capital charges for market risks in trading book (accord applies to internationally active banks; FSC considers no IOM banks have trading books). - FSC applies capital charge for market risks in banking book: net open FX positions weighted at 100 percent and included in total risk-weighted assets. - Quarterly reporting forms for capital adequacy allow reporting of all forms of market risks in accordance with Basel. - Assessment: Compliant. ### Principle 14. Liquidity risk - Nature of IOM bank liquidity: - Activities vary; many groups use IOM offices to collect deposits employed elsewhere; local banks often lack capacity to manage liquidity independently and depend on group treasury. - Banks do not engage in significant foreign currency liquidity transformation. - Requirements and supervisory practice: - FSC requires all banks to have prudent liquidity policy, appropriate systems to measure/monitor liquidity, and adherence to policy; systems vary by bank scale/nature/complexity. - Policy must ensure compliance with short-term liquidity limits set by FSC under the code/Rule Book. - For IOM-incorporated banks, policy should reflect nature of business, funding strategy, stability of customer base, relationships with group entities, reporting of liquidity, monitoring mismatch limits to FSC, procedures for reporting breaches, and classes of marketable assets for liquidity. - Monitoring metrics and reporting: - FSC concentrates on mismatches between maturing short-term assets and liabilities. - In certain cases requires individual banks to observe positive cumulative mismatch limits in the sight to eight days time band and a maximum negative mismatch of minus 5 percent (defined as a percentage of total deposits) in the sight to one-month time band. - Banks report maturity breakdown quarterly. - If necessary, FSC may require a bank to hold specified amount of marketable assets. - Specific supervisory measures and practice: - FSC recognizes balances held with overseas parents may not be readily repayable; if balances represent long-term funding of capital nature, FSC deducts them from capital. - In four cases FSC requires banks to hold liquid balances with non-group banks equivalent to 10 and 5 percent respectively of their deposits. - Some IOM-incorporated banks voluntarily keep significant percentage of total assets outside groups. - Branches of overseas banks: liquidity policy acceptable to FSC may be head office policy if local senior management understand liquidity/funding needs; FSC does not impose mismatch limits on branches but expects similar monitoring via maturity mismatch calculations. - All banks report liquidity quarterly on Form SR-3A. - FSC requires contingency plans for unexpected liquidity shortages and provided guidance on warning signals, stress testing, communication channels, and short-term funding steps. - Assessment: Largely compliant. - Comments: - Many banks lack day-to-day liquidity management capacity — a major system risk. - FSC concerned about international liquidity pressures and potential spillovers to IOM subsidiaries; increased cooperation with home supervisors and active consideration of reinforcing liquidity measures (including holding marketable assets or short-term balances with non-group banks). - Recommendation: FSC should review liquidity regulations/guidance in light of Basel Committee paper on liquidity management and supervision published September 2008. ### Principle 15. Operational risk - Requirements: - Code/Rule Book requires banks to include operational risk processes in risk management policy (identify, measure, monitor, control); senior management responsible; annual review and Board approval required. - Guidance Note on Corporate Governance lists operational risk control/process areas: human resources, documenting processes/policies/controls, valuation methods/accounting, accurate record-keeping, IT development/maintenance, business continuity plans including backup. - ICAAP guidance (“The Supervisory Review and Evaluation Process and ICAAP”, July 2007) includes legal risk under operational risk; FSC will use Basel Committee “Sound Practices for the Management and Supervision of Operational Risk” (February 2003) in assessments. - Outsourcing and business continuity: - Code obliges banks to notify FSC before outsourcing any material management/business function regardless of intra-group or external; outsourcing must be evidenced by written agreement; bank retains ultimate responsibility and FSC access to records must be preserved. - During licensing banks must provide business resumption/contingency plan and must maintain and test arrangements; Board must confirm annually plans are up to date; notification to FSC required for serious/prolonged system breakdowns. - Reporting and measurement: - Since March 2008 banks report quantitative estimates of operational risk as part of Basel II implementation. - Assessment: Compliant. - Comment: FSC may wish to elaborate guidance on legal risk beyond brief ICAAP references. ### Principle 16. Interest rate risk in the banking book - Requirements: - Code/Rule Book requires prudent interest rate risk policy appropriate to nature and scale with specific limits; Board must review/approve annually and confirm to FSC; banks must have systems to measure/monitor interest rate risk. - Guidance Note Interest Rate Risk Management (March 2006) states banks required to have policy, appropriate systems, and adherence; board