By Jackie Fergusson, Head of Compliance and MLRO at Acclaim

Jackie Fergusson reflects on four decades in the Isle of Man’s trust and corporate services sector, sharing her personal experiences of an industry transformed by regulation, technology and changing international expectations.

 

This year marks my 40th anniversary working in the trust and corporate services sector in the Isle of Man. Forty years is long enough to have seen several versions of the industry and, occasionally, several versions of the same rule.

When I began my career in the mid-1980s, the Isle of Man was still developing its identity as an international financial centre. There was ambition, opportunity and a strong entrepreneurial spirit.

The Financial Supervision Commission had only recently come into being, in 1983. The regulatory landscape bore little resemblance to the sophisticated framework we know today.

Business was more personal. Relationships mattered enormously, correspondence travelled rather more slowly, and the expression “risk-based supervision” was certainly not part of our everyday vocabulary.

The early days: telexes, word processors and a different world

With hindsight, the past appears in a rosy glow, like the sun setting at a spice market. All the colours, characters and opportunities were enormously exciting to a naïve 20-year-old.

But even I could spot a business suit that didn’t come from Marks & Spencer!

Our most technologically advanced item was a telex. Mobile phones resembled shoe boxes.

Even then, Iran was a restricted country. When we received a telex from somewhere in Iran, my boss threw it out of the window. A very lengthy monologue followed, complete with plenty of expletives – and risk was born!

Little did we know how much technology would change our lives and businesses.

I still have a fondness for a 16-column analysis pad. My colleagues will confirm there is one by my desk.

Around 1988, we got our first office computer. Well, a word processor.

I remember trooping down to a little office on Athol Street to see their machine. It was a true beast, the size of a fridge, sitting on a desk.

We had to learn how to write code just to indent a letter. And yes, we set out our letters exactly as we had learnt as children, with the first indent aligned with the comma in the salutation.

The less I say about shorthand, the better!

What I would say is this: the Island buzzed with an excitement you could almost cut with a knife. It was glorious.

From administration to a regulated profession

Perhaps the greatest change I have witnessed is the transformation of trust and company administration into a fully regulated profession.

Statutory regulation reached corporate service providers in 2000 and trust service providers in 2005.

The Fiduciary Services Act 2005 extended licensing, regulation and supervision to trust services. It brought corporate and trust providers together within an increasingly formal fiduciary regime.

For those of us who had worked through the preceding decades, this meant considerably more than a change in legislation.

The industry began to formalise its expectations around competence, governance, record keeping, client acceptance and oversight.

The Financial Services Act 2008 subsequently provided the principal framework that governs TCSP activities today.

Over time, the familiar instruction to “know your client” evolved into something much broader.

Know the client. Understand the source of their wealth and funds. Identify the beneficial owner. Understand why the structure exists and assess its risk.

Document your reasoning. Most importantly, keep asking whether what you knew yesterday is still true today.

The filing cabinet became the compliance manual. The compliance manual became a compliance department.

Then the compliance department acquired systems, dashboards, risk assessments and an ever-growing vocabulary of acronyms.

Regulation grows up

Regulatory supervision developed alongside the industry.

In the early years, regulators focused primarily on licensing and basic compliance. Their approach gradually expanded to include on-site inspections, off-site monitoring, thematic reviews, risk assessments and formal enforcement.

An IMF assessment in 2003 already described the Island as having a comprehensive regulatory framework. It also noted the regulators’ proactive approach.

However, the assessment identified areas where the Island could strengthen its supervision and anti-money laundering and countering the financing of terrorism (AML/CFT) arrangements.

Another significant milestone arrived in 2015.

The Financial Supervision Commission and Insurance and Pensions Authority combined to create the Isle of Man Financial Services Authority.

Today, the FSA takes an impact- and risk-based approach to supervision. It uses inspections, enhanced supervision and enforcement to oversee regulated businesses.

Recent FSA reporting shows the extent of this activity. Its inspections now include conventional on-site work, desk-based reviews, AML/CFT thematic exercises and beneficial ownership compliance.

That is quite a journey from the industry I joined.

Nobody working in financial services actively celebrates another regulatory return. Nevertheless, strong supervision has helped establish the Isle of Man’s international credibility.

When the outside world came knocking

Regulation does not develop in a vacuum.

Some of its most significant advances have followed failures, both on the Island and elsewhere. These events exposed weaknesses and drew public attention to practices that had previously attracted relatively little scrutiny.

The Ken Dodd trial and changing perceptions

One such moment came with the 1989 prosecution of comedian Ken Dodd for tax evasion.

Dodd was ultimately acquitted. During the highly publicised trial, however, the prosecution alleged that he held substantial undisclosed assets. These allegedly included bank accounts in the Isle of Man and Jersey.

