British Virgin Islands
Financial Sector Assessment Program Update: Financial System Stability Assessment

This paper focuses on financial regulatory policies and stability. The British Virgin Islands (BVI) provides administrative, audit, and legal services to international business companies, which is another key component of the economy. Developments in the financial sector and regulatory framework warrant an update of the assessment conducted under the IMF’s Offshore Financial Center (OFC) program. Financial Services Commission Act (FSCA) provides the Financial Services Commission (FSC) with a wide array of specific regulatory, supervisory, and enforcement powers. The banking system has been insulated from global financial shocks. Many critical elements develop a robust and proportionate crisis management framework.

Abstract

This paper focuses on financial regulatory policies and stability. The British Virgin Islands (BVI) provides administrative, audit, and legal services to international business companies, which is another key component of the economy. Developments in the financial sector and regulatory framework warrant an update of the assessment conducted under the IMF’s Offshore Financial Center (OFC) program. Financial Services Commission Act (FSCA) provides the Financial Services Commission (FSC) with a wide array of specific regulatory, supervisory, and enforcement powers. The banking system has been insulated from global financial shocks. Many critical elements develop a robust and proportionate crisis management framework.

I. Introduction

A. Purpose of the FSAP Update

1. Developments in the financial sector and regulatory framework warrant an update of the assessment conducted under the Fund’s OFC program and finalized in 2004. Furthermore, the integration of the OFC program into the FSAP (Executive Board meeting 08/48 on May 30, 2008) has widened the scope of the assessment to include stability-related issues and stress tests of certain sectors. This report therefore covers both regulation and supervision, and matters relating to the soundness of the financial system and its ability to cope with stress.1 A separately conducted assessment of the AML/CFT framework is incorporated into these findings.2

B. Context

2. The BVI is a British overseas territory. It is governed by an elected parliament headed by a premier and a formal Cabinet. The government of the territory is fully responsible for all domestic laws and law enforcement, and raises its own revenue. A governor represents the British Crown for an appointed term but does not actively participate in day-to-day governance.

3. The territory is a small but prosperous jurisdiction. Government revenues are heavily dependent on the two main industries, tourism and financial services, with greater than 60 percent coming from FSC annual fees. The recent global financial crisis has not affected the health of BVI financial institutions, but it has caused growth of financial services to slow down, since the core business is company registration rather than asset management or banking. Incorporations were down slightly, but revenue remains fairly steady. The BVI tourism sector is intimately connected to the health of the U.S. economy and tourism revenue has been affected by the recession in the United States.

4. The BVI enjoys a high standard of living, particularly in comparison to the region. GDP is estimated at $1.095 billion3 or $38,818 per capita (with a population of about 24,000).4 Unemployment remains low at 3 percent to 4 percent. The workforce is dominated by expatriate labor (65 percent of the total workforce, with expatriates filling an estimated 80 percent of financial services jobs).

Table 3.

British Virgin Islands: FSC Revenue to Total Government Revenue

(In thousands of U.S. dollars)5

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Source: FSC.

5. The BVI’s fiscal health is deteriorating and the territory is undergoing budget rebalancing. Growth in expenditures has exceeded growth in revenues for the past several years and the flattening of revenue has meant that BVI was in a deficit position in 2009. The United Kingdom imposes fiscal restrictions on overseas territories, including a requirement to have 90 days liquidity in reserves. The BVI has breached this target and, as a consequence, cannot take on any additional debt without the permission of the United Kingdom.

6. Generating revenue growth is the challenge of the future—it is clear that financial sector growth has slowed as the corporate registration business may have matured. Further growth in this sector must come from value-added services. There is an ongoing discussion in the jurisdiction as to what value-added services can be developed as a complement to registration. The heavy reliance on revenue from the financial sector makes the fiscal position vulnerable to loss of business to competitors and the authorities are under pressure to ensure the regulatory framework does not make the BVI uncompetitive. Government and industry are coordinating to seek new markets, for example, in the BRIC jurisdictions; and the jurisdictions have consistently expanded the legislative framework to provide more product variety to clients.

7. The BVI is an important global financial services center because of its role in the registration of corporations and trusts. The BVI is also the second largest global domicile for investment funds. The mainstay of the sector is the incorporation of corporations or trusts that are financial holding companies, asset management companies, captive insurers, and the like. For the most part, these entities are set up in the BVI and subject to BVI law, but conduct all of their business (and hold all of their assets) elsewhere. The asset holdings of BVI incorporated companies are estimated to be US$615 billion.6 While the BVI does not have direct linkages to other financial capitals via cash flows, it is linked through the corporations and trusts that have made the BVI the first port of call for those setting up offshore businesses. The BVI’s ability to create and implement standards for incorporation and anti money-laundering and terrorist financing activities, and its ability to share information and cooperate with other authorities, is therefore crucial.

8. The future for offshore financial services is unclear. BVI has attracted business because of its tax neutrality (there are no corporate income or transaction taxes) and because of its legal infrastructure and modern regulatory framework. Changes to tax rules in onshore jurisdictions, such as in the United States where authorities have worked to make offshore transactions taxable onshore, will challenge offshore jurisdictions in general, as will changes to regulatory treatment of offshore vehicles, such as the proposed EU hedge-fund legislation. However, the future of offshores, and BVI in particular, remains to be decided. The recent Foot report examined the strengths and weaknesses of the British offshore financial centers and raised concerns regarding the lack of diversification in economies, but with no firm conclusions on the way forward.7

9. The 2004 OFC mission found a number of weaknesses in the implementation of regulation and made recommendations for increased on-site inspection capacity. The FSC has worked steadily to address these recommendations and now has a comprehensive inspections program in place, as noted below. The 2004 report also noted a number of shortcomings in the legislative framework, which have been addressed (although significant portions of this legislative change were done only in 2010).

II. Regulatory and Supervisory System

Legal framework

10. The Financial Services Commission (FSC) is an independent supervisory authority with broad powers to regulate the full scope of financial services offered from or in the BVI. The Financial Services Commission Act (FSCA), which came into effect in January 2002, established the FSC as an independent statutory body. The FSC has been given broad powers by statute to regulate, supervise, and enforce financial services activities carried on in or from the jurisdiction. These services include insurance; banking; insolvency; fiduciary business; money services business; company management; mutual funds business as well as the registration of companies; limited partnerships; and intellectual property. The FSC also has responsibility for overseeing compliance of companies and limited partnerships with the corporate or partnerships legislation. The FSCA provides the FSC with a wide array of specific regulatory, supervisory, and enforcement powers. These include the powers to issue binding guidance, apply terms and conditions to licenses and take a range of enforcement actions.

Table 4.

British Virgin Islands: Structure of the Financial Sector—Current

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An additional two banks are in the process of winding up.

In addition, an almost equal number of entities have been formed under the legislation, but have since been struck off the register (for inactivity or violations of rules). Sometimes, these figures are aggregated and estimates of 800,000 BVI corporations are made. However, the more accurate number is the number of registered corporations as included here.

11. Since the last assessment, the FSC’s statutory authority has been expanded. The FSC now has authority to take action against unlicensed persons carrying on financial services business; remove officers and directors of licensees if they are not fit and proper; impose monetary penalties where criminal action is not taken; and require regulated persons to provide information returns to the FSC. The independent Appeals Board created by the Financial Services Commission Act (FSCA) is now fully operational. This Board has jurisdiction to consider appeals of any FSC decision, except the refusal to grant a license.

12. In order to provide a more flexible regime that can be adapted quickly to market developments, the FSC has been given the statutory authority to issue legally binding codes. The Regulatory Code that was enacted in December 2009 provides critical detail of the regulatory requirements in several areas of general application to all licensees, including: licensing processes; fit-and-proper criteria; the licensee’s corporate governance framework; and expectations for areas such as risk management, internal controls, internal audit, and record keeping. It also outlines requirements relating to financial reporting and auditors; outsourcing; segregation; protection of customer assets and capital; and insurance requirements.

13. Effective implementation of the Regulatory Code requires further action by the FSC. As of March 31, 2010, most of the sections of the Regulatory Code were in force. However, it is not clear to the mission team that the FSC had effectively ensured that firms have put in place the necessary arrangements to comply fully with the Code’s provisions. Further, it must be amended to add a new part to address investment businesses, as the relevant parts8 of the new Securities and Investment Business Act, 2010 (SIBA) came into force in May 2010. There appeared to be confusion regarding full implementation of the Code; the FSC should assess its communication internally and with industry, and ensure there is a shared understanding of when compliance with these new rules is expected.

Regulator

Governance

14. The Board of Commissioners is the governing body of the FSC. It is made up of six commissioners plus the managing director (MD), who is an ex officio member. Commissioners are appointed by the Cabinet for a period not exceeding three years on terms set by the Cabinet. The FSCA provides that the Cabinet may only remove a Board member for cause and, as recommended by the previous assessment, it must now give written reasons for such removal. The statute does not require that these reasons be made public. Both the independence and the accountability of the Board would be enhanced by requiring that the reasons for any termination of a Board member be disclosed publicly.

15. The MD is the chief executive of the FSC and is generally responsible for the operations of the FSC. The Board may remove the MD as permitted by his contract of employment and the Board must give written reasons for any such removal. Neither the terms of the MD’s contract nor the reasons for dismissal are required to be made public. The independence and accountability of the MD would be enhanced if the permissible reasons for his termination under his contract were transparent and if the Board were required to disclose publicly the reasons for any termination of the MD.

16. The FSC consults extensively with industry on regulatory matters and several consultative committees and liaison groups have been formed to facilitate this process. The MD holds quarterly round-table meetings with the heads of all of the industry associations. The FSC also holds a quarterly “Meet the Regulator” town hall-style meeting, open to the public.

