BVI FSC Newsletter: January 2022

A PROSPEROUS NEW YEAR FROM BVI FSC!
The board, management and staff of the BVI Financial Services Commission wish our industry partners health, wealth, and prosperity in the New Year!

Industry Outlook -  BVI Financial Services Commission Managing Director/Chief Executive Officer, Mr. Kenneth Baker Looks Ahead for 2022

Tortola, British Virgin Islands (BVI) - The BVI Financial Services Commission (the "Commission") 2022 strategy focuses on four key strategic areas: Supervision, Enforcement, Promotion of Cooperation and Stakeholder Awareness and Outreach.

Celebrating just over 20 years of the Commission's existence, MD and CEO, Mr. Kenneth Baker has been there since its inception. Looking ahead in 2022, the MD sat down with his Communications/External Affairs team to discuss the overall tone of the financial services industry, leading the charge in its pivotal role as a first-rate regulator. 

Q: What are your thoughts on the Financial Services Industry's current state and a few of the significant dynamism at play?

KB:  The Financial Services Industry is fast-evolving. Diverse small businesses across the financial services industry are more inundated with business disruption due to COVID-19. As a result, the industry is responding quite well and, in some cases, adapting the art of quickly morphing themselves to navigate through risk and crises to create future growth; improve how we work and improve on our capacity to meet the new challenges and opportunities that are realised through the pandemic alone. 

• Innovation and technology have long been predicted as the industry's future. Business models will remain at risk if they cannot answer to changes in the environment, shift business needs, run robust operations and upgrade their customer experience and relationships. At the Commission, we will be equally agile with financial regulations, and cyber and digital-related safety aspects will take importance on our regulatory agenda as necessary.
• One of the significant challenges for regulators globally will be keeping up with the growing use of new and sophisticated technology to conceal illicit activities. Regulators globally are challenged with balancing and protecting the needs of the investing public. Hence, the Commission prioritises maintaining a robust regulatory system for the prevention of Money Laundering (ML), Terrorism Financing (TF), Proliferation Financing (PF), financial crimes and the advancement of the BVI as a secure and well-regulated international financial centre( IFC). In utilising this strategy, the Commission, along with relevant stakeholders such as industry participants, competent authorities, government representatives and government departments with a nexus to AML/CFT, are engaged and work cohesively to ensure that a practical framework that considers all the relevant ML/TF risks to the BVI is appropriately implemented. 

 Q: How do you see financial services regulation evolving in the BVI in future?

KB: Here again, we see financial regulation being driven more by technological developments, intelligence, and machine learning if we want to remain at the forefront of protecting the local and global economy.  Financial services regulation must evolve to meet the needs of the general public whilst protecting them from abuse and illicit activities. Like regulators worldwide, the Commission will have to embrace and utilise "RegTech" and "SupTech" mechanisms to keep up with the continuing advancements being made within the industry.

Q: The BVI continues to foster FinTech innovation by introducing a regulatory sandbox. Does the Commission have any further plans to regulate this sector and support new companies?

KB: Entities that have successfully tested the regulatory sandbox will be allowed to become licensed by the Commission. The Commission will aid in transitioning such entities to meet requirements for licensing. In addition, the Commission plans to bring legislation on stream to supervise Virtual Assets Service Providers and ensure operation in accordance with international standards.  

Q: What changes would you like to see made?

KB: Change within the regulatory environment is constant. We would like to see international standard setters demonstrate a better understanding of the role IFCs play in global markets and apply their standards based on the regulation and supervision required for an individual IFC to effectively meet those standards and discontinue the one size fits all approach. As a regulator, we would like to see the continued development of regional and international mechanisms for cooperation on all matters relative to financial services. This could only benefit the persons we ultimately aim to protect investors.

Q: Do you believe that the improvements made to the BVI's regulatory regime in recent years are fully understood abroad?

KB: We believe the persons utilising the Virgin Islands for their financial services needs have a good understanding of the regulatory changes made and rationale. We continue to believe that persons using our jurisdiction are making those choices because we have taken steps to offer protection to investors whilst implementing measures to ensure criminal activities are forestalled. 

Our experience has shown us that negative comments concerning the Virgin Islands as an IFC are often not based on any factual information. The Commission welcomes any opportunity to foster a better understanding of what it does as the regulator of all financial services activities conducted in and from within the BVI.

Q: The recent Pandora Papers leak has attracted a great deal of negative media attention, when in fact, the BVI entities mentioned in the data are entirely legal and compliant. What are your thoughts on the leak, and do you see it impacting the BVI in any way?

KB: The Commission's use of supervisory and enforcement powers compel adherence to the BVI's regulatory standards. We developed a financial services framework aimed at preventing criminals from utilising BVI products and services for nefarious activities. Through the regulatory regime, timely responses to requests for international cooperation and engagement with the financial services sector, the BVI continues to employ mechanisms that ensure compliance with international standards and validate the BVI's position as a reputable IFC. The Commission does not condone the use of BVI entities for illegal purposes. The establishment of BVI entities is subject to the highest levels of scrutiny, vigilance and accountability through the BVI's regulatory regime, therefore ensuring that BVI entities are established for legitimate purposes.

