Submission from the British Virgin Islands
Financial Services Commission
INTRODUCTION
In July 2007 the Foreign Affairs Committee of
the UK House of Commons announced that it would be conducting
an inquiry with respect to the Foreign and Commonwealth Office's
(FCO) responsibilities as they relate to the security and good
governance of the Overseas Territories. In particular, the inquiry
will focus, amongst other things, on the issues of transparency
and accountability and regulation of the financial sector.
2. The BVI Financial Services Commission
("the Commission") uses this opportunity to apprise
the distinguished Members of the Committee of the Territory's
regulatory regime, for often the claim is unfairly made that the
so-called offshore centres (of which the BVI is classified as
one) are not properly regulated and are a haven for tax evasion,
money laundering and terrorist financing. These claims are mostly
made by those in the developed world with whom we are in material
competition for business and too often no effort is made to give
recognition to the regulatory advances of such jurisdictions as
the BVI.
3. The Commission plays a key role in the
sustainable development of the BVI economy. While the Commission
has the responsibility for collecting fees on behalf of the Government,
its primary function is the regulation and supervision of the
financial services industry by insuring against abuse of the legitimate
financial structures and maintaining integrity and professionalism
in the BVI's financial services industry; in addition, the Commission
has the responsibility of developing relations with foreign regulatory
authorities, international associations of regulatory authorities
and other regional and international organizations concerned with
prudential regulation, the effective combating of financial crime
and the promotion of international cooperation between regulators
and law enforcement agencies.
4. Since its transformation from the Financial
Services Department in 2002 to become an autonomous institution
with responsibility for its own affairs, the Commission has strengthened
its capacity and experience in providing quality service to the
private sector, particularly in sensitizing them of the domestic
and global initiatives relating to money laundering and the financing
of terrorism. The Commission continues to participate in regional
and international meetings at which international standards of
prudential financial regulation are developed and promoted.
STRUCTURE
5. The Commission is an autonomous institution
established under the Financial Services Commission Act, 2001.
It was formally established as such in 2002. From a political
administrative standpoint, the Commission is answerable to the
Cabinet and the House of Assembly through the Minister of Finance
who pilots all legislative initiatives in relation to the Commission.
The highest body of the Commission is a Board of Commissioners
which comprises a Chairman and six other Commissioners, including
the Managing Director. One of the Board Members is required to
be selected from outside the BVI and has to be a person with a
financial services background. It should be noted that appointment
to the Board is based on a fit and proper criteria with relevant
knowledge, experience and expertise which could assist the Commission
in the discharge of its functions; Members of the Legislature
and public officers are disqualified from membership of the Board.
6. The Managing Director functions as the
Chief Executive of the Commission and has responsibility for the
Commission's day-to-day operations, with assistance from two deputy
Managing Directors—regulation and corporate services. The
Commission has seven Divisions with responsibilities in separate
areas of the Commission's work—Banks and Fiduciary Services,
Investment Business, Insurance, Insolvency, Legal and Enforcement,
Policy Research and Statistics and Registry of Corporate Affairs—and
each Division is headed by a director, save for the Registry of
Corporate Affairs which is headed by the Registrar of Corporate
Affairs. There are three other very significant portfolios—human
resources, finance and information technology—respectively
headed by a Human Resources Manager, Financial Controller and
Manager.
7. There are two statutorily established
committees within the Commission: the first is the Licensing and
Supervisory Committee, which has the responsibility for receiving,
reviewing and determining applications for licences, supervising
licensees to ensure that they fully meet the fit and proper criteria
for the conduct of financial services business and publishing
the names of licensees; the second is the Enforcement Committee,
which has responsibility for considering and determining the Commission's
exercise of its enforcement powers with respect to licensees,
reporting to the Board of Commissioners all enforcement actions
taken against licensees and reviewing the Commission's enforcement
powers and submitting recommendations to the Board for possible
legislative initiatives. While these committees are required to
report to the Board on a quarterly basis on the performance of
their functions, they operate very independently in performing
their functions and exercising their powers. This is considered
essential for prudential regulation and effective enforcement.
PRUDENTIAL REGULATION
8. The Commission essentially regulates
financial services sectors relating to banking and fiduciary services
(trusts and company service providers), investment (including
hedge funds and mutual funds), insurance (including captives),
insolvency practice and company incorporation and administration.