Table 5.

British Virgin Islands: FSC Annual Staff Count

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Source: FSC.

Ceased to be FSC function in 2006, but staff seconded to Registry for period thereafter.

Budget and staffing

17. The primary source of funding for the FSC is fees from company registrations and licenses of financial services firms. The FSCA permits it to keep a percentage of these fees—from 7.5 percent to 15 percent—as negotiated on an annual basis with the Cabinet. There appear to be no impediments to funding extra resources as necessary. In the MD’s view, the funding provided to the FSC is sufficient to meet its present needs.

18. Significant resources are devoted to training. In recent years more than $3,000 per staff member has been budgeted for training, and industry participants commented favorably on the expertise of most senior staff. However, it may be appropriate to focus additional efforts on ensuring junior staff develop a better understanding of the industry and markets they regulate.

Accountability

19. The FSC is accountable to the Cabinet and to the legislature. The budget and work plan of the FSC are approved by the Cabinet and then presented to the legislature. The MD also meets with the minister of finance monthly to report on general matters and on progress regarding the work plan. The FSC can appear before Select Committees of the House of Assembly when requested, and have done so. The annual report, including the financial statements, is provided to the Cabinet and is to be tabled with the legislature. The FSC’s practice is to publish its annual report on its website.

Supervision

20. There is detailed and well executed, off-site review and an on-site inspection system designed to mitigate operational and reputational risks. A regulatory inspection tool developed by KPMG—KReview—is currently used by the Banking and Fiduciary Services Division and Insurance Division. KReview represents a range of automated supervisory support tools to assist the FSC staff to undertake an effective and detailed on-site inspection. A centralized and automated system to follow up on inspection recommendations should also be developed.

21. The on-site inspection process began in 2004 for most Divisions. Inspections commenced in 2008 for the Investment Business Division. All the Divisions are now fully engaged in regular inspections. The number of inspections completed by each Division since 2004 is set out below. Given the size and importance of the corporate and trust service provider sector, a greater number of inspections might be undertaken.

22. The authority of the FSC to collect information relating to the financial industry in general and of licensees in particular has been enhanced in the law. Quarterly prudential returns are required of banks. Mutual funds are required to file annual returns providing information on fund service providers; summary statements of financial position; investment strategy and listing status; asset allocations; and expenses. Annual audited statements for all regulated entities must be filed within six months of year-end, which is not in keeping with international practice of 90–120 days. The filing period should be shortened accordingly.

Enforcement

23. The FSC has a specialized enforcement function, which carries out investigations and brings actions before the Enforcement Committee. The FSC has wide enforcement powers and can issue cease-and-desist orders and directives, suspend or revoke licenses, and remove directors. The FSC can also apply to a court for a protection order against both licensees and unlicensed persons carrying on financial services business. A protection order could allow the FSC to freeze assets and appoint an administrator to take over the business among other actions.

Table 6.

British Virgin Islands: On-site Inspections Conducted by FSC Regulatory Divisions

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Source: FSC.

24. The enforcement work of the FSC has also been intensifying, with growing numbers of enforcement actions, from 4 in 2005 up to 60 in 2009. The Enforcement Division also does surveillance of the industry, using information services and by scanning financial publications. With increased examinations, the enforcement area may be able to target the more serious breaches. Recent actions have demonstrated that the FSC has both the willingness and ability to address high profile and sensitive issues.

25. Fine levels for major breaches are relatively low and may not have a sufficient deterrent effect. Increasing the level of fines available to the FSC is recommended. Administrative penalties for the same offences should rise proportionately.

26. The decisions of the Enforcement Committee are not required to be made public. Additional transparency would engender a greater understanding of FSC policy through the community and apply an additional discipline to the market place. Decisions are appealed to the Financial Services Appeal Board, the members of which are appointed by the Cabinet.

A. Banking Sector

27. The banking system of the BVI has $2.5 billion in assets and banks range in size from $98 to $915 million.9 The system is comprised of three branches; three subsidiaries of foreign banks; and one government-owned domestic bank. The banks engage in traditional banking business; lending; deposit-taking; and simple off-balance-sheet activities, such as providing letters of credit. Entry into the system is subject to strict licensing standards that require the applicant be a highly-rated institution from a jurisdiction that exercises consolidated supervision. While there have been changes in ownership, a new banking license has not been issued in the past 20 years. The only license issued was in 2006, when the government-owned bank converted from a development bank to a commercial bank.

28. BVI law provides for three classes of banking license: a general banking license, a restricted Class I banking license, and a restricted Class II banking license. A general banking license permits the holder to conduct banking business within and outside the BVI. A restricted Class I license and a restricted Class II license do not allow the respective holders to take deposits or make loans to BVI residents except in the case of corporations. (The difference between a Class I and Class II license relates to the manner in which they can deal with BVI corporations.) There are six general banking licenses, one restricted Class I license and no restricted Class II licenses.

29. The well-developed legal and regulatory framework and a detailed inspections program are reinforced by consolidated regulation of parent banks. The BCP review shows a major improvement from the 2004 report. Given that the system is 96 percent foreign owned, it benefits from the parent/head office systems and expertise that enable the institutions to meet international standards established by the BVI. The foreign ownership also requires the FSC to have strong cross-border collaboration with the home-country supervisor and needs to review systems developed at the parent company for global application, and determine their applicability and adequacy for the BVI branch or subsidiary.

B. Insurance Sector

30. The BVI insurance industry is dominated by captive insurers, the majority of which are single-parent captives with parents in the United States. There are currently 287 captive insurers registered in the BVI. In recent years, the FSC has seen a relatively large number of exits from the industry, including shutting down inactive or noncompliant firms. The growth of the industry has slowed and it is unclear where the future lies. While there is an increase in the number of captives from outside the United States, the BVI faces competition from a number of jurisdictions, both offshore or from onshore jurisdictions. There are some small general and life insurance companies, subsidiaries of large multinational companies, which serve the local population.

31. Both insurance managers and captive insurers are subject to licensing as set out in legislation, particularly the Regulatory Code. In particular, they must meet the fit-and-proper criteria as applied to all supervised entities, for example, those relating to the suitability of directors and shareholders. All captive insurers must appoint an insurance manager, which is subject to qualification requirements and books and records requirements.

32. Insurance managers play a key role in monitoring captives. Section 51 of the Insurance Act places an obligation on the insurance manager to report immediately to the Commission any information relating to the affairs of the licensed insurer that it has obtained in the course of acting as the insurer’s manager which, in the insurer’s manager’s opinion, suggests insolvency, criminal activity, serious breach of the Insurance Act, Regulatory Code or any other enactment or guidelines or codes relating to AML/CFT, default in payments of liabilities or failure to conduct business in accordance with sound insurance principles.

33. Insurance managers and the insurers they manage are subject to the FSC on-site inspection regime. The purpose of these inspections is two-fold: an inspection of the insurance manager itself and an inspection of the captive insurers that it manages.

34. The shortcomings noted in the 2004 report have largely been addressed. Insurance managers and captive insurers are subject to governance and internal control requirements under the Insurance Act and Regulatory Code. As noted, the on-site program has developed significantly since the 2004 report. There are a number of changes to come, particularly with reference to the recently enacted Regulatory Code.

C. Investment Business

35. At the present time, the principal securities activity in BVI is the incorporation and authorization of mutual funds. At the end of December 2009, there were a total of 2,937 active mutual funds registered or recognized in the BVI, down just slightly from 2,953 at the end of 2008. This is an increase of 23.8 percent over the past five years. Only 7.4 percent of the funds authorized by the FSC are public mutual funds that may be sold by prospectus to any investor. The rest are either professional funds (sold to sophisticated purchasers only) or private funds, where offers to the public are prohibited and the number of investors must be fewer than 50. In practice, even the public funds do not make their securities available for purchase in the jurisdiction.

36. The Mutual Funds Act provided for the registration of public mutual funds and the recognition of private and professional funds. It also governs the licensing of mutual fund managers and mutual fund administrators operating in or from the BVI. This has been supplemented by the enactment of the legally enforceable Regulatory Code, effective in 2010. The Regulatory Code includes requirements of application to all types of licensees, along with detailed sector-specific rules.

37. On the first day of the mission, SIBA was passed by the legislature and the greater part of the legislation came into force in May 2010. SIBA expands the categories of investment activities subject to licensing: introduces requirements for the public issue of securities (other than by mutual funds); codifies and modernizes the regulation of mutual funds and their service providers; recognizes accounting and auditing standards; requires audited financial statements to be prepared by approved auditors; and addresses market abuse offences. SIBA and a package of related subsidiary instruments (Mutual Fund Regulations and the Public Funds Code) were reviewed. The FSCA and now SIBA provide the main legal framework for the supervision of securities activities in the BVI.

38. The FSC licenses mutual fund administrators and managers operating in or from the jurisdiction. As of the end of 2009, 573 licenses had been granted. Mutual funds authorized by the FSC are not required to have managers or administrators that are licensed in the jurisdiction and very few of these licensees are resident. SIBA gives the FSC authority to regulate other market participants such as brokers, dealers and underwriters.

39. Most of the areas requiring improvement identified in the previous assessment will be addressed with the full implementation of the investment business sections of the Regulatory Code, SIBA, and various subsidiary instruments. But, until all of those instruments are fully effective, the only recommendations that can be considered fully implemented are those with respect to on-site inspections and additional enforcement resources. Without the full and effective implementation of the new regime, the jurisdiction continues to be only partially implemented with respect to the IOSCO Principles relating to collective investment schemes (mutual funds).