approval required; periodic (minimum six monthly) stress tests expected to estimate loss from an interest rate shift of either 300 or 500 basis points. - Reporting and supervisory treatment: - FSC requires IOM-incorporated banks to report interest rate risk quarterly using standard residual maturity band approach for monitoring purposes. - Prior to 2008: potential losses from interest rate movements included in risk-weighted assets for RAR; with Basel II implementation FSC intends to determine any capital charge for interest rate risk under Pillar II. - Branches subject to same requirements but not required to submit interest rate risk reports. - Assessment: Compliant. ### Principle 17. Internal control and audit - Requirements and supervisory practice: - Sections 42 and 87 require comprehensive risk management policies; FSC guidance sets out board and senior management responsibilities for corporate governance and control. - FSC has power to require changes in Board composition. - Banks required to have adequate internal audit function and an audit committee (or board acting as such). - FSC assesses internal audit adequacy during focus visits. - Banks must have compliance officers responsible for banking and AML regulation adherence. - Assessment: Compliant. ### Principle 18. Abuse of financial services (AML/CFT) - Institutional framework: - Department of Home Affairs responsible for AML/CFT legislation and operations of Financial Crime Unit (FCU) and Financial Intelligence Unit; development of legislation coordinated across government departments and regulatory authorities including FSC. - FSC participated in drafting Criminal Justice (Money Laundering) Code 2007 (the AML Code) during 2007–2008. - Regulatory framework under FSA 2008: - FSC’s regulatory objectives include combating financial crime. - Rule Book Part 9 contains detailed AML/CFT regulations applying to banks and other licensed persons; Part 9 came into effect on August 1, 2008. - Section 43 FSA 2008 empowers FSC to take action against a bank in contravention of the AML Code; FSC has no power to impose financial penalties or obtain an injunction in such cases. - AML Code requirements for banks: - Customer due diligence: identify applicant for business and verify identity using reliable independent source documents/data/information; identify beneficial owner; obtain information on purpose and intended nature of business relationship; conduct ongoing due diligence. - Applicability: requirements cover formation of new business relationships, existing relationships, one-off transactions, and introduced business relationships. - Other requirements: staff screening, staff training, record keeping. - Money Laundering Reporting Officer requirements: maintain registers of AML/CFT suspicions and enquiries from law enforcement; have procedures for internal recognition and reporting of suspicious transactions and reporting to the FCU. - Assessment: (assessment language not explicitly provided for CP18 in supplied excerpt). *Italic attribution: Content derived from _cr09274 - 3. A notification under paragraph (1) must be given —* ### Part 9 of the Rule Book imposes additional AML/CFT obligations on banks. Banks have to ### _cr09274 - Part 9 of the Rule Book imposes additional AML/CFT obligations on banks. Banks have to ### AML/CFT obligations under Part 9 of the Rule Book - Banks must adopt a risk-based approach. - Banks are required to conduct a risk assessment of their business, including both new and existing customers. - Banks must conduct customer due diligence (CDD) procedures in accordance with the risk assessment. - Enhanced CDD is required when the assessment has identified higher risks. - Banks are obliged to verify the identity of beneficial owners, beneficiaries and underlying principals, including legal person or a legal arrangement. - The maintenance of anonymous accounts is prohibited. - The Rule Book introduces requirements regarding: - source of funds, - politically exposed persons, - correspondent banking services, - foreign branches and subsidiaries, - non-face-to-face relationships and technological developments, - ongoing monitoring of relationships. - All risk assessments conducted by banks have to be recorded and documented, and integrated into banks’ policies, procedures and controls in respect of AML/CFT. - The FSC has produced a handbook to guide banks in complying with the Rule Book and the AML Code; the handbook provides guidance on adopting a risk based approach to AML/CFT measures and the factors that banks should consider. - The FSC supervises banks’ AML/CFT policies and procedures through a combination of off-site reviews and on-site visits; during the last three years, the FSC has conducted numerous on-site visits specifically to test KYC procedures and compliance with the anti-money laundering regulations. - The FSC has power to report suspicious transactions to the FCU, to cooperate with overseas supervisors and to share information with them where this is required for supervisory purposes. - Assessment: Compliant - Comments: An assessment of compliance with the FATF 40+ 9 Recommendations was conducted in parallel with this BCPs assessment. ### Principle 19 — Supervisory approach (safety, soundness, stability) - Off-site supervision is focused on the submission by the banks of detailed quarterly Banking returns; these are checked for compliance with prudential supervisory requirements. - The