It takes its mandate from relevant key legislation (see next
paragraph) pertaining to the various sectors of financial
services, although its broad powers of licensing, regulation and
enforcement are outlined in the Financial Services Commission
Act, 2001. As a key player in the financial services world, the
BVI recognizes the obligations that relate to such a role in ensuring
global financial stability. Thus all of the Territory's financial
services legislation are benchmarked against internationally established
standards of prudential regulation as enunciated from time to
time by standard-setting bodies like the FATF, CFATF, IOSCO, OGBS,
IAIS, etc. This has necessitated a review of current legislation
and enactment of new legislation as that becomes necessary in
order to keep the Territory attuned to emerging standards of regulation.
9. The major pieces of legislation in terms
of regulation and company administration that are administered
by the Commission may be cited as follows:
(a) Banks and Trust Companies Act 1990;
(b) Company Management Act 1990;
(d) Mutual Funds Act 1996;
(e) Insolvency Act 2003; and
(f) BVI Business Companies Act 2004.
These legislation, including the most recent
one, have undergone periodic amendments over the last several
years as an attempt to both modernize the financial services business
regime and ensure compliance with emerging standards of regulation.
As noted in the immediately preceding paragraph, the Financial
Services Commission Act, 2001 is the key legislation that outlines
the Commission's broad powers of licensing, regulation and enforcement.
Plans are now quite advanced to put in place a modernized regime
that builds on the IAIS standards of prudential regulation by
enacting a new Insurance legislation; the mutual funds regime
is under review to modernize the investment business sector and
formally regulate securities (although currently the BVI does
not operate a securities portfolio); plans are underway to develop
a comprehensive single Regulatory Code for the regulatory sector
of the Commission's functions as well as to develop relevant guidelines
on politically exposed persons.
ANTI-MONEY
LAUNDERING (AML) AND
COUNTERING THE
FINANCING OF
TERRORISM (CFT) REGIMES
10. The BVI recognizes the negative effects
money laundering and terrorist financing activities could have
on its financial services industry and makes every effort to put
in place necessary measures to counter such activities. Those
engaged in these nefarious activities aim strenuously to abuse
the legitimate financial structures for illegitimate purposes
and if left unchecked they could bring about instability in the
financial sector.
11. In 1997 the BVI enacted the Proceeds
of Criminal Conduct Act designed to formally counter money laundering
activities. The legislation thus introduced a new reporting regime
for all suspicious activities relating to financial transactions.
It established a Reporting Authority to which all such activities
are to be reported; the Authority synthesizes all information
received to determine whether or not further investigation is
warranted and what recommendation should ensue. The Authority
comprised the Attorney General, Managing Director of the Commission
and the Director of the Authority. In 2003 the Financial Investigation
Agency Act was enacted and the Financial Investigation Agency
established in 2004. The Authority was transformed into a Steering
Committee with the same membership but with much broader powers.
The Commission is represented on the Board of the Agency by the
Managing Director, with the other members being the Deputy Governor
as Chairman, Attorney General, Financial Secretary, Commissioner
of Police and Comptroller of Customs. The Commission considers
the work of the Agency very crucial to its AML/CFT monitoring
process with respect to regulated entities as well as the conducting
of background checks of applicants for licences.
12. The Proceeds of Criminal Conduct Act,
1997 is complemented by the Proceeds of Criminal Conduct (Designated
Countries and Territories) Order, 1999 and the Anti-money Laundering
Code of Practice, 1999. While the Order in essence introduces
supporting mechanisms for legal assistance and judicial processes,
the Code of Practice outlines the framework for customer identification
(including beneficial ownership), verification process and other
relevant mechanisms for compliance. In 2007 the Proceeds of Criminal
Conduct Act was amended to introduce a mandatory reporting requirement
for financial transactions that are suspicious, in compliance
with the CFATF recommendation following its last evaluation of
the BVI.
13. In 1998 the Commission initiated and
led a public-private sector dialogue with a view to imparting
knowledge and appreciation of the ills of money laundering within
the legitimate business structures of the Territory and the steps
to be taken to check against such activity. This culminated the
same year in the drafting and promulgation of the Anti-money Laundering
Guidance Notes. These Guidance Notes are currently the subject
of review and revision to take account of the new and emerging
developments in the area of money laundering.
