Members of the island’s financial services sector have condemned what they see as a ‘two-tier’ regulation system on the Isle of Man.

They say the Financial Services Authority (FSA) - the regulatory body for financial services and businesses - is clamping down on relatively minor breaches of compliance within the industry, with critics accusing them of being ‘judge, jury and executioner’.

But at the same time, ‘relaxed’ regulation by the Gambling Supervision Commission (GSC) has allowed gaming companies with links to organised crime syndicates to set up here, a report by the United Nations Office on Drugs and Crime has alleged.

One registered corporate and fiduciary services provider said recent scandals had brought into sharp focus the apparent disparity between what appeared to be over-regulation of one sector by the FSA and the seemingly relaxed approach by the GSC in attracting overseas operators to the island.

He said: ‘It is no wonder that the charge of two-tier regulation is being mooted throughout the financial community. There is a real perception that the FSA holds the TCSP (Trust and Corporate Service Providers) sector to a higher account than the GSC and its licensees.

‘Perhaps the regulators' focus should now be more on the actual activities of the structures trading from our island than the prescribed forms and assessments imposed on the sectors to comply with regulatory obligations.'

Another member of the financial services industry told Media Isle of Man: ‘The FSA are judge, jury and executioner. They make the rules, they set the guidance, they hold you to the guidance and if you break it, they fine you.

‘Their sole mission is to find reasons to breach you and fine you. The FSA should be collaborative, but they are antagonistic, authoritarian and belligerent.

‘You used to be able to go up to the FSA and have a rational discussion with them. Those days are gone. If you ‘fess up to something, they will fine you.’

He said people are ‘scared’ and ‘feared repercussions’ if they spoke out. All three members of the financial services industry we spoke to do did so only on the basis that they would remain anonymous.

The FSA is now effectively funded by the industry, he said: ‘They issue the fines, they get the money.’ And he claimed: ‘They have targets to find something. There is a clear conflict of interest.’

A third member of the sector said: ‘They have gone too far - they are basically destroying the industry by issuing such huge fines. What’s going on is they are bullying the general public and they think they are untouchable. A very similar thing is happening in the UK.

‘It’s not just fines, it’s public humiliation. People can make mistakes in their job, they don’t deserve to be publicly named and shamed for sometimes just basic AML (anti-money laundering). The impact of this is that people get disciplined, kicked out, they can’t find a new job.’

The FSA confirmed that it has issued 18 civil penalties for compliance breaches since 2016, when the island was last inspected by the Council of Europe’s anti-money laundering monitoring body MoneyVal including four last year and three this year so far. One was issued to the Isle of Man branch of HSBC Bank only this week.

And the pressure is only expected to increase further ahead of MoneyVal’s next visit in 2026. Jurisdictions that fail an inspection risk being placed on the Financial Action Task Force’s grey list.

The first fiduciary specialist we spoke to said he thought it was now too late for the Isle of Man to avoid being grey-listed given the reputational damage inflicted by the raids on a high-profile gaming company and the damning UN report.

The other two members of the sector we spoke to agreed. ‘They are doing anything they can to appease MoneyVal. I fear for the future of the island now. The financial services sector is under enough pressure as it is.

‘MoneyVal is going to blacklist or greylist us - it’s pinned on. There is nothing they can do but they are destroying the island on the basis of some false hope.’

In a statement, the FSA said it plays an important role in maintaining the island’s reputation as a well-regulated international finance centre.

It said it takes a risk-based approach to financial supervision and one which it insisted is ‘proportionate and pragmatic’.

‘Where our supervisory activities identify issues, we set out to work with the firm so that it returns to a compliant position,’ the FSA said. ‘Remediation is a key part of our toolkit.’

The FSA conducted a total of 725 inspections during 2023-24, comprising 18 on-site AML/CFT inspections, 115 desk-based AML/CFT inspections, and 592 beneficial ownership inspections. Five matters were subsequently referred to its enforcement division for possible investigation and three matters to its enhanced supervision team.

‘While the authority is not an enforcement-led regulator, enforcement action remains a necessary option where it is considered reasonable, appropriate and proportionate,’ it added.

It said the publication of public notices about the findings of investigations served’ as an important reminder that ‘all firms undertaking business in the regulated sector have an obligation to conduct their affairs in a manner that adequately mitigates the risks they face’.

Meanwhile, the gambling regulator insists it has not been complacent over the threat of transnational crime and said it disagrees with the UN report’s conclusion that the Isle of Man has inadequate controls.