FSC has policies and processes to develop and maintain a thorough understanding of the risk profile of individual banks and banking groups and confirms banks’ compliance with prudential regulations and other legal requirements. - Banks must notify the supervisor of any substantive changes in activities, structure and overall condition, or as soon as they become aware of any material adverse developments, including breach of legal or prudential requirements. - The FSC monitors and assesses trends, developments, and risks for the banking system as a whole. - Assessment: Compliant - Comments: - The authorities should pursue the initiative to develop cross-bank comparisons and system-wide stability analyses, for example, through more regular stress testing, evaluation of systemic developments, and review of the distribution of financial soundness indicators. - It would be useful to publish more of this analysis. ### Principle 20 — Supervisory techniques (on-site and off-site supervision) - The FSC is empowered to conduct inspections of banks (Schedule 2 of the FSA) and may take possession of all books, accounts, and documents of the banks; the powers do not limit the scope of inspection. - The FSC may appoint external officers to conduct inspections and may appoint “Reporting Accountants” (FSA Section 23) to report on any aspect of a bank’s business, though in practice this happens very rarely. - In practice, FSC staff conduct on-site visits that usually take between one and three days rather than full inspections. - The supervision division annual plan is set up for a period of three years and confirmed by the FSC Board. - Institutions regarded as “higher risk and high impact” are visited at least once a year. - The FSC conducts on-site visits regarding special subject areas. - Banks are required to have an annual audit by external auditors; auditors have obligations to report to the FSC if they become aware of facts of material significance in relation to the FSC’s functions under the Banking Code. - External auditors must submit a letter to the FSC confirming that to the best of their knowledge and belief, the banking institution has complied with certain requirements laid down in the code. - A former regulation required auditors to provide an opinion relating to the existence and application of a sound process of control; this regulation has now been cancelled. - Auditors must verify the consistency of a bank’s supervisory returns with the underlying accounting records at least once per year and provide an opinion as to the accuracy of the information reported. - The FSC may request a bank to provide any information reasonably required for the performance of its functions. - Assessment: Compliant - Comments: The FSC relies to a limited degree on the auditors’ statements. However, the FSC has no process for monitoring the quality of the work performed by external auditors. ### Principle 21 — Supervisory reporting (collection, review, analysis, verification) - Sections 20 and 74 of the code require banks to submit a quarterly banking return in a form prescribed by the FSC. - Where a bank’s year-end does not fall on a calendar quarter, it must provide a further return taking into account the period to the financial year-end. - The Banking returns (for incorporated banks) consist of nine distinct sections: 1. Assets, Liabilities, and Off-Balance Sheet Items 2. Credit Risk 3. Operational Risk 4. Capital, Current Period’s Profit and Loss, Provisions and Nonperforming Assets 5. Large Exposures 6. Memorandum Items 7. Liquidity Risk 8. Interest Rate Risk 9. Market Risk and Settlement Risk - For branches only sections (1), (4), (5), (6) and (7) apply. - The information provided is mainly prudential but also partially statistical. - The banking returns have to be submitted to the FSC not later than 21 business days after the quarter end date. - From 2009, the final date for providing the banking returns will be one month after the end of a quarter. - The two “four-eyes” are responsible but an “authorized” person (who is usually one of the “four-eyes”) is authorized to send in the banking return electronically. *Source: _cr09274 - Part 9 of the Rule Book imposes additional AML/CFT obligations on banks. Banks have to* ### Section 2 of Schedule of the FSA empowers the FSC to seek on an ad hoc basis any ### Section 2 of Schedule of the FSA empowers the FSC to seek on an ad hoc basis any ### Reporting process and supervisory analytics - The FSC monitors the reporting process to ensure returns are received on a timely basis and to highlight anomalies and concerns that may have implications for effective management and operation of the bank. - Queries are sent to banks and followed up where issues warrant further assessment. - An internal procedures document has been developed to ensure consistency of assessment over regulatory returns. - The Guidance for Review of New Banking returns: - refers to several forms, - describes different objects, - indicates the benchmarks and the follow up action if required. - Similar indications are included in the Guidance for branches’ Returns. - An internal database provides validation checks on specific reporting items and is available to the banking team and other selected staff. - An enhanced Financial Reporting System (FRS): - has been developed, - allows institution-specific analysis with more focus on broader trends and systematic issues, - is used as a delivery