14. Furthermore, the Commission (prior to
its transformation and since that transformation) had established
a Financial Services Legislation Advisory Committee, comprising
both public and private sector representatives, to review and
advise on the need for specific legislative measures in order
to buttress the existing systems of financial regulation, law
enforcement and international cooperation. It also established
a public-private sector Task Force on Taxation Matters to review
and advise on tax competition issues as they relate to or affect
the financial services sector. The BVI Business Companies Act,
2004 mandates the establishment of a Company Advisory Committee,
which had since been established to review and advise on matters
pertaining to company administration and to review and submit
recommendations on legislative matters relating to companies.
The Commission, in recent years, has instituted a system of forming
focus groups to review and discuss new proposed legislation before
they are finalized to be placed on the legislative wheels. Such
groups comprise experts from the public and private sectors and
their recommendations are, to the extent feasible and consistent
with current policy, factored in the final draft legislation.
This arrangement has proven extremely helpful to the Commission
as it brings to the table varied experiences to aid the decision-making
process. Indeed no legislative measure of significant impact is
proposed without private sector consultation and input and the
Commission routinely organizes workshops and seminars to discuss
major legislative initiatives.
15. The Territory's CFT regime is essentially
comprised in The Terrorism (United Nations Measures) (Overseas
Territories) Order 2001 and The Anti-Terrorism (Financial and
Other Measures) (Overseas Territories) Order 2002. Both enactments
are Orders in Council. The Commission adheres to the compliance
and prohibition measures outlined in both enactments. Indeed the
Commission takes notice of the UN and EU lists of persons suspected
of having links with terrorism or terrorist organizations to ensure
that they or the entities they are associated or affiliated with
are not licensed in the Territory.
16. The Commission plans to commence work
on developing guidelines on countering terrorist financing using
the FATF model. This should culminate in the sensitizing of the
private sector of the key implementation tools with respect to
CFT.
17. One of the functions of the Commission
is to develop a continuing education programme for the practitioners
in financial services business and accordingly the Commission
has instituted a forum known as Meet the Regulator whereby it
sensitizes members of the industry of current and emerging developments
in the areas of AML and CFT and what their obligations are in
respect thereof. This forum is held periodically—two to
three times each year—and it brings together a large number
of industry practitioners and regulators and is seen as a very
useful interactive medium that develops confidence between the
regulators and the industry with respect to regulatory, legal,
enforcement and international cooperation matters, including AML/CFT
matters. The Commission is set to continue this process for the
foreseeable future.
INTERNATIONAL COOPERATION
18. The BVI operates different regimes relative
to international cooperation. These relate to regulatory, law
enforcement and tax information exchange matters. The Commission
administers a robust mutual assistance regime in relation to foreign
regulators and law enforcement authorities.
19. The Financial Services Commission Act,
2001 ("the 2001 Act") vests the Commission with broad
powers of enforcement which include the exercise of powers to
respond to requests for mutual assistance. Thus the Commission
exercises compulsory powers with respect to the disclosure of
information and production of documents (sections 30 and 32).
It may also apply for search warrants and submit applications
to examine a person on oath before a Magistrate (section 33);
it is vested with the power to conduct such examinations itself
as it deems fit in any particular case (sections 33A and 33B).
Section 33C of the 2001 Act empowers the Commission to take appropriate
steps to cooperate with foreign regulatory authorities and other
persons who have functions relative to the prevention or detection
of financial crime, including money laundering, terrorist financing,
misconduct in or misuse of information relating to financial markets
as well as offences involving fraud or dishonesty. Section 33D
specifically provides the mechanism for providing assistance to
foreign regulatory authorities.
20. Prior to its transformation from a department
of Government and since its establishment as an autonomous institution,
the Commission has been engaged in providing assistance to foreign
regulatory authorities (before 2002 the repealed Financial Services
(International Cooperation) Act, 2000 was applied). From the law
enforcement angle, the Criminal Justice (International Cooperation)
Act, 1993 is utilized to render assistance in criminal law matters;
the Mutual Legal Assistance (Tax Matters) Act, 2003 provides the
legislative framework for the exchange of information in tax matters
with countries that conclude a bilateral agreement with the BVI.