40. Priority should be given to prompt and full implementation of the Regulatory Code and the new SIBA regime. The Regulatory Code was enacted at the end of 2009 and SIBA has only recently come into force. Certain key parts of the new regime, such as the Public Funds Code, are not yet final. Also, full implementation includes being seen to be actively enforcing the new requirements on the marketplace. As there are no securities intermediation activities being carried on at present, this gap may not be serious. Full implementation of the regime for intermediaries, such as brokers or dealers, requires new regulations and amendments to the Regulatory Code. Representatives of industry have indicated that there may be interest from market participants for licensing under one or more of these categories fairly soon, so the need to draft and implement the necessary instruments may become pressing in the near term.

41. There continue to be areas where improvements are required, particularly with respect to continuous disclosure obligations of public mutual funds. The requirement for public disclosure of material changes should be timelier; 14 days to amend a prospectus may be acceptable, but notice of the change should be published promptly. Further, the deadline for filing and publishing audited financial statements should be shortened; the current requirement to file six months after year-end is two to three months longer than is mandated in major jurisdictions.

Table 7.

British Virgin Islands: Number of Active Mutual Funds by Category

(As at December 31)

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Source: FSC.
Table 8.

British Virgin Islands: Number of Active Fund Managers and Administrators, by Category

(As at December 31)

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Source: FSC.

D. Trust and Corporate Service Providers

42. The incorporation of BVI business companies and the provision of trust and corporate services is the central business of the financial sector in BVI. Trust and corporate services have been recognized internationally as a potential source of financial risk, including risks from money laundering and the financing of terrorism. As these corporations and trusts in the main do not deal with the assets of BVIslanders, these activities do not pose a direct risk of financial losses to citizens in the same way as, say, the onshore banking sector. However, this sector (particularly as a result of its magnitude and prominence within the BVI financial sector) also constitutes a major source of reputational risk.

43. The trust and corporate service providers (TCSP) industry in the BVI is currently comprised of 125 firms offering a mixture of services. A common feature of these firms is their roles as Registered Agents under the BCA. Under the Act, every business company incorporated under the Act requires a Registered Agent (RA)10 to administer its affairs at all times. RAs may be licensed under one of two statutes, namely the Banks and Trust Companies Act (BTCA) or the Company Management Act (CMA). Licensing under either the BTCA or the CMA grants the practitioner the right to act as Registered Agents for business companies.

44. An RA carries out a number of functions. These include maintaining the registered office of the company and its memorandum and articles of association, and maintaining a register of shareholders and directors.

45. Trust business is governed by the BTCA. The Act provides that no trust business may be conducted from within the BVI (whether such business is within or outside the BVI), unless the person conducting this business holds a license under the BTCA. The holder of a Class I trust license is entitled to carry out both trust work and company management work.

46. Licensing under the CMA entitles the holder to offer company management services. These services include: the formation of companies, including the continuation of companies as BVI companies; the provision of registered agent services; the provision of registered office services; and the provision of directors or officers for companies, whether such companies are incorporated or registered in a jurisdiction outside the BVI; and the provision of nominee shareholders in companies, whether such companies are incorporated or registered in a jurisdiction outside the BVI.

47. Registered Agents are considered fiduciaries. RAs are under a duty (particularly in the case of Trust Companies) to ensure that the interests of their clients are protected.11 In the case of trust and corporate service providers (TCSPs), their duties may not be strictly fiduciary in nature, depending on the services provided (save for such fiduciary duties that may be owed as directors and officers); however, they are placed under a heavy burden under legislation.

48. The RA regime is predicated on placing a high regulatory burden on RAs to essentially ensure the compliance of their clients to the relevant laws in the BVI. This is in addition to the RA’s own obligations under the governing and AML/CFT legislation to carry out such critical obligations, such as know-your-customer requirements; suspicious transaction reporting; and record-keeping. Because the vast majority of the actual business of the corporations takes place abroad, the RA may find obtaining the relevant information from the business owners and directors on the ultimate beneficial owners; the nature of the business; the relevant transactions; and the changes in the owners and directors of the business a challenge. RAs may be under pressure from corporations for documentation and certificates of good standing. In order to combat these challenges, RAs generally maintain stringent policies relating to the acceptance of business as well as policies for the termination of business relations (including resignations) where they are unable to get the appropriate level of information from companies. They are required by law to serve on the company and file with the Registry both notice of their intention to resign as well as notice of their actual resignation.

49. Since the last assessment, under the OFC program, there have been significant changes to the legal and institutional framework in this sector. The overarching legislative framework for the TCSP industry is comprehensive and in keeping with the OGBS Statement of Best Practice. However, the Regulatory Code is not being fully enforced at this time because of pending amendments and the need to provide licensees with time for effecting compliance. Also, the penalties for the commission of offences under the CMA and the BTCA (especially, as regards the conduct of unauthorized business) appear to be low.

50. The FSC monitors RA compliance with rules using a variety of methods, including the receipt and analysis of data from licensees and by the conduct of off-site examinations. The FSC uses a risk-based approach in devising its examination program. The Banking and Fiduciary Services Division carried out 19 inspections for the TCSP sector in 2009, using a core inspection staff of four individuals. The frequency of inspections appears low (although the quality of the examinations appears high), given the size of the regulated population and the importance of the sector to the governments revenues. It is recommended that the authorities consider increasing the FSC’s complement of examiners in this area.

51. The BVI authorities have also implemented a regime for the immobilization of bearer shares. Companies with bearer shares are required to deposit these shares with either a Recognized Custodian (being a recognized securities exchange or clearing organization) or an Authorized Custodian approved by the Commission pursuant to the FSCA. The FSC must be satisfied of the fitness of the person to be an Authorized Custodian of bearer shares as well as the systems in place for the secure custody of the shares and to comply with the procedures prescribed in the BCA.

52. “Grandfathered” bearer shares (those issued by companies authorized prior to the change in law) that have not been deposited with either type of Custodian are deemed by operation of law to be disabled. Thus, all rights attached to such shares are suspended. Companies that wish to reactivate the rights attached to these shares must apply to the court for an extension of time to deposit bearer shares with a recognized or authorized custodian.

E. International Information Sharing and Cooperation

53. The FSC has demonstrated both its willingness and ability to be a full partner in international information sharing and cooperation.12 There are no legal impediments to information sharing either domestically or internationally. Financial Services (International Cooperation) Act, 2000 (FSICA), which set out requirements for information sharing with foreign regulators and foreign law enforcement agencies, was repealed in 2006. The FSCA was amended to incorporate information-sharing provisions that expanded and clarified the FSC’s authority in response to concerns raised during discussion of international cooperation initiatives and the process of negotiating to become a signatory to the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (IOSCO MMOU). The FSC has become a full-signatory to the IOSCO MMOU.

54. The FSC actively participates in regional and international cooperation. It is a member of the Offshore Group of Banking Supervisors, the Caribbean Group of Banking Supervisors and the Association of Supervisors of Banks of the Americas. The FSC attends regulatory colleges for two Canadian banking groups and has a Memorandum of Understanding (MOU) with the Office of the Superintendent of Financial Institutions (OSFI). There are no regulatory colleges for the U. S. banking groups in the jurisdiction, but the FSC has an MOU with the regulator in Puerto Rico and is negotiating an MOU with the U. S. supervisors. The FSC holds regular meetings with the head offices of these banks in Puerto Rico. The FSC also has an MOU with Jersey.

Table 9.

British Virgin Islands: Information Sharing under the IOSCO MMOU

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Source: FSC.

F. Anti Money-Laundering and Combating the Financing of Terrorism

55. An AML/CFT Mutual Evaluation Assessment was carried out by a team from the Caribbean Financial Action Task Force (CFATF) in 2008. The CFATF Report (November 2008) was incorporated into a ROSC, which is attached to this report.

56. The CFATF report found that the BVI has an AML/CFT system that is broadly in line with international standards. Money laundering and terrorist financing have been criminalized with some minor deficiencies cited. Specific deficiencies were identified in the areas of customer due diligence; the dissuasiveness of penalties; requirements for nonprofit organizations; and the adequacy of supervisory coverage. The authorities have undertaken steps to address all of these issues.

57. Supervisory resources devoted to AML/CFT matters require enhancement. The low number of ML prosecutions suggests a limited implementation of the legal framework. The authorities have added resources subsequent to the CFATF report with the aim of improving ‘supervision of compliance with AML/CFT standards for both financial institutions and designated nonfinancial businesses and professions. The report also noted that law enforcement resources may be insufficient, including an inadequate number of officers with in-depth training and experience in the area of financial crime. The authorities have since stepped up training in AML/CFT investigative techniques.

III. Financial Stability Issues

A. Vulnerabilities of the Banking System13

58. The BVI has been relatively insulated from global financial shocks to date, and has remained stable. The banking system is focused on domestic activity and was not directly exposed to volatile asset markets (e.g., structured credit). Revenues and profitability have remained relatively stable and the sector has been largely unaffected by the distresses of the wholesale markets.

59. BVI is highly unlikely to be an originator of a major systemic shock for the wider international markets. Losses at the branches and subsidiaries located in the BVI would be insufficient to impair the stability or soundness of the parent banks as the local presences are not significant within their respective group structures.

60. However, vulnerabilities exist. Only one bank, the government owned National Bank of the Virgin Islands, is locally owned and the remainder of the system is comprised of branches and subsidiaries of foreign banks. Therefore, distress experienced by the parent banking institutions would be likely to transmit and have adverse effects on the BVI branches and subsidiaries. Moreover, the BVI banking system is highly concentrated, with two branches having approximately half of the deposit and loan markets of territory.