channel. ### IT infrastructure and data security - The FSC’s IT infrastructure is integrated within that of the IOM government. - Data provided by banks and the FSC’s internal documents are “ring-fenced” from possible access by other Government Departments. - Security has been substantially enhanced since 2003, and Government has secured accreditation to reinforce this. - Relevant Servers are secured within the already secure environment in which Government’s Information Systems Division operates. ### Principle 22 — Accounting and disclosure (Assessment: Compliant) - Legal and reporting requirements: - Companies Acts place a legal obligation on banks’ directors to ensure accounting records in the IOM are capable of accurately disclosing the financial position at any time. - Banks incorporated in the IOM are required to draw up annual audited financial statements. - These must be prepared in accordance with International Financial Reporting Standards (IFRS) (as promulgated by the International Accounting Standards Board) or United Kingdom Accounting Standards (as promulgated by the Accounting Standards Board). - Statements must include additional detailed disclosures specified by the FSC (relating to the maturity breakdown of assets and liabilities and assets /liabilities vis-à-vis related parties). - Auditor requirements and practice: - The FSC has no specific legal power to rescind the appointment of an auditor; it could, however, issue a direction to the bank to put a motion removing the auditor to a general meeting of shareholders. Failure to pass such a motion could entitle the FSC to revoke the bank’s license. - Annual financial statements must be audited by a member of one of the professional accountancy bodies in the UK or Ireland. - The responsible audit partner or audit director must have not less than five years experience in bank auditing. - The auditor must carry indemnity insurance, acceptable to the FSC, of at least GBP 20 million. - In practice, all banks are audited by “Big Four” accounting firms. - Audits are carried out in accordance with International Standards on Auditing (UK and Ireland). - Auditor appointment/removal notifications: - Bank must give the FSC written notification of shareholders’ intention to remove an auditor together with any auditor representations. - If an auditor wishes to resign, the bank must notify the FSC in advance and provide reasons. - Filing and public inspection: - Audited accounts must be submitted to the FSC within four months of the end of the accounting period and must be accompanied by the auditor's management letter or confirmation that none is issued. - Within four months of end-year, banks must make their full annual audited financial statements available for public inspection in the IOM by displaying a notice in all their offices and make copies available to be taken away. - Banks may also make available abridged financial statements provided these contain minimum financial information specified by the FSC. - Branch and foreign parent reporting: - Branches of banks incorporated outside the IOM must submit a copy of the audited annual accounts of the bank to which they belong and a detailed profit and loss account for operations in or from the IOM. - These banks must provide copies of the audited annual financial statements of their immediate and ultimate parent companies as soon as these are available and make them available to the public in the same manner as IOM incorporated banks. - FSC disclosure practice: - The FSC has begun to publish aggregate information about the banking system in its annual report. - The 2007–08 report breaks down banks and their countries of origin, provides a consolidated balance sheet of the banking system, a geographic breakdown of sources of deposits and information about current levels of risk asset ratios. - The FSC publishes figures for total deposits at the end of each calendar quarter. - Practical outcome: In practice, banks comply punctiliously with all relevant IFRS; published financial statements reflect banks’ true financial position and provide qualitative and quantitative information on financial condition and risk management strategies. ### Principle 23 — Corrective and remedial powers of supervisors (Assessment: Compliant) - Early intervention and enforcement approach: - The FSC raises supervisory concerns with bank management as soon as they arise, typically during off-site review of supervisory returns and policy documents and, less frequently, during supervisory visits. - Concerns are initially discussed with the bank and, if appropriate, followed up in a letter. Most concerns are resolved in this way. - Legal powers and evolution: - The FSC’s powers under the Banking Act 1998 were replaced on August 1, 2008 with generally similar powers in the FSA 2008. - FSA 2008 confers a new power to appoint a “business manager” to a bank. - Tools to compel remedial action: - The FSC can issue directions or impose license conditions; conditions are public, directions are confidential. - The FSC has full discretion to enforce compliance with regulatory requirements, including the minimum capital ratio. - Contravention of license conditions or directions is an offence subject to civil (monetary) penalties. - The FSC can obtain an injunction from the high court where contraventions are occurring or likely. - The FSC has absolute legal power to suspend or revoke a banking license. - Resolution