The latter enactment was amended in 2005 to embody the requirements
of the EU Savings Directive on the Taxation of Savings Income
and thus implement the bilateral agreements entered into between
the BVI and the EU Member States.
21. The Commission and the BVI Government
recognize the pivotal role effective international cooperation
plays in combating crime and the misuse of the financial system
which, if left unchecked, could lead to global financial instability.
Both therefore remain resolute in their policies of fostering
greater cooperation to render assistance where necessary. It was
in this vein that the Commission, in association with the Government,
prepared and published a Handbook on International Cooperation
and Information Exchange: A Guide for Law Enforcement Officials
and Regulators. Apart from providing a better understanding
of the BVI's mutual legal assistance regimes, the Handbook outlines
the processes that need to be followed by foreign authorities
in making requests for assistance. It is a simple, user-friendly
guide and is published on the Commission's website at www.bvifsc.vg.
The Handbook will be reviewed from time to time with a view to
updating and modernizing it, taking account of new and emerging
developments in the field of international cooperation. It is
highly recommended for those persons and authorities with interest
in learning of the BVI's international cooperation regime generally
or with a desire to submit requests for mutual legal assistance.
TRANSPARENCY AND
ACCOUNTABILITY
22. The Commission operates a transparent
system of regulation of licensed entities engaged in business
within or from within the BVI. In terms of its own processes,
the Commission (as noted earlier) is answerable to Cabinet and
the House of Assembly through the Minister of Finance. The Board
of the Commission holds an annual meeting with Cabinet to go through
the Commission's annual report, strategic plans and budget, including
a discussion on such other matters affecting or relating to Government
policy. This is considered a very useful exercise that ensures
that the political directorate with responsibility for overall
policy direction is made fully aware of new and emerging developments
in the international field of standard-setting in relation to
finance and financial services.
23. With the enactment of the BVI Business
Companies Act 2004, the BVI removed the ring fencing of local
companies and placed them on the same footing (in terms of obligations
and liabilities) with international companies, thus ensuring a
fair and transparent system of company incorporation and regulation.
In addition, the BVI introduced a system of immobilizing bearer
shares by requiring companies with bearer shares to lodge them
with a custodian who is recognized and operating from within the
BVI or who operates outside the BVI but is approved by the Commission
for that purpose. The rationale for this measure is to ensure
that in the event of a request for assistance, access to information
on beneficial owners of business entities can be achieved.
24. It should be noted that contrary to
what some believe, the BVI does not (and it never did) operate
a secrecy regime with respect to its financial services; it has
no legislation that institutionalizes secrecy as a part of any
regulatory process. However, the BVI recognizes and subscribes
to the common law principle of confidentiality. This principle
must be distinguished from secrecy. Whereas secrecy connotes a
prohibition of access, confidentiality represents a long established
rule of keeping material or information with respect to a person
confidential save as may be permissible under law. Thus while
the BVI laws recognize and uphold the common law principle of
confidentiality, they create a legitimate avenue for accessing
information for regulatory and law enforcement purposes, including
the rendering of assistance to foreign regulatory and law enforcement
authorities.
MEMBERSHIP OF
ASSOCIATIONS/ORGANISATIONS
25. As a key player in the global financial
services sector, the BVI recognizes the importance and value of
associating with regional and international standard-setting institutions
for prudential regulation, effective enforcement and international
cooperation. Such an association not only affords the Territory
the ability or opportunity to be a part of the development process
with respect to the evolution of new standards, but also provides
it with the opportunity to think ahead and devise and implement
policies and laws to better regulate its financial services industry.
The Commission plays a leading role in this regard with respect
to all matters relating to and concerning the regulation of financial
services and the fostering of international cooperation.
26. The BVI is an active member of the Caribbean
Financial Action Task Force (CFATF) and Egmont, both respectively
dealing with matters relating to money laundering and terrorist
financing and intelligence gathering and dissemination. These
are considered to be areas of enormous interest if the efforts
of money launderers and terrorists and organized criminal groups
are to be effectively countered.
27. Earlier this year the BVI was admitted
to the International Organization of Securities Commission (IOSCO)
after a vigorous scrutiny of its international cooperation regime.