61. The banking sector appears highly liquid but there are aspects of liquidity risk management to consider. The banking system is characterized, largely, by high volumes of liquidity, with surplus funds typically being lodged with the parent institutions. In a stressed situation, therefore, the majority of banks operating in the BVI would be reliant on access to liquidity from their parent institutions. However, there have been no requirements for the branches, subsidiaries or the nationally owned bank to identify contingency arrangements for alternative or diversified sources of funding or liquidity. Should there be a crisis in one of the banking parents there could be local contagion effects within the BVI.

62. The FSC monitors liquidity levels in the banks. Banks submit information quarterly. Liquidity remains very high (Table 10). The FSC closely monitors net liquidity due to/from parent banks and adjusts and limits these based on a risk assessment. The FSC also requires a capital equivalence deposit for branches that is equal to the required CAR for subsidiaries. The FSC maintains good communications with parent-bank regulators and intensified this contact during the recent crisis.

Table 10.

British Virgin Islands: Bank Liquidity (Aggregate)

(In millions of U.S. dollars, unless otherwise indicated)

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Source: FSC.

63. Although the major threats to the BVI are external, there are some internal risks. As the authorities are well aware, reputational risk is the primary threat to the sustainability and any further development of the island’s financial sector. An association of BVI with a major fraud or misconduct in any financial sector, but most particularly with respect to the trusts and corporations serviced on the island given the relative size of this industry, would be damaging for the BVI reputation and might lead to flight of business from the island. The authorities are conscious of this and are keen, among other actions, to identify any possibilities of cooperation with nondomestic authorities to track down fraudulent behavior or regulatory breaches.

64. There are potential risks from business development in the BVI. Neither the banking sector specifically or the financial sectors on the island more generally are heavily inter-connected or exposed. Hence, weakness in one institution, other than through reputational and contagion risks, would not necessarily undermine the financial system. The state-owned bank, although small and sufficiently capitalized for its current business, has expressed an interest in growth. As a priority, the skill and management deficits the FSC has identified at the bank need to be addressed. Were it to grow, it would require greater capital. Bank management would also need to demonstrate a depth of skill and ability concomitant with the size and complexity of any new business line.

B. Crisis Management Framework

65. No formal crisis management framework is in place. Formally, there are no policies and procedures in place to respond to a crisis situation. Although the BVI has been relatively insulated and the prospect of a severe crisis may be relatively low, there are some gaps in the present arrangements. The authorities do not have a fully articulated contingency plan were the banking or financial sector to come under pressure. There is no provision for emergency lending, and no contingent credit lines are in place. Indeed, the BVI government is suffering budgetary constraint and the BVI cannot increase its borrowing further without permission of the United Kingdom. Hence, were the BVI financial sector to come under pressure, then the government would have no recourse to reserves or contingent lines of credit. At the micro level, the FSC has not required contingency planning to be put into place in the banking institutions and there are no requirements for banks to ensure they have reserve committed (and tested) lines of credit or alternative funding should this become necessary.

66. However, the BVI arrangements exhibit a number of strengths. Structurally, many critical elements are already in place to develop a robust and proportionate crisis management framework. The FSC has the necessary legal gateways to communicate and exchange information with domestic and overseas authorities, not merely banking supervisors. Also, the FSC has broad general powers to intervene with institutions, including powers of direction and the removal of executives from failing institutions. The FSC could direct provisioning and could write down shareholder equity as necessitated.

67. The BVI benefits in particular from the potential for flexibility and nimbleness in its authorities’ responses to emerging situations. This responsiveness was demonstrated in the crisis of 2008, when the authorities were proactive in their engagement with the banks at local and also parental level, seeking confirmation of financial soundness and willingness to provide parental support. Additionally at the request of the FSC the BVI banks issued a joint statement to the public outlining their position with respect to liquidity.

C. Financial Stability Policy

68. In the absence of a central bank or other institutional arrangements, the FSC plays a critical role in financial stability issues concerning the Territory. The FSC does not have an explicit mandate, but its core functions essentially comprise guardianship of financial stability. In this role, it is supported by government and there is close contact between the FSC and ministry of finance. However, there are no formal institutional arrangements in place for the regular coordination or oversight of the financial sector to be discussed with the ministry or government, for example, the Cabinet. The authorities have, in the context of the 2008 crisis, demonstrated their alertness and responsiveness to risks in developing situations and their ability to coordinate at short notice. Nonetheless, a longer-term potentially strategic view underpinned by more formalized regular coordination with government may broaden awareness of the strengths and risks of the financial sector beyond the FSC and the ministry of finance. A formal report on crisis management and financial stability as part of regular monthly and annual reporting to government is recommended as a means of increasing awareness of the issues.

69. FSC has begun to establish broader financial sector oversight mechanisms. In 2009 the FSC set up an internal Crisis Management Committee to assess the risk of spill-over effects from global financial turbulence into the BVI and across sectors. Increasingly, international good practice encourages macro prudential oversight, which the FSC has not yet focused upon. Given the establishment of the Crisis Committee in the FSC and the practice of quarterly data collection and analysis, semi-annual discussion is held with each bank (quarterly where conditions merit), substantial elements are in place to support a proportionate macro-prudential dimension for the financial sector.

70. The primary focus of the Crisis Committee is to ensure the reputational integrity of the jurisdiction, with particular emphasis on the company registration sector. The FSC has been keen to make other jurisdictions aware of its willingness to assist and cooperate in cases of concern. The Committee seeks to monitor BVI entities globally on a weekly basis, including whether any are involved in litigation, if so the nature of the litigation and whether they are under investigation or whether the FSC needs to act. The FSC is anxious to be aware or be notified of any suspicious activity by BVI institutions or of institutions falsely purporting to have BVI incorporation. The FSC is an associate member of the UK Financial Intelligence Network (UK FIN-NET).

71. Home-host regulatory relationships are essential. To a great extent, the FSC has pursued the policy that prevention is better than cure. The FSC has a cautious and restrictive approach with respect to licensing new banks and, indeed, banking guidelines have remained the same since 1984. Coupled with the relatively straightforward business lines adopted by the banks, this has ensured the BVI banking sector has stayed out of the direct path of the global financial crisis. Nonetheless, the majority of the banking sector has overseas parentage and exposure to the international groups presents a significant source of potential risk or instability for the BVI. In this context, the relationship between the FSC and the home state supervisors is a critical factor in the effective supervision of its domestic banking system.

72. But care is needed with respect to reliance on home regulators. Based on the size of the BVI operations, the FSC has little automatic leverage in cross-border supervisory relationships or colleges of supervisors. However, the FSC is aware of the need to make its presence felt and to develop supervisory relationships proactively, so that information flows and supervisory cooperation are not limited to, or purely defined by, written agreements. It has been thus far successful in establishing a regional reputation and enjoys positive relations with home regulators and its neighbors and this would be important to maintain. The FSC further supplements its ability to conduct group-wide analysis and risk assessment by requiring the BVI banks to submit the financial data of their parent group. This analytical discipline can and should reinforce and inform the cross-border supervisory relationships ensuring that the FSC is not restricted to being a passive recipient of information from the overseas consolidated supervisors.

73. Alternative options available to the FSC to limit the exposure of its banking sector to wider risks are limited but should be considered. The FSC needs to be ready and able to use its powers to prevent the up-streaming of deposits by the subsidiaries and branches in the BVI to their parent entities and to require branches to maintain net “due to head office” positions as soon as signs of pressure on parents or groups emerge. The FSC is already debating the merits of this policy with fellow supervisors in the form of the Caribbean Group of Banking Supervisors.

74. The FSC should ensure that contingency planning is put in place by the banks and reviewed regularly by the supervisor. Particular attention should be given to reviewing liquidity policies and ensuring that contingency liquidity arrangements are in place. This will not be easy, given the broad perception that the banks are highly liquid.

75. A deposit compensation scheme (DCS) would be a welcome step to reinforce systemic stability, and plans are underway. Industry, government, and the FSC all support plans to introduce a DCS and a project to establish a scheme has been initiated. So far, no details have been agreed; for example, the scale and scope of compensation ($50,000 to $100,000 is the range under discussion to date); the mechanism of funding; or the organization, management and location of the DCS. However, the ministry of finance has begun work using the Canadian model of DCS and Canadian legislation as a basis, although there are no plans to adopt the Canadian approach without modification for the BVI’s needs.14 The timescale to introduce and pass the required legislation in the BVI is the end of 2010, which is highly ambitious, given the range of outstanding issues and the agreed need for industry consultation.

Annex—Observance of Financial Supervision Standards and Codes—Summary Assessments

This Annex contains the summary assessments of standards and codes in the financial sector. The assessment has helped to identify the extent to which the supervisory and regulatory framework is adequate to address the potential risks and vulnerabilities in the financial system.

The following detailed assessments were undertaken:

  • Basel Core Principles for Effective Banking Supervision—by Mr. Michael Deasy (Central Bank of Ireland) and Mr. José Tula (consultant)

  • The FATF 40+9 Recommendations for AML/CFT—by a Caribbean Financial Action Task Force team comprised of Mrs. Hypolite-Bones, Central Bank of Trinidad, Ms. Devries, Central Bank of the Netherlands, Mrs. Edun-Watler, Cayman Islands Monetary Authority, Mr. Maxwell, Royal Barbados policy force, and Mr. Hernandez, CFAFT Secretariat and approved by Mr. Hagan, IMF LEG Department.

The BVI’s compliance with the international supervisory standards is generally high, and most of the issues raised in the 2004 assessment have been addressed.

A. Basel Core Principles for Effective Banking Supervision

1. The banking system in the BVI is small and focused on a limited range of local services. The system has a total of $2.5 billion in assets. Banking services are limited to deposit taking and direct lending (mortgages and consumer credit). There is no payment system and given the use of the US dollar in the jurisdiction, no connection to monetary operations. The system is dominated by branches and subsidiaries of foreign banks (mostly Canadian and Puerto Rican). There is one small local bank, which is government owned. Unlike other offshore financial centers, the authorities have taken the view that there the banking system should remain very limited and conservative.