The prosecution also alleged that he made regular trips to deposit cash. Contemporary accounts subsequently described these as “cash and carry” flights.

For the Isle of Man, the case mattered beyond the verdict.

It gave a much wider audience a glimpse of how someone could use an offshore jurisdiction to hold funds away from their home tax authority.

The trial also brought an important distinction into sharper public focus: legitimate tax planning, tax avoidance and outright tax evasion are not the same thing.

What the case meant for the Isle of Man

For those of us working on the Island, it offered an early warning.

We might have regarded certain banking or fiduciary activities as routine. Yet those same activities could look very different in a UK courtroom or on the front page of a national newspaper.

The Island’s reputation would increasingly depend on more than compliance with its own laws. People would also examine the purposes for which clients used its financial services.

The case foreshadowed a theme that would dominate much of the following 35 years: tax transparency and international cooperation.

Over time, the industry would face greater demands around tax information exchange, beneficial ownership, automatic reporting and cooperation with overseas authorities.

In hindsight, the Dodd case was perhaps one of those moments when many people realised that the offshore world was no longer quite so offshore.

What happened in a bank account in Douglas could easily become tomorrow’s headline in Liverpool or London.

I remember that day clearly.

It felt as though everyone was holding their breath while we waited for the outcome. The news came through on Manx Radio at lunchtime, just as I was getting my boss’s lunch and St Moritz cigarettes.

The relief was palpable, but poignant. Our rose-coloured spectacles had firmly come off.

BCCI and the risks of international banking

Only a couple of years later came the collapse of the Bank of Credit and Commerce International (BCCI) in 1991.

BCCI was an international bank rather than an Isle of Man institution, but it had a branch on the Island.

Coordinated international action closed the bank on 5 July 1991. The Isle of Man courts subsequently made a winding-up order covering its Island affairs.

The collapse activated the Island’s Depositors’ Compensation Scheme.

It demonstrated what could happen when the failure of an internationally structured banking group reached local shores.

BCCI also exposed a problem that regulators around the world would confront for years.

Complex groups operated across several jurisdictions, creating potential gaps between national supervisory regimes.

For a small international financial centre, the lesson was clear: geographical separation did not mean financial insulation.

International standards reshape the Island

One defining feature of the past 40 years has been the growing influence of events beyond our shores.

The establishment of the Financial Action Task Force in 1989 marked the beginning of an increasingly coordinated international response to money laundering.

Over the following decades, international standards became more demanding. They expanded to cover terrorist financing, proliferation financing, beneficial ownership, tax transparency and international cooperation.

Small international financial centres could no longer view regulation primarily through a domestic lens.

What happened in Washington, Brussels, Paris, Strasbourg or London could quickly become relevant to businesses in Douglas.

International assessment also became a fact of life.

The Isle of Man has participated in MONEYVAL’s evaluation processes since 2012.

Following its 2016 assessment, the Island entered enhanced follow-up. This prompted a substantial programme of legislative and operational improvements.

Subsequent MONEYVAL reports recognised progress and re-rated several of the Island’s FATF recommendations.

Having legislation and procedures on the shelf was no longer sufficient.

International assessors increasingly wanted evidence that the systems worked effectively in practice.

For practitioners, that distinction was fundamental.

A beautifully drafted policy is of limited value if nobody follows it.

Crises have consequences

Global events have repeatedly shown how quickly circumstances elsewhere can affect an international financial centre.

The 2008 banking crisis

The global financial crisis of 2008 was perhaps the starkest example.

The difficulties surrounding Kaupthing Singer & Friedlander and KSF Isle of Man highlighted the interconnected nature of modern financial services.

They also placed depositor protection, regulation and jurisdictional risk firmly in the public spotlight.

KSF Isle of Man entered provisional liquidation in October 2008. The repercussions reached well beyond the banking sector.

The Island’s financial services community is co-dependent. A crisis in one institution or sector can quickly become a conversation about an entire jurisdiction.

Of all the crises that have affected the world’s economies, the 2008 banking crisis traumatised me the most.

The gloomy news seemed relentless. The financial system appeared to be in free fall, and we wondered how the Island would survive.

Colleagues lost their jobs.

I hope we never go through that again.

What financial crises taught us

The aftermath reinforced something I have observed repeatedly over the years.

International financial centres can become convenient targets when political and public opinion seek simple explanations for complex failures.

There have undoubtedly been occasions when criticism was justified.

However, we must distinguish between failures within international financial markets and failures caused by the jurisdictions through which business happens to pass.

The age of transparency and the headline

The past decade brought another profound change.

Information that might once have remained in a filing cabinet could suddenly become international news overnight.

The Panama Papers and, particularly for the Isle of Man, the Paradise Papers changed the public conversation around offshore financial centres.

In 2017, allegations arising from the Paradise Papers drew international attention to the Island’s VAT treatment of aircraft and yachts.

