Home Artificial Intelligence Isle of Man regulator to use AI tool for compliance-related interactions

Isle of Man regulator to use AI tool for compliance-related interactions

Isle of Man Financial Services Authority: public sector officials have been taking part in ‘REGI’-focused workshops and live tests with representatives from Regsearch and the private sector | Credit: Regsearch

The Isle of Man Financial Services Authority has announced a collaboration with a Luxembourg-based company to use artificial intelligence (AI) for compliance-related interactions with the companies it supervises.

The agreement will see the regulator integrating Regsearch’s ‘REGI’ chatbot into its website in what it believes will ‘enhance accessibility and user satisfaction and provide a new communication channel to reach stakeholders’.

The Isle of Man (IoM), home to about 84,000 people, is a self-governing British Crown Dependency located in the middle of the northern Irish Sea, almost equidistant from England, Northern Ireland and Scotland. The IoM FSA supervises more than 400 regulated companies.

The IoM FSA-Regsearch collaboration, which stems from a Finance Isle of Man ‘InsurTech Accelerator Programme’ in 2022, is aimed at saving regulated and registered businesses ‘time and resources through the automation of compliance and reporting’. Finance Isle of Man is an executive agency of the Department for Enterprise with a remit to champion and develop the Isle of Man’s financial and professional services industry.

IoM FSA head of supervisory practices and innovation strategy Ros Lynch said the partnership would “leverage AI capabilities for the benefit of the Isle of Man’s business community” and “underscores our commitment to embracing innovative technologies for our stakeholders to use and in turn assist in strengthening our regulatory standards.” 

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Workshops to develop user interface

Regsearch, which has 12 employees located in Luxembourg and also India, has been working with the regulator to develop the REGI user interface, which was designed through workshops involving corporates and other public sector entities. In October 2023 the company led a ‘live testing’ workshop involving participants from the IoM FSA, Gambling Supervision Commission and other Isle of Man government entities, as well as businesses.

REGI makes use of what the company describes as ‘advanced AI algorithms to streamline compliance processes and enhance decision-making for businesses’. It envisages its capabilities progressing to help human regulators validate compliance with regulations, including for example, performing ‘assessments of third-party AI models’.

Regsearch’s chief executive and founder Darren Douglas described the partnership as “exemplifying the power of collaboration between start-ups and regulatory bodies to drive meaningful change and progress”. The company is offering use of REGI to the IoM FSA free of charge and says it would do likewise to any other regulator. It charges an annual recurring licence fee to companies to use its ‘Software as a Service’ (SaaS) solution called ‘Regsearch GMT’ (where GMT stands for ‘Governance Management Technology’).

The InsurTech Acceleration Programme was followed by a ‘Fintech Innovation Challenge’, whose finale was held in June 2023. The latter produced three winners: SQR Group (Isle of Man), Crucial Compliance (Gibraltar), Cygnetise (UK).

Isle of Man authorities have followed up these initiatives with an ‘Innovation Challenge’ to encourage businesses to develop solutions in fintech, AI and also ‘CleanTech’. Applications, which are open to businesses wherever they are located in the world, close this week (28 February). This latest competition is set to climax in the summer.

RELATED READING Isle of Man government names 16 fintech contest finalists – a news article (21 March 2023) on the ‘Fintech Innovation Challenge’

IoM FSA seeks views on crypto oversight

Separately from the Regsearch collaboration and Innovation Challenge, the Isle of Man FSA is currently seeking views on its approach to the oversight of crypto-asset activities for anti-money laundering and countering the financing of terrorism (AML/CFT) purposes, potential approaches to the regulation of such activities and how the cost of such regulation should be funded.

‘The majority of firms conducting crypto-asset related activities in the Isle of Man are registered as designated businesses and are supervised for compliance with AML/CFT legislation,’ the authority said in an announcement accompanying a 22-page discussion paper (which has a 9 April deadline for responses). ‘While it is acknowledged that fintech innovation can stimulate economic growth and enhance consumer choice, the Island’s ‘National Risk Assessment’ identifies crypto-related business as posing significant money laundering and terrorist financing risks. Additionally, mainstream crypto-assets, such as Bitcoin, have seen volatility in value since their inception, and some Initial Coin Offerings [ICOs] and Non-Fungible Tokens [NFTs] have failed as a result of fraud or mismanagement.’

Information gathered by the Authority to date, including a request for input issued in 2022, ‘reflects general support for regulating certain crypto-asset business’, the FSA explained, adding that ‘this feedback also recognises that while regulation provides a greater degree of protection for firms and consumers, there would be a substantial cost to implementing a new framework, as well as more robust requirements for businesses.’

The IoM FSA is ‘inviting further consideration of its current approach, particularly in light of recent international developments,’ including the adoption of the 27-member European Union (EU)’s Markets in Crypto-Assets Regulation (MiCAR).

Options, not all of which are mutually exclusive, have been identified, including extending an existing ‘investment’ definition to include crypto-assets; introducing a new regulated activity for the operation of a crypto-asset service provider; introducing a new regulated activity for issuing and advising on crypto-assets and similar activities; and introducing a new regulated activity for issuing and managing so-called stablecoins.