APPENDIX 1
LIABILITIES IN THE DEPENDENT TERRITORIES
(PAC 97-98/99)
Part of a memorandum submitted by the
Foreign and Commonwealth Office
Note on Question 96: Not reported.
Note on Question 102: Governors' Responsibilities: Financial Services
1. In all the Caribbean Dependent Territories
except BVI, the Governor has responsibility for international
financial services; that is, he or she is responsible for conducting
the business of the Government of the Territory in that area.
This is reflected in Appendix 1 of the NAO Report (page 43) which
lists "Financial Services" under the Governor's responsibilities
in TCI and "International Finance" under the Governor's
responsibilities in TCI and "International Finance"
under the Governor's responsibilities in Anguilla and Montserrat.
These terms are synonymous.
2. The Governor was given this responsibility
in Montserrat in the new constitution of 1989, and in Anguilla
(1990) and TCI (1993) by constitutional amendment. It was not
necessary to amend the constitution of the Cayman Islands since
the responsibility, though not specifically reserved to the Governor,
had not been delegated by him to a locally elected Minister. Only
in BVI does a locally elected Minister have responsibility for
the offshore sector.
Note on Question 115: Insurance Business in the Turks and Caicos
Islands and its Regulation
Staffing of the Regulatory Unit
1. There are now four professional staff
and six support staff in the Financial Services Commission. Three
of the professional staff are funded from Technical Cooperation
resources and are expatriate. The Insurance Supervisor, who is
one of the expatriate UK funded staff, is supported by one experienced
local member of staff and has access to the larger pool of support
staff. The current Insurance Supervisor has wide experience of
the sector and a detailed knowledge of the UK market.
Type of Insurance in TCI and Associated Risk
2. There are some 1,911 insurance companies
in the Turks and Caicos Islands. Of these, the vast majority (some
85%) are credit life reinsurers. The remainder include 6 domestic
general insurers, 6 domestic life insurers, 54 "captives"
and 55 other offshore insurers (mainly doing general business).
3. The credit life reinsurance companies
were established by car sales companies in the USA to provide
insurance cover on the life of an individual purchasing a vehicle
in credit, usually with a credit agreement which does not exceed
three years. The cover is only for the life of the person obtaining
the credit and not for the credit risk. Because the term is very
short, relative to the normal life expectancy of the person buying
the vehicle, the risk is low. Actuarial analysis shows that provided
the credit life company stays within its business plan and does
not take unauthorised business, there should be few problems.
There is a further safety net as much of the credit life reinsurance
is for business in the States which is subject to US supervision.
The TCI regulator would exchange information regularly with his
US counterparts as part of the routine licensing and monitoring
process.
4. The combination of low risk and supervision
in the US means that although staffing levels are low, the current
level of staffing should be sufficient to provide adequate supervision
for the low risk business. We are considering a reinforcement
of regulatory capacity to deal with the activities of the offshore
companies doing general insurance, and to boost regulation of
agents and brokers. We are also expecting a visit to TCI by DTI
Insurance Regulators in 1998 to consider the overall level of
supervisory resources.
Note on Question 119: International Business Company Legislation
1. International Business Companies (IBCs)
differ from ordinary companies in that their business is conducted
exclusively outside the jurisdiction in which the company is registered.
There is nothing inherently wrong with IBCs which provide an important
and growing source of income to some of the Caribbean Dependent
Territories (of which BVI has by far the biggest share). However,
evidence suggests that IBCs have been used to disguise illegal
business activity such as money laundering and fraudulent trading.
Proper controls are therefore needed.
2. We have proposed a series of measures
designed to make it easier to investigate IBC activity and to
trace the beneficial ownership. These measures would licence company
formation agents (CFAs) and enhance the information on IBCs that
CFAs hold (the "know your customer" principle) to ensure
that there is a paper trail for investigators to follow. A set
of guidelines was sent to the Caribbean DTs for use in drawing
up a mandatory code of practice.
3. When these were originally put to them,
the Caribbean DTs accepted the need for the regulation of CFAs
and IBCs but objected to the original requirement that CFAs must
themselves always know the beneficial ownership of IBCs on the
grounds that this was unreasonable and impracticable when much
of their business was done through professional intermediaries
in other countries. They argued that such a requirement would
effectively end the sale of IBCs, killing off legitimate business
as well as the dubious. The guidelines have therefore been amended
to require that the CFAs should take reasonable steps to know
the beneficial owner, including ensuring that adequate due diligence
is done by their foreign business associates.
