Innovation and diversification pivotal to Isle of Man’s future

Anyone visiting the Isle of Man for the first time gets the feeling they have stepped back in time. The capital, Douglas, gives the impression of a slightly run down Victorian seaside resort, complete with horse-drawn trams and terraced bed and breakfast accommodation. The island’s only railway is narrow gauge and steam operated.

But scratch beneath the surface of the self-governing Crown dependency and it quickly becomes clear that this is far from a place that is living in a bygone era. Rather the island’s government is determined to continually reinvent itself to ensure its future is bright. 

“You can’t hold onto the sacred cows of the past,” says John Spellman, director of financial services at the Isle of Man’s Department of Economic Development (DED). “It is about innovating the economy. And seeing the future.”

The island has been good at re-inventing itself. What was once a tourist destination became known as a banking centre, and later for financial services. Although this remains the largest part of the island’s economy, the sector is expected to become less prominent as the island seeks to very deliberately diversify its economy.

Central to this is the rise of e-commerce, fintech and entrepreneurial start up businesses. The e-gaming sector now accounts for more than 20 per cent of the island’s economy, led by Pokerstars, the largest online poker cardroom in the world, which relocated here in 2005. 

“The Isle of Man has had a remarkable economic history because it has embraced new technologies,” said entrepreneur Jim Mellon, who is based on the island, speaking at the innaugral Islexpo conference in May, a DED-run event which sought to inspire and develop local enterprise and encourage businesses to relocate to the island. He called for the Isle of Man to embrace financial disruption and become a leader in back office, automated compliance functions, styling itself as a testbed for the new technology he believes will transform the global economy.

The way the island has embraced e-gaming is typical of the way it seeks to do business. Crypto-currencies are another example. While many countries have sought to ban the use of bitcoin, or massively regulate it, the Isle of Man was quick to open its doors. 

“The nimbleness of the Isle of Man has been a massive benefit both for ourselves and for the e-gaming sector,” says Danny Scott, co-founder of CoinCorner, a bitcoin exchange based in Douglas. “Back in the UK, if I wanted to talk to the legislators or those making the regulations I wouldn’t have a chance of getting a meeting with them. Let alone being able to actually influence how things are created.”

The presence of e-gaming also means a good IT infrastructure is essential, as any operators basing themselves on the island must host their data centres there, something other industries are very pleased to benefit from.

More traditional financial services still have a role to play though. London-headquartered wealth manager WH Ireland opened an office on the Isle of Man in 2013 as the first step in its drive to building an international presence. Meanwhile multi-family office Boston is also expanding, sourcing new clients from Asia and the Middle East. 

The island certainly possesses an attractive tax set-up, with individuals paying a top rate of 20 per cent with a maximum £120,000 bill, and a 10 per cent corporate tax rate for banks and the biggest companies, with others paying zero. But despite the island’s best efforts to reposition the island as a fully transparent financial centre, it is finding it hard to shake off its old image of an offshore tax haven. 

“It is very frustrating to go to a conference in the UK or Europe and people see you are from the Isle of Man and say ‘you are from a tax haven’,” says Sinead O’Connor, head of regulatory and compliance Services at law firm DQ Advocates. “It is so boring. It is not what our business model is based on. That is a very 1970s view.”

The furore over the Panama Papers inevitably led to the Isle of Man being dragged into the debate over offshore centres. But once the dust settles the scandal could be good for the island, believes the DED’s Mr Spellman. 

“In the first instance we are all painted with the same brush, but when the reviews come out it will become clear that we are regulated, we are transparent and we sign up to international initiatives.”