Q: Where can we expect the Commission to focus its efforts in 2022?

KB: During 2022, the Commission intends to:

• Implement a revised organisational structure;
• Digital transformation through investment in innovative technology;
• Maintain its commitment to implementing AML/CFT standards as required by the FATF in preparation for the jurisdiction's fourth round mutual evaluation; 
• Continue to ensure that BVI laws and regulations and the scope of supervision are compatible with international standards and appropriate for the sustainability of the BVI financial services industry.

Q: Finally, since its establishment 20 years ago, what has been the most significant achievements of the Commission?

KB: The BVI Financial Services Commission's most significant achievement is its successful transition into an independent regulatory body that has developed and implemented regimes for the effective regulation of financial services business in and from within the BVI. In addition, and with the cooperation of other key stakeholders of the Government, the BVI's level of compliance with international standards, as demonstrated in reports of reviews and assessments conducted by standard-setting bodies such as the International Monetary Fund (IMF) and Caribbean Financial Action Task Force (CFATF), has also been a tremendous achievement over the years.  

Some other key achievements of the Commission include:

• Establish an electronic platform at the Registry of Corporate Affairs, namely Virtual Integrated Registry Regulatory General Information Network (VIRRGIN), to facilitate the incorporation of BVI Business Companies, the registration of limited partnerships and the other post-incorporation/registration transactions. VIRRGIN has enhanced efficiency in conducting and processing transactions as required under the BVI Business Companies Act and the Partnership and Limited Partnership Acts;
• Fostering financial literacy within the BVI community through developing and implementing the Commission's Money Matters BVI programme. Money Matters BVI guides the BVI public on the basics of finance and how to manage their money and general estate. 

Q: Thank you so much, MD. Do you have anything else you would like to add? 

KB: The Commission continues to be robust in implementing its regulatory and supervisory regimes while balancing the importance of flexible business transactions and the need for cooperation to keep financial crime at bay and deny a haven to persons otherwise bent on abusing the legitimate structures of business.

All Court Documents to be Served on the Commission Electronically

Legal practitioners and other persons wishing to serve documents on the Commission are advised to do so via email at [email protected], until further notice. The Commission will not accept physical service of documents in light of COVID-19 health and safety precautions. This notice is issued in accordance with paragraph 4.3(a) of the Eastern Caribbean Supreme Court Practice Direction No. 5 of 2020 COVID-19 Emergency Measures (3rd re-issue).

Proliferation Financing (Prohibition) Act, 2021

In this issue, we feature the Proliferation Financing (Prohibition) Act, 2021 (PFPA), which came into force on July 9  2021.      

The PFPA replaced the Proliferation Financing (Prohibition) Act, 2009 and was developed as part of the Virgin Islands' ongoing effort at maintaining global standards on proliferation and proliferation financing.  The PFPA provides the framework for the prevention of the proliferation of weapons of mass destruction and their financing. The PFPA addresses targeted financial sanctions by recognising and implementing UN Security Council designations of persons or entities who are considered in violation of specific resolutions of the Council. 

The PFPA also prohibits a person from engaging in proliferation financing, establishes offences and prohibitions related to knowingly or recklessly dealing with assets related to a designated person or entity, and provides for the applicable search, seizure, and management of those assets. The PFPA empowers the Governor to make designations and requires the Governor to publish a list of designated persons. The Governor is also empowered to accept applications from persons who hold assets of a designated person. Licensees may not engage in any transaction or activity dealing with assets of a designated person without the approval of the Governor. 

The PFPA outlines reporting obligations and requires a person who holds assets of a designated person or entity to report that fact to the Financial Investigation Agency (FIA).  Similarly, there are reporting obligations for financial institutions and DNFBPs where there are reasonable grounds to believe:

• a financial transaction exceeding $10,000 was made or attempted that involves a designated country, person or entity; 
• an account was opened or attempted to be opened by a designated country, person, or entity; 
• an asset of a value exceeding $10,000 came under management or was requested to come under management, and that asset is owned or controlled by a designated country, person or entity; 
• a company, joint venture or other ownership or control structure exists and could be used to evade a prohibition under the Act or any other measure contained in a designated country resolution.  

Licensees are advised to familiarise themselves with the Proliferation Financing (Prohibition) Act, 2021, along with the Virgin Islands Financial Sanctions Guidelines (which can be found on the Commission's website under International Sanctions). Licensees are also encouraged to consider all recently enacted AML/CFT legislation when updating their policies and procedures, including the impact on both client and institutional risk assessments, and conduct training accordingly.  The Commission will undertake regular evaluations of such implementation through its onsite and desk-based supervisory models.

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].

New BVI Business Companies Amendment to Introduce Fee Changes

The Commission on January 21, introduced the BVI Business Companies (Amendment of Schedule 1) Order, 2022 (the "Order"), which comes into force on February 1, 2022. The Order makes changes to fees relevant to the continuation of companies in and outside of the Virgin Islands and foreign companies. Fee changes are outlined here.

The Commission Continues to Build More Robust Engagement with Industry Participants

Introducing BVI FSC Direct your constant and first-hand source of information about the financial services industry on Youtube. Click here to view 2022 Industry Outlook with Ken Baker.