Thus the BVI became the first jurisdiction to be admitted to membership
under IOSCO's Multilateral Memorandum of Understanding on Consultation
and Cooperation and the Exchange of Information on the basis of
its legislative compliance with the MMoU. The Commission is a
member of the International Association of Insurance Supervisors
(IAIS) and fully participates in the Association's deliberations.
It was on 31st October, 2007 admitted as a member of the Offshore
Group of Banking Supervisors (OGBS), after having previously served
therein in an observer capacity, and is a founding member of the
Offshore Group of Insurance Supervisors (OGIS), the International
Trade and Investment Organisation (ITIO) and the Offshore Group
of Collective Investment Scheme Supervisors (OGCISS). As a member
of Association of Banking Supervisors of the Americas (ASBA),
the BVI currently holds the directorship position representing
the Caribbean region. The BVI participated in the OECD-Commonwealth
Working Group on Tax Competition and recently served on the Working
Group set up to review the FATF's 40+9 Recommendations on combating
money laundering and terrorist financing. It was also a member
of the OGBS Working Group that developed the Statement of Best
Practice on Trust and Corporate Service Providers; indeed the
BVI (along with Gibraltar) was the first jurisdiction to regulate
trust and corporate service providers.
28. As a result of the BVI's membership
of or observer status in these recognized institutions, the Commission
has been able to develop a wealth of knowledge to guide the financial
services industry along the right path, while at the same time
checking against nefarious activities and sharing information
with other jurisdictions. It hopes to continue this trend for
the foreseeable future and to remain an active player in the shaping
of standards of regulation and fostering of international cooperation.
THE PROVISION
OF RESOURCES
29. As an autonomous regulatory body with
independent powers, the 2001 Act provides a funding mechanism
for the Commission that takes into account the duties and responsibilities
of the Commission. The Commission retains a percentage of the
total revenue it collects on behalf of the Government, which could
be anywhere up to the 15% mark; since the establishment of the
Commission, this has ranged from 9 to 11 percentage points. This
formula for resource allocation to the Commission has been considered
adequate and it is a formula that works quite well.
30. The Commission is able to properly and
fully resource its strategic plans, regulatory and enforcement
processes, participation at overseas meetings, conferences with
the private and public sector persons, information dissemination,
duties relative to requests for mutual assistance from foreign
regulatory authorities, etc. In addition, the Commission maintains
a reserve fund as a contingency plan to ensure the due and uninterrupted
functioning of the Commission's activities.
ASSESSMENTS
31. As a member of the CFATF, the BVI has
been undergoing periodic reviews to establish the Territory's
compliance with internationally established standards in the areas
of financial regulation, legislative reform, law enforcement and
international cooperation, including compliance with current AML/CFT
standards and recommendations of the CFATF. This process has been
found to be extremely valuable as it affords the Territory the
opportunity of benefiting from external independent objective
assessments of its systems and processes; recommendations for
remedial action have proved very helpful as the Territory continues
to be a key player in international financial services.
32. The BVI is set to undergo its third
round of CFATF mutual evaluation in the first quarter of 2008.
Also the IMF will undertake its second assessment of the BVI later
in 2008. It should be noted that these assessments seek to determine
the level of compliance with standards established by the various
standards-setting institutions like the OGBS, IAIS, FATF and CFATF.
The Commission sees this exercise as an important continuing process
which every key jurisdiction in the financial sector ought to
be subjected to. The last reports of the CFATF and IMF in respect
of the BVI can be found on the Commission's website at www.bvifsc.vg.
EVIDENCE
33. The legislation and other documents
cited in this submission may be found on the Commission's website
at www.bvifsc.vg. However, the Commission may be requested to
provide any additional information considered relevant by the
distinguished Members of the Foreign Affairs Committee and stands
ready to assist with its deliberations in any other way considered
necessary.
HOW CAN
THE UK GOVERNMENT
ASSIST THE
BVI?
34. The Commission has matured over the
years and has developed immense expertise and experience in the
area of financial services regulation, AML/CFT, enforcement and
international cooperation. It seeks not to be dependent, but rather
to be progressive and self-reliant and to make positive contributions
to the BVI economy for which it provides more than 50% of the
revenue that goes to the public budget. It guards the interests
of the jurisdiction jealously, while at the same time recognizing
the threats to financial services and the need for bilateral and
multilateral cooperation in running an efficient and effective
stable economy and keeping crime and criminals far away from the
legitimate structures of business operations.