4. Progress on this issue has been slow.
BVI have agreed a Code of Conduct that is already being enforced
on a voluntary basis by the industry, but legislation is still
needed. We understand it is in draft and should be passed in the
first quarter of 1998. The Cayman Islands are also in the process
of drafting legislation. We have asked the others to follow suit
and anticipate their support with similar legislation in 1998.
Note on Question 125: HMG's Powers in Relation to the Dependent
Territories
Background
1. The Dependent Territories with permanent
populations have their own elected governments, each acting under
the authority of a constitution laid down by the UK. Although
the constitutional division of power between HMG and the local
government varies considerably from one territory to another,
all the territories remain fully and equally subject to British
sovereignty.
2. In each territory HMG's powers are exercised
by and through the Governor, who is appointed by HMG and responsible
to the Secretary of State for Foreign and Commonwealth Affairs.
Powers in individual DTs
3. The constitution of the five Caribbean
DTs (Anguilla, the British Virgin Islands, the Cayman Islands,
Montserrat and the Turks and Caicos Islands) are broadly similar
in most respects. In each territory the Governor is responsible
for defence, external affairs, internal security, the police and
the public service. In four of the territories the Governor also
has responsibility for the framework of control of offshore financial
services; the exception is the British Virgin Islands, where the
responsibility for this matter rests with the local government.
In all five of these territories HMG has the power to disallow
legislation and to legislate by Order in Council for peace, order
and good governments.
4. Bermuda has a greater degree of self-government
than any of the Caribbean DTs. While the Governor has responsibility
for defence, external affairs, internal security and the police,
some of these powers have been delegated to the Bermuda Government
for specific purposes; and HMG does not have the power to disallow
legislation except in the limited area of legislation relating
to government stock. The consent of the Secretary of State is
also required for any legislation relating to currency or banking.
5. In Gibraltar, where the local government
has had extensive devolved powers since 1969, the Governor has
responsibility for "non-defined domestic matters" (primarily
defence, external relations and internal security, including the
police). The Governor also has responsibility for the financial
and economic stability of Gibraltar. HMG has a duty to ensure
good government in Gibraltar and a legal responsibility to ensure
that Gibraltar complies with international obligations including
EU law. Legislation passed by the House of Assembly is scrutinised
by the FCO and may be disallowed. In addition, HMG retains the
power to legislate by Order in Council for peace, order and good
government.
6. In the Falkland Islands the Governor
has responsibility for all aspects of the government of the Islands
but in the exercise of his powers the Governor must generally
consult with the Executive Council. However, the Governor may
act against the advice of the Council in any case where he considers
it right to do so. Legislation enacted by the Legislative Council
is scrutinised by the FCO and may be disallowed. HMG also has
the power to legislate by Order in Council for peace, order and
good government.
7. The government of St Helena and its Dependencies
is the responsibility of the St Helena Government; but the Governor
has a wide range of reserved powers and local legislation is scrutinised
by the FCO before enactment and may be disallowed. HMG also has
the power to legislate by Order in Council for peace, order and
good government.
8. The administration of Pitcairn is the
responsibility of the Governor, who discharges his duties through
a Commissioner in consultation with the Island Council.
Options for strengthening HMG's control of the DTs
9. The question of the division of powers
between HMG and the DTs' governments is being considered in the
context of the FCO's current review of policy towards the DTs.
It is too early to say whether the review will result in any proposals
for altering the present distribution of powers; but there are
various adjustments that could be made to strengthen HMG's control:
9.1 Amending the DTs' constitutions
Where an existing constitution contains inadequate
powers, HMG could increase the Governor's reserved powers by amending
the constitution. This could be done by means of an Order in Council
in any of the DTs, including Bermuda.
9.2 Direct law-making
HMG could make greater use of its power to make
laws for the peace, order and good government of any territory,
except Bermuda, by means of an Order in Council. Such direct laws
could be made without the need for any amendment of the constitution
of the DT concerned. In the case of Bermuda where HMG no longer
has the power to legislate by Order in Council, such direct legislation
could be achieved only through an Act of the UK Parliament.
9.3 Disallowing legislation
HMG could make greater use of its existing power
to disallow the DTs' own legislation (this being an unfettered
power in all the DTs except Bermuda, where the power is limited
as explained above in paragraph 4).
10. Successive British Governments have
fostered the development of democratic self-government in the
DTs; and HMG respects the right of the DT governments to discharge
their functions, to be consulted on any constitutional changes
proposed by HMG and to put forward any constitutional proposals
of their own. We are consulting DT governments on the main political
and constitutional questions under consideration in the FCO's
current review of policy towards the DTs, and the FCO will take
their views into account in formulating recommendations for Ministers.
HMG also values the co-operative spirit in which its dealings
with the DT governments are regularly conducted.
Foreign and Commonwealth Office
December 1997
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