2. BVI has a solid legal basis for an effective banking supervisory regime, particularly after the recent enactment of the Regulatory Code, 2009. The challenges facing the FSC lie in the implementation of the rules and regulations under this legislation. Although elements of the Regulatory Code were largely in place in the form of guidance, there are many additions bringing the framework into compliance with Basel II. While the FSC appears to have sufficient resources to oversee the current (limited) range of banking operations, it should keep resources, both in terms of numbers and expertise, under constant review, given the increased workload on foot of the new legislation and the increasing complexity of banking supervision. Should the jurisdiction make a decision to allow expansion of the range and size of the banking, there would be a need for additional resources.

Information and methodology used for assessment

3. The legal structure for banking supervision is based on three principal enactments: Banks and Trust Companies Act, 1990, as amended; Financial Services Commission Act, 2001, as amended; and the Regulatory Code, 2009. The Regulatory Code, which is derived from the Financial Services Act, 2001 has full statutory backing. Between them, they provide the FSC with sufficient powers to implement an effective banking supervisory regime. This legislation is supported by the issue of guidance notes from time to time (e.g., on licensing policy).

4. The assessment was based on the above. It was also based on a self-assessment prepared by the FSC, together with responses to specific questions raised with the FSC in advance of the visit. During the assessment, the assessors met with all relevant staff in the FSC, representatives from the licensed banks, the Bankers Association, and representatives from the legal and accounting professions. They also met with representatives of the Financial Investigation Agency (FIA) to which reports of suspicious transactions relating to money laundering and terrorist financing are sent.

Institutional and macroeconomic setting and market structure—overview

5. BVI law provides for three classes of banking license: a general banking license, a restricted Class I banking license, and a restricted Class II banking license. A general banking license permits the holder to conduct banking business within and outside the BVI. A restricted Class I banking license and a restricted Class II banking license do not allow the respective holders to take deposits or make loans to BVI residents except in the case of corporations. (The difference between a Class I and Class II license relates to the manner in which they can deal with BVI corporations.)

6. There are six general banking licenses, one Class I license and no Class II license. Two other Class I licenses have or are in the course of surrendering their licenses. Of the six general licenses, three are branches of overseas banks and three are locally incorporated. Of the three locally incorporated, two are subsidiaries of overseas banks and one is a BVI government owned bank.

7. The three branches are Banco Popular de Puerto Rico, First Bank Puerto Rico, and First Caribbean International Bank. The two subsidiary banks are Scotia Bank BVI Limited (Canada) and VP Bank (Liechtenstein). The government-owned bank, National Bank of the Virgin Islands Limited (NB), was formerly the Development Bank of the Virgin Islands. NB has been in existence for many years, but only came within the regulatory remit of the FSC since 2006, when it was issued a banking license and changed to its present name.

8. The Class I bank is London International Bank and Trust Limited. It operates a type of group treasury activity for its industrial parent group. It has no deposits and its entire share capital is invested with group companies. The two other Class I licensees in the process of winding down are Rathbone Bank (BVI) and Bank of East Asia (BVI) Limited (Hong Kong). The former is closing down following a strategic decision by the parent to close down all its offshore operations and the latter because it did not feel the need any more for a banking presence in the BVI.

9. The type of business undertaken by the banks is traditional and conservative (deposit-taking from and lending to BVI residents), although First Caribbean International Bank, Scotiabank, and VP Bank do have some interaction with the offshore activities conducted in the BVI.

10. The banking system in the BVI has been left untouched, relatively speaking, by the recent turmoil in the banking markets. All are well capitalized and all have been profitable in recent years. At end-December 2009, total assets for all the banks amounted to nearly $2.5 billion, almost all of which related to the general banks. Total capital amounted to $402 million and total pretax/post tax profits to $59 million.

11. As five of the six general license banks are branches or subsidiaries of major banks, their banking systems, internal control systems, accounting standards, etc., are based on group practice.

12. The aggregate balance sheet size for the six operational banks amounts to $2.5 billion. There is little or no off-balance sheet activity. Of the figure of $2.5 billion, $1.5 billion relates to the assets/liabilities of the three branches, $0.9 billion to the two subsidiaries and $98 million to the only true BVI bank, National Bank of the Virgin Islands Limited. Consequently, the FSC is the ultimate supervisor for one bank only, which represents about 4 percent of the banking assets of the jurisdiction. The FSC is the primary supervisor for banks representing 36 percent of the banking assets and has a collaborative role for the supervision of banks representing 60 percent of the banking assets, along with the primary and ultimate supervisors of these branches.

13. The banking system is well capitalized; the aggregate equity to total assets is 16 percent. The system is also highly liquid; of the aggregate balance-sheet size of $2.5 billion, $927 million (37 percent) takes the form of liquid assets. Almost all of these liquid assets are placed with the head office/parent bank overseas, as there is no interbank bank market in the BVI.

14. The FSC has a detailed knowledge of the banking system. Because of the small size of the banking market in the jurisdiction; the static nature of its activities; and the fact that no new banks have been authorized in recent times, the number of banks is continuously falling and none of the banks has overseas subsidiaries or branches, the system is very simple in supervisory terms.

Preconditions for effective banking supervision

15. The preconditions for effective banking supervision, including a well-developed public infrastructure, are present in the BVI. A legal and accounting regime heavily influenced by international best practice is in place. (Three of the four main auditing firms have representation in the jurisdiction.)

Main findings

Objectives, independence, powers, transparency, and cooperation (CP1)

16. In general, the FSC has sufficient autonomy, powers, and resources with clear responsibilities and objectives. However, the appointment terms for the Managing Director should be re-examined. The Managing Director’s term of employment is not fixed nor are there stated reasons for his dismissal. Both the Basel Core Principles and international best practice require that reasons for dismissal be made transparent to the public.

17. The FSC should keep the level and training needs of its staff under constant review. While resources appear adequate at present, the FSC’s workload is increasing as a result of the introduction of the Regulatory Code and the increasing complexity of banking supervision.

18. There should be explicit provision for the payment by the FSC of costs incurred by staff in defending their actions and/or omissions in performing their duties in good faith.

Licensing and structure criteria (CP 2 to 5)

19. These criteria are adequate. This represents an improvement over the previous assessment (2004) when it was noted that there were no legal or regulatory rules dealing with major acquisitions by banks. This deficiency was addressed in the Regulatory Code, 2009.

Prudential Regulation and Requirements (CP 6–18)

20. Capital adequacy rules meet the 1988 Basel Accord standards. Current revisions to the RC will add elements of the 1996 Amendment. The FSC is working with the Caribbean Group of Banking Supervisors (CGBS) to implement Basel II. The region will implement the standardized approach. The region had originally planned to implement by 2011, but that date may be revised at the next meeting of the CGBS in May. The foreign-owned branches and subsidiaries that operate with a general license are already implementing Basel II in compliance with home-country requirements.

21. Risk management regulations address BCP criteria; however, loan provisioning rules should address general provisions and provisions for expected losses. The FSC requires banks to follow IAS 39 to recognize impaired debt but has not issued guidelines for prudential reserves. In its 2010 revisions to the RC, the principles on provisioning from the Basel Committee on Banking Supervision (BCBS) 2006 paper “Sound Credit and Risk Assessment and Valuation for Loans” will be incorporated.

22. The FSC does not generally impose specific limits on investments but reviews bank-imposed limits. While lending limits and limits for investment in fixed assets are specified in the RC, for other limits such as open foreign exchange positions or interest rate repricing gaps, the FSC requires banks to establish them and for the Board to approve and review annually. During its onsite inspections and offsite reviews, the FSC opines on the adequacy of the limits established and requires changes if determined to be inadequate.

Methods of ongoing banking supervision (CP 19 to 21)

23. The FSC has a well developed system of on-going supervision in place. There is a full on and offsite inspection program in place and a number of skilled staff to undertake this work. The FSC has displayed a readiness and willingness to enforce against non compliance.

Accounting and disclosure (CP 22)

24. The FSC should seek to shorten the six-month time frame for both the submission to the FSC and the publication of annual audited accounts to three and, at most, four months. It is understood that the reason for the six-month timeframe relates to the workload of auditors, given that most regulated firms share the same financial year-end: December 31.

Corrective and remedial powers of supervisors (CP 23)

25. The FSC has broad enforcement powers that facilitate prompt remedial action; however, the RC (effective March 31, 2010) is currently in the transition period for implementation and an end-date to the period has not been specified. The FSC is monitoring banks’ compliance with the RC and could issue directives if a bank is considered to be seriously lagging in implementation. The RC is being amended this summer and it is recommended that a definite transition period be established with a clear end-date when enforcement becomes mandatory.

Consolidated and cross-border banking supervision (CP 24 and 25)

26. The FSC has broad powers to conduct consolidated supervision and for exchanging information with foreign supervisors; however, of the four locally-incorporated banks in the BVI, none operates subsidiaries or has cross-border operations. The FSC participates in supervisory colleges hosted by the Canadian supervisors (home to one branch and one subsidiary in BVI) and visits Puerto Rico, which is home to two of the local branches.

27. The BVI has a solid legal basis for an effective banking supervisory regime, particularly after the recent enactment of the Regulatory Code, 2009. The challenges facing the FSC lie in the implementation of the rules and regulations under this legislation. While the FSC appears to have sufficient resources to oversee the current range of banking operations, it should keep resources, both in terms of numbers and expertise, under constant review, given the increased workload on foot of the new legislation and the increasing complexity of banking supervision.

Table 11.