The Isle of Man Government invited HM Treasury to undertake an independent review of its procedures.

Whatever one’s views on individual media reports, these episodes permanently changed the environment.

Technical compliance was no longer the only consideration.

Practitioners increasingly had to think about reputational risk.

Not merely: “Can we do this?”

But also: “Should we do this?” and “Can we explain it?”

And perhaps most usefully: “How would this look on the front page of a newspaper?”

That last question has become an unexpectedly effective compliance tool.

Beneficial ownership and tax transparency

Alongside increased public scrutiny came major developments in beneficial ownership transparency.

In 2016, the Isle of Man entered arrangements with the UK to share beneficial ownership information rapidly.

The Beneficial Ownership Act 2017 followed, along with further measures to improve the accuracy and accessibility of ownership information.

International tax initiatives produced similar changes.

The EU screened jurisdictions against standards covering tax transparency, fair taxation and anti-BEPS measures.

This contributed to the introduction of economic substance requirements. The Island published its first guidance in 2018.

For TCSPs, these developments fundamentally changed conversations with clients.

Today, a structure must withstand scrutiny from more than the client and their adviser.

Regulators, tax authorities, banks, overseas authorities and, ultimately, the public may all examine it.

More regulation, but also a stronger profession

After 40 years, it would be easy to write only about the increase in regulation.

There has certainly been plenty of it.

But that would miss an equally important part of the story.

The TCSP industry itself has matured enormously.

Professional qualifications, specialist compliance functions, independent directors, sophisticated risk-management systems and continuing professional development are now commonplace.

The sector has also developed the quality and complexity of its work.

Regulation has undoubtedly increased the cost of doing business. There will always be legitimate debate about proportionality.

Smaller firms, in particular, can feel the weight of requirements designed to meet global standards.

Nevertheless, a well-regulated environment is no longer simply something that international financial centres must accept.

It forms part of what they offer.

The modern Isle of Man cannot compete by asking the fewest questions.

Instead, its professionals must understand complex international clients, exercise judgement and maintain high standards.

They must also be prepared to ask difficult questions when necessary.

From telex to AI

Cast your mind back to those early telexes and word processors.

None of us understood quite how quickly technology would transform our working lives or the industry itself.

I left college able to produce a Christmas card featuring a tree made entirely from ‘X’s.

During my 40 years, I have:

• Learnt how to use DOS prompts.

• Used the PCSec company secretarial package.

• Moved on to Office-based programmes.

• Learnt to use my mouse with my left hand because my desk had a left-hand return.

• Discovered that keyboards don’t really appreciate a Diet Coke break. The girls in the office, however, rather enjoyed the resulting pause while we watched the new M&S store being built.

• Seen storage evolve from tapes to floppy disks, memory sticks and now the Cloud.

• Never quite got the hang of SQL language.

• Watched computers shrink from approximately the size of an aircraft carrier to something small enough to wear on our wrists.

And that brings us to AI.

Who knows where it will take us next?

What forty years teaches you

Perhaps the greatest lesson from four decades in this industry is that change is the only reliable constant.

We have moved from paper files to digital records, and from locally shaped rules to global standards.

Relatively light supervision has given way to detailed, risk-based oversight.

We have also moved beyond an era when many treated confidentiality as an end in itself.

Today, legitimate confidentiality must coexist with transparency and international cooperation.

The terminology has changed too.

Forty years ago, I certainly wasn’t discussing PEPs, proliferation financing, beneficial ownership databases or economic substance over my morning cup of tea.

There are days when I suspect the acronym industry has expanded almost as successfully as financial services itself.

Yet the fundamentals of good fiduciary business have changed rather less.

Know the people you are dealing with and understand what you are being asked to do. Proper records matter, as does independent judgement. Above all, protect the interests entrusted to you and never underestimate the value of reputation.

Looking back and looking ahead

The Isle of Man I began working in 40 years ago was an emerging international financial centre finding its place in the world.

Today, it is a mature and extensively regulated jurisdiction. It operates within a complex global network of standards and expectations.

There have been difficult periods, uncomfortable headlines and more regulatory consultations than I would care to count.

But there has also been extraordinary progress.

Forty years ago, the question may largely have been: “Can we do this?”

Then came: “Who are we doing this for?”

Then: “Where did the money come from, and who really benefits?”

Today, we also ask: “Why are they doing it? Should we be involved? And would we be comfortable defending the decision publicly?”

I have spent 40 years watching that evolution from inside the TCSP sector.

I feel fortunate to have experienced both ends of the journey.

I witnessed the pioneering years, when much of the industry was still taking shape. I have also seen the modern environment emerge.

Our challenge today is to ensure that what we have built remains credible, competitive and fit for the future.

And if the next 40 years contain as much change as the last 40, I am quite pleased to leave that anniversary article to somebody else.