Not every jurisdiction applies the same rigour to its licensing requirements and
‘fit and proper’ tests. It is worth a sponsor considering the different regimes when
deciding on where to establish the fund and what functionaries to appoint to service
it. The existence of a robust licensing regime may well give comfort to the sponsor –
and indeed to prospective investors in the fund.
An individual who is a prospective fund sponsor may well find that the ‘fit and
proper’ requirements are applied to him personally, for example, if he is to be
appointed to the board of the fund company. Sponsors also frequently establish com-
panies to act as dedicated fund managers or investment advisors, which will provide
services to the fund and act as a fee vehicle; again the ‘fit and proper’ test is likely to be
applied to these entities, and to their management, controllers and owners.
3.8 Ongoing supervision
Once a business has gained its license it will generally be subject to ongoing supervision –
licensing is not a ‘one off’ process. This varies from jurisdiction to jurisdiction – some
regulators taking a very ‘hands on’ approach, and carrying out supervisory visits on
their licenceholders regularly. Others rely on desk-based supervision (if indeed they do
anything at all), for example, by requiring periodic notifications and compliance
returns from their licenceholders, coupled with copies of reports from the licence-
holder’s auditor. A fund manager based in a jurisdiction such as the Isle of Man could
expect to find itself subject to the following supervisory techniques on the part of the
Island’s Financial Supervision Commission:
Off-site supervision, whereby the Commission will require written information
from the business and its auditors. This will include periodic financial returns, com-
pliance returns, statistical information and notifications of certain events.
Annual review meetings, in which the Commission’s staff will look to meet with the
business’s management to discuss any regulatory issues or concerns and ensure the
Commission’s understanding of the business plan is still current.
Ad hoc meetings at the request of either the Commission or the business, to discuss
any matters that have arisen during the year – for example, proposed restructuring
of the fund management group, any particular areas of concern from a compliance
perspective, or the development of new areas of activity.
Periodic on-site visits, where the Commission’s staff will spend time in the business’
premises reviewing its activity. The frequency of these visits will generally be based
on the Commission’s ‘risk-rating’ of the licenceholder – riskier businesses generally
receiving more frequent visits. Their point is to enable the regulator to assess
whether the licenceholder continues to meet the ‘fit and proper’ requirements, to
assess compliance with the regulations, and to assess whether there are any weak-
nesses in its internal controls or procedures.
The regulator will normally have a range of statutory powers to assist it in its task of
supervising the licenceholder. These vary from country to country but usually include:
powers to request information from a licenceholder (and, usually, also former
licenceholders – so as to facilitate investigations where a business has had its licence
The regulatory environment 69