British Virgin Islands: Summary Compliance with the Basel Core Principles—ROSCs

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Recommended action plan

Table 12.

Recommended Action Plan to Improve Compliance with the Basel Core Principles

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Authorities’ response to the assessment

28. The FSC welcomes the IMF’s assessment of its compliance against the BCP. The Commission wishes to commend the assessors for their efforts to understand the BVI regulatory framework and thanks them for their skill and diligence in conducting the exercise. The review validates the hard work and progress made by the Commission in strengthening the entire regulatory framework since the last assessment in 2004. The Commission is committed to fully considering the recommendations made and acting accordingly.

B. FATF Recommendations for Anti-Money Laundering and Combating the Financing

of Terrorism

Introduction

1. This Report on the Observance of Standards and Codes (ROSC) for the FATF 40 Recommendations for Anti-Money Laundering (AML) and 9 Special Recommendations on Combating the Financing of Terrorism (CFT) was prepared by Mrs. Maxine Hypolite-Bones (financial expert from the Central Bank of Trinidad and Tobago), Ms. Ingrid de Vries (financial expert from the Central Bank of the Netherlands), Mrs. Sandra Edun-Watler (legal expert from the Cayman Islands Monetary Authority), Mr. John Maxwell (law enforcement expert from the Royal Barbados Police Force), and Mr. Roger Hernandez from the Caribbean Financial Action Task Force (CFATF) Secretariat. The report provides a summary of the anti-money laundering/combating the financing of terrorism (AML/CFT) measures in place in the British Virgin Islands and of the level of compliance with the FATF 40+9 Recommendations, and contains recommendations on how the AML/CFT system could be strengthened. The assessment is based on the information available at the time of the mission from February 11–22, 2008, and was conducted using the 2004 Assessment Methodology. The Mutual Evaluation Report on which this document is based was adopted by the CFATF Plenary held during November 17–21, 2008. The views expressed here, as well as in the detailed assessment report, are those of the CFATF and do not necessarily reflect the views of the government of the Virgin Islands or the Executive Board of the International Monetary Fund.

Key findings

2. The British Virgin Islands’ legal framework for combating money laundering (ML) and terrorism financing (FT) is comprehensive. While ML offences are applicable to all indictable offences, insider trading and market manipulation are not specifically criminalized. The low number of ML prosecutions suggests a limited implementation of the legal framework. The criminalization of FT is in accordance with FATF requirements. The confiscation regime meets most standards and is effective.

3. The Virgin Islands’ financial intelligence unit—the Financial Investigation Agency (FIA)—is effective and is a focal point of the AML/CFT regime. The law enforcement and prosecutorial authorities are adequately empowered and competent to investigate and prosecute ML and FT offences. Requirements for a combined declaratory and disclosure system for the cross-border movement of cash and negotiable monetary instruments are in place.

4. The preventive system for financial institutions incorporates most of the FATF Recommendations and applies to a range of financial institutions and designated nonfinancial businesses and professions (DNFBPs) as defined by the FATF. While there are measures in place to deal with customer-due-diligence (CDD) requirements, a number have not been enacted legislatively as required by the FATF standards. Record-keeping, monitoring and reporting requirements are extensive. Wire transfer requirements comply with FATF standards except for monetary penalties not being dissuasive.

5. Requirements for internal procedures, policies and controls are comprehensive and include most FATF obligations. The Financial Services Commission (FSC) is the supervisory authority, responsible for monitoring AML/CFT compliance of all financial institutions and DNFBPs as defined by the FATF. Supervision is comprehensive but the low number of on-site inspections demonstrates limited inspection coverage and is probably the result of an inadequate number of staff. All DNFBPs are included in the AML/CFT framework and are subject to the same AML/CFT requirements as financial institutions and deficiencies noted with regard to these requirements are also applicable to DNFBPs.

6. The provision of corporate and trust services are regulated activities subject to the AML/CFT requirements and the supervision of the FSC. Supervisory, law enforcement, and judicial authorities have power to readily access information on beneficial ownership and trusts from financial and trust service providers. The Virgin Islands has a system for registering nonprofit organizations (NPOs). While the FIA is responsible for monitoring and supervising NPOs, no supervisory program was in place at the time of the assessment to identify noncompliance.

7. There is a high degree of cooperation among competent authorities in the Virgin Islands in operational matters related to AML/CFT. A wide range of mutual legal assistance is available in criminal matters. Money laundering, terrorist financing, and terrorism offences are extraditable offences. In general, law enforcement, the FIA, and supervisors can engage in a wide range of international cooperation.

Legal systems and related institutional measures

8. Money laundering has been criminalized under the Proceeds of Criminal Conduct Act, 1997 (POCCA) and the Drug Trafficking Offences Act, 1992 (DTOA). ML offences include receiving, possessing, concealing, disposing of, importing, or exporting the proceeds of criminal conduct. The physical and material elements of the ML offence include all aspects of the relevant UN Conventions with the exception of certain controlled drugs as required by the Vienna Convention. While the money laundering offences are applicable to all indictable offences, insider trading and market manipulation are not specifically criminalized in the Virgin Islands.

9. The offence of ML extends to any type of property and applies to persons who commit the predicate offence. Criminal liability extends to legal persons and proof of knowledge can be drawn from objective circumstances. The low number of ML prosecutions suggests a limited implementation of the legal framework.

10. Terrorist financing is criminalized in accordance with the FT Convention in the Terrorism (United Nations Measures) (Overseas Territories) Order 2001 (U.K. S.I. 2001 No. 3366) (TUNMOTO), the Anti-Terrorism (Financial and Other Measures) (Overseas Territories) Order 2002, (U.K. S.I No. 2002 No. 1822) (ATFOMOTO) and the Al-Qa’ida and Taliban (United Nations Measures) (Overseas Territories) Order 2002 (ATUNMOTO). These were extended to the Virgin Islands by the United Kingdom government. The components of the FT offence capture funding for individual terrorists or terrorist organizations. Funds are defined in accordance with the FT Convention. A range of secondary offences are covered, terrorist financing offences are predicate offences for ML, and objective factual circumstances may be used to prove intent. Both natural and legal persons are subject to criminal sanctions. There is no evidence of terrorists in the Virgin Islands and there have been no cases of FT in the Virgin Islands.

11. Provision is made for confiscation, freezing, and seizure of the proceeds of crime under the POCCA, the DTOA, the ATFOMOTO, and the TUNMOTO. Confiscation of instrumentalities used in or intended for use in the commission of ML or other predicate offences is allowed. Confiscation is not targeted on specific assets, as it is value-based. Current measures include the freezing and/or seizure of property to prevent any dealing, transfer or disposal of property subject to confiscation. Police have powers to identify and trace property, and the rights of bona fide third parties are protected. At the time of the mutual evaluation visit, over $45 million was being held under an interim freeze order (this amount was subsequently confiscated by the High Court to be shared equally with Bermuda).

12. Freezing of funds used for FT, and funds and assets of specific criminal and terrorist organizations, are included within the domestic laws of the Virgin Islands. Laws and procedures are in place to freeze pursuant to S/RES/1267 and S/RES/1373. There is provision to give effect to foreign freezing orders and specific directions to financial institutions are issued with relevant notices and restraint orders. Affected persons can apply for reasonable access to frozen funds or assets and the rights of bona fide third parties are protected. No terrorist funds have been discovered in the Virgin Islands. The various agencies appear to be adequately structured, funded, and resourced to effectively carry out their functions.

13. The FIA was established by the Financial Investigation Agency Act, 2003 (FIAA) with its main function, including receiving, obtaining, investigating, analyzing, and disseminating information which relate to a financial offence or the proceeds of such an offence. The FIA receives SARs from various reporting institutions and has access to a number of open source databases. The FIA can request information from reporting financial institutions, government agencies, and statutory bodies. It is an autonomous body and while it is dependent on the government and the FSC for finances, it controls its budget. The staff of the FIA is highly professional and has received training in ML, FT and criminal intelligence analysis. As a member of Egmont, the FIA freely exchanges information with its Egmont partners. Annual reports are legally required to be published, which contain limited details on some ongoing cases. No typologies are included in these annual reports.

14. The position of Director of Public Prosecutions (DPP) was established under section 59 of the Virgin Islands Constitution Order 2007, and has complete independence in the exercise of powers conferred by the Order. The DPP’s office is responsible for the prosecution of all offences within the Virgin Islands, which include ML and FT matters. Confiscation, freezing, and forfeiture of criminal proceeds fall within the scope of the office. The DPP’s office has a staff complement of 10 persons, including the DPP. Provisions have been made to increase the staff in order to improve efficiency. Staff has been trained in techniques relevant to the prosecution of AML/CFT matters.

15. At present, the Virgin Islands operate a declaration system for incoming cross-border transportation of currency or bearer negotiable instruments and a disclosure system for outgoing transportation of same. Customs officers have the authority to make enquiries of travelers and can confiscate cash suspected of being related to criminal activity. Information obtained from false declarations and disclosures are forwarded to the Joint Intelligence Unit and the FIA. The Customs Department works in close collaboration with the police and immigration officials. Several officers of the Customs Department have been sensitized to AML/CFT matters.

Preventive measures – financial institutions

16. The POCCA, DTOA, the Anti-money Laundering and Terrorist Financing Code of Practice (AMLTFCOP), and the Anti-money Laundering Regulations, 2008 (AMLR) provide the legal framework for CDD requirements for regulated (natural and legal) persons in the financial sector, although the scope of each of the enactments extends to cover nonregulated entities. The AMLTFCOP and the AMLR were enacted during the mutual evaluation visit and represented revisions of the Anti-money Laundering Guidance Notes, 1999; and the Anti-money Laundering Code of Practice, 1999 respectively. Regulated persons are defined as entities, including DNFBPs, as identified in accordance with the FATF Recommendations, which are regulated by the FSC. The AMLTFCOP consists of sections detailing requirements and attached explanations to provide guidance. Since section 2 (2) of the AMLTFCOP states that the explanations merely provide guidance and clarity to the provisions, the explanations are not considered enforceable by the assessment team.