35. The Commission believes very strongly
that there are meaningful ways in which the UK Government can
be of great assistance. While the BVI participates in quite a
number of fora at which international standards of regulation,
enforcement and cooperation are shaped, the fact remains that
in some very important fora (such as within the FATF and the Financial
Stability Forum (FSF)) the jurisdiction is not a member or observer
and is not invited to participate. It is normally in the latter
situation where very important decisions are taken that affect
most of the so-called offshore jurisdictions without considering
their interests. Accordingly, one would expect that the UK, when
represented at such meetings, would protect the interests of its
Overseas Territories against adverse and unfair decisions that,
in some cases, singularly target the Territories. The Commission
therefore invites the Foreign Affairs Committee to consider the
following in their deliberations:
(a) the extent, if any, to which the UK advocates
the interests of its Overseas Territories, especially in relation
to the operation of their financial services industries;
(b) the need for prior consultation with
the BVI Government before committing the jurisdiction to unfavourable
measures specifically and generally affecting its financial services
industry; the UK committed the BVI to the implementation of the
EU Savings Directive on the Taxation of Savings Income without
any prior consultation, thus potentially allowing a competitive
advantage to the Territory's competitors outside the realm of
the Directive;
(c) the need for equal and fair treatment
of the Overseas Territories. When the UK committed the BVI and
other Caribbean Overseas Territories to the EU Directive referred
to in sub-paragraph (b) above, it left out Bermuda, thus enabling
that jurisdiction to market itself without the strings of the
Directive;
(d) the importance of notifying the BVI of
important developments around the globe (considering the UK's
network of information gathering) and rendering such advice as
may be necessary;
(e) the need for the UK to publicly acknowledge
the strides made by the BVI to efficiently and effectively regulate
its financial services industry and to buttress that fact in relevant
fora where the jurisdiction is being unfairly criticized and its
systems and processes are being misrepresented; in circumstances
where the jurisdiction is represented, it is expected that its
representatives will take on that responsibility, but the added
voice of the UK does help to strengthen the jurisdiction's position;
and
(f) any suggested reforms or initiatives
that the UK thinks should be considered by the BVI in relation
to its financial services sector should be notified well in advance
to enable the Commission to take an informed decision thereon
and render necessary advice accordingly after relevant consultations;
this obviates any unfair accusations of disinterest and non-compliance.
CONCLUSION
36. The Commission, consistent with the
policy adopted by the Government, continues to engage the regional
and international standard-setting institutions to ensure full
compliance with established standards. It recognizes the importance
of continued vigilance in the execution of its functions and the
threats posed by organized crime, including money laundering and
terrorist financing. While it adopts an independent approach in
administering its financial services sector, the Commission is
fully aware of the interdependence of world economies and its
responsibility as a partner in maintaining global financial stability.
It cannot deny the fact that criminals engaged in organized crime,
money laundering, terrorist financing and other illegitimate use
of the financial system have no and do not distinguish between
borders; their activities permeate every jurisdiction and it is
only through effective policing and cooperation at the international
level that the activities of such criminals can be minimized or
eradicated.
37. It is important to recognize at the
same time that the BVI is in engaged in an activity (financial
services) that places it on a competition pedestal with other
so-called onshore and offshore jurisdictions. It therefore advocates
the importance of a level playing field with its competitors and
expects that the UK sees value in this approach and champions
the cause of not only the BVI, but of all of its Overseas Territories.
The Commission certainly does not consider it to be in the UK's
best interest to allow a situation where the financial services
sectors of its Overseas Territories are severely affected, considering
the portion they contribute to government revenue, which in turn
impact positively on important social and infrastructural developments.
38. The Commission commends the Foreign
Affairs Committee in engaging in this process and similarly commends
the Foreign and Commonwealth Office for inviting the Overseas
Territories to render account of their service industries (amongst
other things). It is hoped that this will be a regular exercise
to enable the distinguished Members of the Foreign Affairs Committee
and by extension Members of the House of Commons to learn more
about the Overseas Territories and the developing relations they
have with Her Majesty's Government in the UK.
1 November 2007
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