BVI FSC Newsletter: March 2022

Compliance Inspection Unit Announces 2022 Inspection Programme

The Compliance Inspection Unit (“the CIU”) of the BVI Financial Services Commission ("the Commission") will be undertaking a combination of thematic, follow up, and full scope compliance inspections in 2022. 

Thematic Inspections
Thematic inspections will focus on specific issues relevant to risks identified within the financial services industry or a particular sector.  Each topic within the thematic inspection programme was selected based on an analysis of several factors, including: 

• The Commission's ongoing desk-based supervision and risk assessment programme;
• Findings of previous inspections conducted; 
• New legislative requirements; 
• Findings of the Virgin Islands Financial Services Sector Money Laundering Risk Assessment Report; 
• Findings of the Virgin Islands Financial Services Sector Terrorist Financing Risk Assessment Report; and
• Findings of other related risk assessment reports and international reports on the risk of Money Laundering, Terrorist Financing, Proliferation Financing, and other financial crimes. 

Selected Licensees will be notified at least three weeks in advance in keeping with the Commission's Onsite Inspection Procedures. See the full thematic inspection programme here.                                                                                    

Full Scope and Follow up Inspections
The CIU will conduct full scope and follow up inspections on selected Licensees deemed to be of higher risk across all sectors. 

Inspection Findings
At the end of the inspection cycle, aggregate information on the findings and potential recommended actions will be shared with the industry to provide guidance on compliance.

UK Sanctions: Russian Financial Regime

The BVI financial services industry has been alerted to the designations of subjects in recent UK Sanctions concerning the Russian financial regime.  

Industry practitioners will be aware that UK Sanctions take immediate effect in the Virgin Islands. In light of the increasing volume of sanctions designations, practitioners are advised to ensure robust measures are taken to immediately screen records against those designations. Practitioners are also guided to ensure that screening tools are up to date when undertaking reviews of records. Regular reviews of The UK Sanctions List is strongly recommended.  Where there is uncertainty in these tools, practitioners should take other measures to screen records without delay.

Industry practitioners are also advised to proactively screen records and identify higher-risk subjects that may be subject to future designations.

Money Laundering and Terrorist Financing Risk Assessment Findings: Investment Business

In a continued effort to further educate relevant persons on identified Money Laundering (ML) and Terrorist Financing (TF) risks and make the public aware of threats and vulnerabilities facing the Territory, this month, we focus on the findings of the ML and TF Risk assessment reports relative to the Investment Business sector.    

ML Risk Findings: Threats, Vulnerabilities, Risk Factors, and Overall Ratings
The ML risk assessment identified several risk factors within the Investment Business sector, including the large size and nature of the sector, the complexity of available structures, large transaction sizes and values, wide geographic dispersion of clientele, the execution of a large number of non-face-to-face transactions, and exposure to high-risk customers and jurisdictions. As a result, the ML risk assessment found the Investment Business sector to be at a Medium-High risk. 

ML vulnerabilities included the low level of Suspicious Activity Reports filed, which was found to be inconsistent with the inherent risk posed by the sector. Also, the operation of most of the businesses in the Investment Business sector outside of the territory and the high volume of cross-border transactions, coupled with the complexity of the products offered present greater ML risks.  

Further, in relation to fund business specifically, some functionaries may not be required to be licensed in the jurisdictions in which they operate. This heightens the level of risk within the sector. Clientele in this sector include Politically Exposed Persons as well, thereby contributing to risk. Additionally, AML deficiencies identified relate to licensees’ duty to conduct risk assessments on their clients as well as to update CDD information and perform enhanced CDD.

TF Risk Findings: Threats, Vulnerabilities, Risk Factors, and Overall Ratings
The TF risk assessment identified risk factors including the large size and nature of the sector, the complexity of available structures, large transaction sizes and values, wide geographic dispersion of clientele, the execution of a large number of non-face-to-face transactions, and exposure to high-risk customers and jurisdictions. However, the TF risk assessment found the Investment Business sector to be at a Medium-Low risk.

TF vulnerabilities identified in the Investment Business sector were much lower than ML, as the products and services offered were not generally found to be attractive vehicles for providing financing to terrorist organisations, although some risk remained given the nature of the products. It was also found that the client profile for investment schemes generally does not correspond to the profile of terrorist organisations. It should be noted that the sector’s diverse international client base does mean that there is potential for exposure to some high-risk countries but does not inherently indicate a high risk of TF. Also, the sector has not been identified as being particularly vulnerable to TF based on international typology reports and other guidance provided.

What Should Be Done Going Forward
To mitigate risks, Investment Business sector participants should consider all identified national and sectoral threats and vulnerabilities and ensure the recommendations made in both the Money Laundering and Terrorist Financing Risk Assessment reports are fully implemented into their own risk assessments. The Commission will undertake regular evaluations of such implementation through its onsite and desk-based supervisory models. 

All recommendations can be found in the Virgin Islands Financial Services Sector Money Laundering Risk Assessment Report and Terrorist Financing Risk Assessment Report. For questions or queries on AML/ CFT matters, please email [email protected].

The AML Unit Highlights the Criminal Justice (International Cooperation) (Amendment) Act, 2021

This month we highlight the Criminal Justice (International Cooperation) (Amendment) Act, 2021 (“the CJICAA”), which came into force on 13th July 2021.  

The CJICAA has two primary objectives:

1. The first is to give statutory footing to the Council of Competent Authorities (“the CCA”), including outlining its role, function and powers. The CCA was established in 2017 to guide the territory’s international cooperation regime by ensuring compliance with internationally established standards of cooperation in AML/CFT/PF, regulation and supervision of financial services business and tax administration.
   
   This formed a collaborative approach to domestic and international cooperation, where competent authorities can also advise on reforms needed to comply with international standards of cooperation (including laws and administrative practices). Given the importance of the CCA to the territory’s international cooperation regime, it has been given statutory recognition. The membership of the CCA comprises the Governor’s Office, Attorney General’s Chambers, Financial Investigation Agency, International Tax Authority and the BVI Financial Services Commission.
2. ​The second objective of the CJICAA is to clarify the role and responsibility of the Attorney General (AG) as the Competent Authority in relation to the processing of international cooperation matters relative to criminal conduct (the AG is also responsible for mutual legal assistance matters under the Mutual Legal Assistance (USA) Act, 1989).  This addresses a previous erroneous reference to the Director of Public Prosecutions (DPP) in this function. 

Licensees should familiarise themselves with the Criminal Justice (International Cooperation) (Amendment) Act, 2021, along with all other AML/CFT/PF legislation. They are also encouraged to consider these enactments when updating their policies and procedures, engaging in business activities with applicants for business or existing customers and conducting training.

The Commission will continue to highlight amendments to AML/CFT related legislation in future articles. For questions or queries on AML/ CFT matters, please email [email protected].