17. Customer due-diligence measures are generally comprehensive and include customer identification, beneficial ownership requirements, ongoing due diligence, measures for politically exposed persons, and correspondent banking. These measures are generally applied by the interviewed financial institutions. The main shortcomings are that some requirements are not set out in law or in other enforceable means as required by the FATF standards and effective implementation of AML/CFT measures cannot be assessed due to recent enactment of the AMLTFCOP. With regard to new technologies, there was no specific requirement for financial institutions to have policies to prevent misuse of technological developments in ML or FT or to address risks associated with nonface-to-face business relationships or transactions.

18. Obligations for introduced business include all FATF measures, except the requirement for financial institutions to immediately obtain from third parties necessary information concerning certain elements of the CDD process in criteria 5.3 to 5.6. There are no financial secrecy laws in the Virgin Islands. Information can be obtained either by production of a court order or by the competent authorities, namely the FSC or the FIA, with appropriate authorization. There is a comprehensive framework of international cooperation legislation and procedures to assist foreign judicial, law enforcement, prosecutorial, tax, and regulatory authorities. There are no restrictions on the sharing of information between financial institutions.

19. Record-keeping requirements are extensive and generally observed. However, record retention of identification data is limited to five years after the last transaction of an account rather than the termination of the account, and there is no requirement for account files and business correspondence to be maintained for at least five years following the termination of an account or business relationship. Wire-transfer requirements comply with FATF standards, except that the monetary penalties in the AMLTFCOP are not dissuasive.

20. Financial institutions are required to maintain records on the activities relating to complex or unusual large or unusual patterns of transactions which do not have any apparent economic or visible lawful purpose. However, there is no requirement to examine these transactions and set forth the findings in writing and keep those findings available for at least five years. Financial institutions are required to carry out enhanced CDD in relation to customers from countries which do not or insufficiently apply the FATF Recommendations. However, there is no requirement for the examination of transactions with no apparent economic or visible lawful purpose from countries that do not, or insufficiently apply, FATF Recommendations and making available the findings to assist competent authorities. The Virgin Islands can, however, apply appropriate counter-measures to countries that do not, or insufficiently apply, the FATF Recommendations.

21. Section 30A of the POCCA makes it an offence for a person not to report to the FIA any knowledge or suspicion of ML acquired in the course of his trade, profession, business, or employment. While ML offences are applicable to all indictable offences, insider trading and market manipulation are not specifically criminalized in the Virgin Islands. The current legislation in the Virgin Islands deals with the reporting of suspicious transactions, including attempted transactions. There are no exemptions for the reporting of suspicious transactions. There is a mandatory obligation on all financial institutions in the Virgin Islands to file suspicious transactions reports where the suspicion is in relation to terrorism and FT as stipulated in the provisions of TUNMOTO and ATFOMOTO.

22. Financial institutions and their directors, officers and employees are protected from both criminal and civil liability for reporting SARs in good faith. The safe harbor provision is extended to the FIA, its Director, officers and personnel in discharging their functions. The provision for tipping off is limited to after the submission of a disclosure to the FIA and therefore does not fully comply with FATF obligations. The FIA advised the assessment team that acknowledgement letters are sent upon receipt of any SAR to the reporting entity. The responses from the interviewed entities were split in respect to whether there was an official response from the FIA on the respective SARs. Most, however, reported having a good relationship with the FIA.

23. The requirements for internal procedures, policies, and controls in the AMLTFCOP are comprehensive and include all FATF obligations, except for mandating that financial institutions maintain an adequately resourced and independent audit function. Financial institutions are required to ensure that their foreign branches, subsidiaries, or representative offices observe standards at least equivalent to the AMLR and the AMLTFCOP to the extent permitted by the laws of the foreign jurisdictions. However, there is no requirement for financial institutions to pay particular attention that consistent AML/CFT measures are observed with respect to their branches and subsidiaries in countries which do not or insufficiently apply the FATF Recommendations. Additionally, financial institutions are not required to inform their home-country supervisor when a foreign branch or subsidiary is unable to observe appropriate AML/CFT measures because this is prohibited by local laws, regulations or other measures. However, at the time of the on-site inspection, no local entity had foreign branches, subsidiaries or representative offices. Most entities were branches, subsidiaries or representative offices of multinational institutions.

24. While shell banks are not directly prohibited in law in the Virgin Islands, the requirements for the establishment and licensing of a bank effectively prevents the operation of shell banks in the jurisdiction. The AMLTFCOP prohibits entities from entering into, or maintaining a correspondent relationship with a shell bank and prohibits banks from entering into or maintaining a relationship with a respondent bank that provides correspondent banking services to a shell bank.

25. The FSC is the competent authority that monitors AML/CFT compliance by financial institutions and DNFBPs who provide financial services. The FSC’s supervisory function relates to the financial institutions that are subject to financial services legislation including the Banks and Trust Companies Act, 1990 (BTCA), the Company Management Act, 1990(CMA), the Insurance Act, 1994 (IA), the Mutual Funds Act, 1996 (MFA), POCCA and the Insolvency Act, 2003. The FSC also incorporates the Registry of Corporate Affairs, which deals with the incorporation and registration of legal persons.

26. The FSC is responsible under the regulatory laws for all licensing, enforcement, and administrative decisions with respect to all relevant financial services businesses. The FSC’s regulatory functions are carried out by professional staff in four regulatory and supervisory divisions, three nonsupervisory divisions, and four support units. Staff is duly qualified and must be fit and proper to hold their posts. In addition to in-house training sessions organized throughout the year, staff has been exposed to AML/CFT training workshops and seminars held regionally and internationally.

27. The FSC has a broad range of powers to monitor and ensure financial institutions’ compliance with AML/CFT measures, which include off-site surveillance and on-site prudential visits and inspections. The FSC utilizes a risk-based approach in developing its on-site inspection program. On-site inspections have increased from 2004 to 2007, especially in the fiduciary services and insurance divisions. However, only two out of a total of nine banks were examined during the period. There were no on-site visits on mutual fund managers or administrators. With regard to registered agents, the FSC completed a total of 41 inspections during the years 2004-2007, representing 37 percent of registered agents accounting for only 25 percent of the total number of registered companies. The low number of on-site examinations in relation to the total number of financial institutions demonstrates limited inspection coverage by the FSC and is probably the result of an inadequate number of staff.

28. Under various provisions of the Financial Services Commission Act (FSCA), the FSC may require the provision of any information or the production of any documents that may be reasonably required in connection with the FSC’s regulatory functions, including internal audit reports. The record-keeping requirements, together with various access provisions for the benefit of both law enforcement and regulatory authorities, ensure that both customer and transaction records are accessible and available to the FSC as required.

29. In general, criminal sanctions are available for offences under the POCCA and DTOA and their respective amendments, TUNMOTO, ATFOMOTO, and ATUNMOTO, and are applicable to all natural and legal persons. The FSCA authorizes the FSC to apply relevant sanctions through enforcement actions, which include revocation or suspension of licenses and the imposition of prohibitions, limitations, or restrictions. Sanctions for noncompliance with AML/CFT obligations in the AMLTFCOP are specified in section 27 of the POCCA. These sanctions can only be imposed by the court through proceedings brought by the DPP. Additionally, the AMLTFCOP allows for the FSC to impose administrative penalties, which do not exceed $4,000. Sanctions for noncompliance with the requirements of the AMLR range from $5,000 to $15,000. Monetary penalties applicable for offences under the AMLTFCOP and the AMLR, ranging from $4,000 to $15,000, are considered too low to be dissuasive to financial institutions operating in the Virgin Islands.

30. The Financing and Money Services Act, 2007 (FMSA) is due to come into effect in 2008. It outlines the licensing requirements for money service businesses (MSBs) in the Virgin Islands. At the time of the assessment, money remitters in the Virgin Islands were not subject to licensing or registration requirements or supervision. The AMLFTCOP was drafted and issued by the FSC in collaboration with the Joint Anti-money Laundering and Terrorist Financing Advisory Committee (JALTFAC). It was enacted in February 2008 and stipulates preventive AML/CFT measures for financial institutions and DNFBPs. Due to the recent enactment of the AMLTFCOP, the examiners were not able to assess its effective implementation.

Preventive measures—designated nonfinancial businesses and professions

31. Section 27 of the POCCA, 2008 extends the coverage of the AML/CFT regime to include DNFBPs. The definition of “regulated person” in the AMLTFCOP includes provisions for DNFBPs. The AML/CFT requirements applicable to financial institutions in the AMLR and the AMLTFCOP are also applicable to the DNFBPs. It should be noted that of the DNFBPs, only company managers and trust and company service providers as licensees of the FSC are actively monitored and supervised for compliance with AML/CFT requirements. Deficiencies noted with regard to the AML/CFT regime for financial institutions in relation to specific Recommendations are also applicable to DNFBPs.

Legal persons and arrangements and nonprofit organizations

32. The Registry of Corporate Affairs maintains individual registers for companies, foreign companies and charges. Registration of companies is governed by the BVI Business Companies Act, 2004 (BVIBCA) (and amendments). Section 6 of the BVIBCA requires that applications to incorporate a company be made to the Registrar. An application for incorporation of a company may be filed only by the proposed registered agent. Customer due diligence, identity verification or background checks regarding organizers or beneficial owners of registered entities are required to be performed by registered agents. Registered agents are under the supervision of the FSC and are also subject to the AML/CFT requirements of the AMLTFCOP, which mandate the identification of beneficial owners with regard to corporate clients, trusts, and fiduciary clients.

