The Isle of Man was downgraded by Standard & Poor’s because the ratings company said the offshore financial center is vulnerable to growing regulatory pressure.
The island administration, which sits in the Irish Sea off the north-west coast of Britain, was cut to AA from AA+, S&P said in a statement. It was ranked AAA by the ratings company in 2000 before being downgraded one level in 2011.
The Isle of Man, which has profited from low taxes to develop a large financial sector accounting for 35 percent of the island’s gross domestic product, is facing challenges from regulators, the ratings company said. Growing industries such as gaming and technology won’t be able to replace the business, according to S&P.
“The downgrade reflects our expectation that the contribution of the financial sector to economic growth and exports will gradually decline, due to competitive pressures and tighter regulations that will affect global off-shore financial hubs,” S&P analysts led by Aarti Sakhuja said in a statement. “Moreover, we do not anticipate that exports from emerging sectors will fully offset the decline in financial services export growth, given the difference in the size of these sectors.”
The island lost its top grade from Moody’s Investors Service in December and S&P said has withdrawn its grade at the request of the government.