Former Regulator Starts Manx Debate Over EIFs

The suitability of ‘experienced investor funds’ (EIFs) within offshore bonds based in the Isle of Man has been questioned by a former regulator in the territory.

John Bourbon, former head of supervision for the Financial Services Commission in the Isle of Man, said: ‘They have found a way, as a result of insurance wrappers, into a marketplace they were never designed for and into the hands of investors who, it would seem, haven’t had the risks properly explained to them. But that would be down to the independent financial advisers, who should have done a better job.

Bourbon, chief executive and chairman of the Compliance Institute, made his comments with reference to the Shepherds Select Funds (SSF) scandal. SSF, an EIF investing in US life settlements, went into liquidation two years ago after MBC, the sole broker supplying it with policies went into liquidation. Last month Peter Lombardi, MBC founding partner, pleaded guilty to securities fraud.

EIFs were introduced in 1999 and were designed to benefit from a minimum of red tape. They can be launched without prior pre-approval and avoid product regulation provided they use an authorized administrator in the Isle of Man.

Latest figures show EIFs are the fastest growing fund category in the Isle of Man. By 30 September, 135 of the 422 funds on the island were EIFs, with assets of $9.8 billion (£4.9 billion).

The Shepherds scandal has raised concerns within the UK dependency over whether restrictions should be made on offshore bonds accessing this type of fund.
Michael Weldon, head of supervision for the Financial Supervision Commission, said: ‘We have raised the matter with the Insurance and Pensions Authority (IPA), who regulate the life firms.’

Paul Nedas of Financial Services Alert said: ‘I have come to the conclusion that the Isle of Man authorities may have inadvertently been responsible for the mis-selling of experienced investor funds to inappropriate investors. There appears to be confusion regarding the definition of an experienced investor.’

Paul Halliday, compliance director of AXA Isle of Man, refused to comment. Other Isle of Man life offices, including Canada Life and Royal Skandia, did not respond to calls for comment.

Source: Citywire