33. According to section 9 of the BVIBCA, a company limited by shares can issue bearer shares. Under the BVIBCA, international business companies that were incorporated before January 1, 2005, and issued bearer shares had until December 31, 2009 to place their bearer shares with an authorized or recognized custodian or to immobilize them. IBCs formed after January 1, 2005 are required to immobilize all bearer shares from their date of formation.

34. Information on beneficial ownership of registered companies maintained by registered agents is accessible by all competent authorities. The relatively low number of FSC inspections makes it difficult to assess whether the information on beneficial ownership is being adequately and accurately maintained.

35. There is no central filing requirement for trusts and no register of all trusts in the Virgin Islands. Information on trusts is maintained by licensed trust-service providers and can be readily accessed through the investigative and examination powers of the regulatory and law enforcement authorities under the relevant statutes. Trust-service business is a regulated activity under the BTCA and is governed by the AMLTFCOP and the AMLR. The record-keeping provisions of the AMLTFCOP require licensed trust service providers to ensure that records are readily available for timely access by the competent authorities. The concern regarding information on beneficial ownership of companies is also applicable to the information on trusts, although the trust and company service providers have indicated their awareness and compliance with AML/CFT laws.

36. The regime for NPOs is governed by the BVIBCA. The assessment team was advised by the FSC that the NPO population is considered “low risk” for potential ML and FT activities. Every NPO is required to have a registered agent in the Virgin Islands. No evidence was presented to the assessors that the authorities had reviewed these laws with regard to protecting NPOs from being used to finance terrorism. No competent authority has undertaken any formal outreach efforts to the NPO sector regarding AML/CFT requirements or best practices. The assessment team was advised that the vast majority of NPOs operate exclusively in the Virgin Islands, serving the needs of the domestic community. Moreover, no NPO is viewed by the government as controlling a portion of the sector’s financial resources.

37. The Registrar of Corporate Affairs is able to identify, with the introduction of the new registration system “VIRRGIN”, companies that are registered as NPOs. Information on an NPO, which has the legal form of a company and is registered as such, is publicly available. There are no competent authorities engaged in any formal monitoring of NPOs that do have the legal form of a company, after their registration. The FIA is the competent authority, according to section 9 (2) of the AMLTFCOP, to monitor and supervise NPOs. At the time of the assessment, the FIA had no supervisory program in place to identify noncompliance and violations by NPOs.

National and international cooperation

38. Relevant and competent authorities in the Virgin Islands maintain close working relationships. These include the FIA, the FSC, the RVIPF, the Immigration Department, the Customs Department, the Attorney General’s Chambers, and the Office of the Director of Public Prosecutions. The main national coordination body overseeing the AML/CFT regime in the Virgin Islands is the Joint Anti-money Laundering and Terrorist Financing Advisory Committee (JALTFAC), which consists of members drawn from the public and private sectors. The Virgin Islands is constantly reviewing and amending laws to take into account all relevant developments, and the principal legislation governing AML/CFT matters have been reviewed on an ongoing basis.

39. The Virgin Islands, as an Overseas Territory, has no legal power to ratify or accede to any international treaty and such ratification or accession is carried out on its behalf by the government of the United Kingdom. However, the Virgin Islands can enact legislation domestically to implement the provisions of relevant international treaties and Conventions. The Vienna Convention was ratified by the U.K. government and extended to the Territory on February 8, 1995. The Palermo Convention and the Terrorist Financing Convention were not extended to the Virgin Islands. Although the Palermo Convention and the Terrorist Financing Convention have not been extended to the Virgin Islands, they have been given effect under its laws. The provisions of the UN Security Council Resolutions, S/RES/1267(1999) and S/RES/1373(2001) have been implemented by relevant legislation in the Virgin Islands.

40. Assistance can be provided for the full range of mutual legal assistance requests envisaged by the FATF Recommendations. Generally, mutual legal assistance requests are of three types: law enforcement, regulatory breaches/offences, and tax offences. The governor and the attorney general are the central authorities for law enforcement requests, the managing director/chief executive officer of the FSC for regulatory breaches and offences, and the Financial Secretary for tax offences. Mutual legal assistance under the CJICA is granted if an offence has been committed under the laws of the requesting country or territory, or there are reasonable grounds to suspect that an offence has been committed and that criminal proceedings or criminal investigations have commenced in the requesting country. Generally, all requests for legal assistance are processed within a period of 30 days from the date of the receipt. Very urgent requests, such as those with close return court dates would be processed in a quicker time period. Generally, all mutual legal assistance provisions apply also to terrorism and terrorism-financing offences.

41. Money laundering is an extraditable offence in the Virgin Islands. The Virgin Islands extradites its own nationals pursuant to Part 1 of the Extradition (Overseas Territories) Order 2002. Extradition is available for any conduct that would be an offence if committed within the Virgin Islands. The Virgin Islands can provide assistance in extradition relating to insider trading and market manipulation since the underlying conduct is regarded as equivalent to conspiracy to defraud in the Virgin Islands. This relates, in essence, to all offences wherein the underlying conduct is considered equivalent to an offence in the Virgin Islands even though the offence does not carry the same name.

42. The Virgin Islands has a comprehensive framework of international cooperation legislation and procedures to assist foreign judicial, law enforcement, prosecutorial, tax, and regulatory authorities. The framework provides an efficient and effective mechanism for cross-border cooperation and exchange of information. Law enforcement agencies, the FIA, and the FSC can engage in a wide range of international cooperation and they render assistance in a timely fashion. There is no legal hindrance to the constructive and effective provision of such assistance.

Other issues

43. Most of the competent authorities have adequate resources to carry out their functions. However, the FSC and the ADVCTF have quantitatively inadequate human resources.

44. Comprehensive statistics are generally maintained. However, the RVIPF does not have records on ML investigations that have been carried out or the number of production orders or search warrants that have been executed.

Table 13.

Summary Table of Observance and Key Recommendations

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Compliant (C): the Recommendation is fully observed with respect to all essential criteria. Largely compliant (LC): there are only minor shortcomings, with a large majority of the essential criteria being fully met. Partially compliant (PC): the country has taken some substantive action and complies with some of the essential criteria. Noncompliant (NC): there are major shortcomings, with a large majority of the essential criteria not being met. Not applicable (NA): a requirement or part of a requirement does not apply, due to the structural, legal or institutional features of a country.

C. Authorities’ Response

Table 14.

Authorities’ Response

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Appendix I. Financial Soundness Indicators

Table 15.

British Virgin Islands: Financial Soundness Indicators for the Banking Sector—Commercial Banks (only)

(In percent, unless otherwise indicated)

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Source. FSC.

This percentage is as a result of Bank B reporting nonperforming loans of $78,000 and loan-loss reserves of $401,000, representing a loan-loss provision to nonperforming percentage of 514.10 percent; and Bank C reporting nonperforming loans of $147,000 and loan-loss reserves of $6.1 million, representing a loan-loss provision to nonperforming percentage of 597.28 percent (causing an extraordinary spike in the overall average for that period).

This percentage is as a result of Bank B reporting Non-performing loans of $740,000 and loan-loss reserves $5 million, representing a loan loss provision to nonperforming percentage of 675.81 percent (causing an extraordinary hike in the overall average for that period).

Appendix II. Implementation of the Recommendations of the 2004 Assessment Report

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Table 16.

Recommended Action Plan to Improve Observance of IAIS Insurance Core Principles

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Table 17.

Recommendations Related to the IOSCO Principles Assessment

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Table 18.

Recommendations Relevant to the IBC and Trust and Company Service Provider Sector

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Table 19.

Recommended Action Plan to Improve Compliance of the Basel Core Principles

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1

Stress testing of the banking system was not undertaken, given the very small size of the sector, the lack of connection of the banking system to systemic vulnerabilities, and the limited resources of the mission.

2

The assessment was undertaken by the Caribbean Financial Action Task Force (CFATF) and the ROSC, attached to this report, was prepared by CFATF and reviewed by the IMF Legal Department.

3

The currency of the BVI is the U.S. dollar.

4

Data from BVI ministry of finance.

5

FSC data.

6

IMF staff estimates for 2008. By this measure, the BVI has a larger offshore sector than all other offshore centers, except for the Cayman Islands. However, as noted, while the holders of the assets reside in the BVI, the assets themselves are elsewhere.

7

Michael Foot “Final Report of the Independent Review of the British Offshore Financial Centres,” October 2009 http://www.hm-treasury.gov.uk/indreview_brit_offshore_fin_centres.htm. The report focused on the offshore centers with significant financial flows and therefore made relatively few direct comments on the BVI.

8

The Act was proclaimed in force on May 17, 2010, save for Part II, which deals with public issues of securities other than by mutual funds. The full operation of certain other provisions is subject to transition periods.

9

The BVI is not an offshore banking center, which are almost entirely onshore assets.

10

Section 91 of the BCA.

11

The VISTA law seeks to overcome some of the common-law rules relating to trustees by actually restricting the role of such trustees in these specific trusts as regards their powers to intervene in the management of companies whose shares are held by those trusts.

12

The BVI has also worked to cooperate on taxation matters. In August 2009, it joined the OECD’s “white list” of countries which have substantially implemented internationally agreed tax standards.

13

Stress testing of the banking system was not undertaken by the mission due to the small size of the system and its lack of interconnectedness.

14

The authorities are aware of the new International Association of Deposit Insurers (IADI) principles for deposit insurance and are working within international best practices.

British Virgin Islands: Financial Sector Assessment Program Update: Financial System Stability Assessment
Author: International Monetary Fund