powers: - The FSC can petition the high court for the appointment of a receiver to take control of a bank and dispose of its property on specified statutory grounds: because it is in the public interest; to protect depositors’ interests; to wind up a bank; or to sell its business in an orderly manner. - FSA 2008 empowered the FSC to make an order prescribing circumstances in which it may apply to the High Court for appointment of a person to manage the business of a bank including the disposal of its property; the FSC has consulted upon the draft order and it is in the process of being made. - Powers over individuals and ring-fencing: - The FSC can issue directions requiring a director, key person, or controller deemed not fit and proper to leave their position; failure to comply is a legal contravention punishable by penalties. - The FSC has adequate powers to ring fence a bank from the actions of its parent and other related companies. - The FSC has legal power to issue public statements in respect of banks’ regulatory contraventions and a legal duty to make a public statement when it issues a direction that an individual is not fit and proper. ### Principle 24 — Consolidated supervision (Assessment: Largely Compliant) - Scope and powers: - The FSC is familiar with the structure of banking groups and understands activities of all material parts, domestic and cross-border. - The FSC has the power to review overall activities of banks, both domestic and cross-border, and to supervise the foreign activities of banks incorporated within its jurisdiction. - Legislation on consolidation is established for accounting purposes. - Gaps and policy stance: - The FSC has not yet established prudential standards on a consolidated basis for capital adequacy, large exposures, exposures to related parties and lending limits. - Licensing policy permits only branches or subsidiaries of large banking groups that are subject to effective consolidated supervision in their home jurisdiction. - Consolidated returns for IOM-incorporated banks will normally be required in circumstances such as: where the bank has provided substantial finance for subsidiaries, carries on a significant part of its business through a subsidiary, or where a subsidiary is material. Requirements should be discussed and agreed with the FSC in advance. - Comment: Largely Compliant — for the time being, banking subsidiaries and other relevant subsidiaries do not exist or are not significant; nevertheless, the FSC should consider establishing an adequate regulatory and supervisory regime. ### Principle 25 — Home-host relationships (Assessment: Compliant) - Licensing and home supervisor engagement: - When licensing a foreign subsidiary or branch, the FSC requires prior approval by the home supervisor in practice, though not stated in law. - Under the General Licensing Policy, the FSC will not grant a license to a branch unless satisfied that the regulator of the home country is prepared to exercise consolidated supervision over the IOM banking presence. - Cooperation and information exchange: - The FSC cooperates closely with home country supervisors covering exchange of information, supervisory reports, and supervisory visits. Visits by home supervisors to local subsidiaries and branches are permitted and have occurred, often with FSC staff joining on-site visits. - Home supervisors are advised of regulatory action taken by the FSC in respect of local subsidiaries or branches and receive copies of on-site visit reports. - The FSC regularly requests information from home supervisors on parent/head office compliance and any special conditions imposed. - As home supervisor, the FSC provides information to host supervisors on issues, recommendations, risk assessment, on-site supervision and consolidated supervision. - Mutual assistance and confidentiality: - Under 34 of the FSA 2008, the FSC is authorized to enter into mutual assistance agreements with other regulatory authorities in relation to a regulated activity. - The FSC has signed MOUs with several foreign supervisory authorities covering cooperation, inspection visits, requests for assistance of information and confidentiality; such agreements are not a condition for cooperation. - Disclosure of information relating to the affairs of a customer is restricted by Schedule 5 of the FSA 2008; Paragraph 6 forbids disclosure unless the customer consents or the FSC is satisfied disclosure is appropriate having regard to its functions and regulatory objectives, the confidential nature of the information and the purpose for which it is required. - Practical notes: - Since almost all licensed banking entities in the IOM are foreign owned, cooperation with home country supervisory authorities is essential. - Foreign branches in the IOM are excluded from several supervisory regulations: they are not subject to solvency supervision, to any large credit regime and to annual external audits (however auditors must report annually on a set of prudential returns submitted to the Commission). - Subsidiaries and branches may utilize group functions rather than establish their own internal control and internal audit systems, provided the FSC is satisfied that the parent/head office’s systems are adequate to be used by them. *Source: Section 2 of Schedule of the FSA empowers the FSC to seek on an ad hoc basis any (IMF staff report excerpt).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09274.pdf_