St Vincent and the Grenadines (‘SVG’) is best known for its idyllic beaches, rugged mountains and lush vegetation. The islets of Young Island, Mustique, Canouan and the Tobago Cays are major holiday destinations for the world’s super rich. Indeed, these islands represent the most exclusive of Caribbean destinations and many high net worth individuals across the world have acquired homes here. This is particularly true in the case of Mustique. However, the Grenadines are small, and the international investors are now tapping into the main island of St Vincent which is now seen as a prime jurisdiction for real estate investment in the Caribbean.
However, in addition to the splendid beaches and perfect yachting conditions, the islands are a discreet provider of international financial services. As a jurisdiction that has no wealth tax, capital gains tax or inheritance taxes, SVG provides the ideal location for persons currently fiscally resident abroad to consider making a second home; either for retirement or leisure purposes. With the opening of a brand new international airport planned for 2014, this option should no doubt gather pace in the near term.
A Need for Change
After coming under attack by the OECD, all international finance centres (IFCs) have had to re-position themselves and upgrade their regulatory profiles. SVG is no exception. As in other IFCs, the SVG government has acknowledged the need to pass the requisite legislation that meets the demands of international bodies such as OECD, and others.
Tax Information Exchange Agreements
One of the first steps taken was signing several Tax Information Exchange Agreements (‘TIEAs’). The jurisdiction has long surpassed the minimum number of 12 such agreements required by the OECD and now has TIEAs with several major countries in that organisation. As a result, SVG was ‘white-listed’ by the OECD in March 2010. In order to give further efficacy to its efforts in building a compliant, well regulated, and sophisticated jurisdiction, the SVG government passed the International Co-operation (Tax Information Exchange) Act, towards the end of 2011.
The primary purpose of this piece of legislation is to enhance SVG’s tax information exchange regime and to set out the practical mechanisms by which TIEAs will be operated.
The main provisions of this law include the following:
1. Ensuring that the Competent Authority in SVG, ie, the Minister of Finance (or his authorised representative) has the necessary power to access information requested pursuant to a TIEA and to exchange that information with the requesting country.
2. Establishing the procedures to be observed in executing requests for information and setting out the instances where such requests may be declined by the Competent Authority.
3. Putting in place mechanisms for preserving the confidentiality of information received by the requesting country and by SVG.
4. Criminalising the failure by any information holder to provide the requisite information to the Competent Authority, and altering or tampering with the information to be received by the Competent Authority.
5. Ensuring that decisions of the Competent Authority are subject to judicial review, thereby preserving the rights of any person aggrieved by such decisions.
New Unified Regulator with Enhanced Powers
With the passage of TIEA legislation, the government simultaneously seized the opportunity to strengthen the local regulatory framework, by consolidating a rather piecemeal architecture into a single unified body. To achieve this, it passed the Financial Services Authority Act 2011.
This law gave birth to the Financial Services Authority (‘FSA’), which became operational towards the end of 2012. (The International Financial Services Authority, which existed prior to this, and was responsible solely for regulating offshore business is now defunct). The remit of the FSA is to regulate and supervise “all entities and businesses (except domestic banks) operating in the financial sector”. The new law brings under one regulatory umbrella, both the ‘offshore’ and ‘domestic’ financial services sectors, which hitherto operated separate regulatory regimes. Until now, the domestic insurance sector fell under the responsibility of the Supervisor of Insurance (within the Ministry of Finance); pursuant to the Insurance Act 2003. Non-bank financial institutions (eg, credit unions and cooperatives) fell under the auspices of the Cooperatives Division of the Ministry of Social Development. The domestic banking sector has always been, and continues to be regulated by the East Caribbean Central Bank, pursuant to the Banking Act 2006.
The main provisions of the Financial Services Authority Act are:
1. The FSA has the power to suspend and cancel licenses held by regulated entities, and to take any enforcement action it deems necessary.
2. Express compliance provisions are stipulated as well as the responsibility of licence holders to ensure compliance with the FSA Act and anti-money laundering legislation.
3. Powers of examination and investigation are provided for. The power of the FSA to obtain freezing orders is explicitly included.
4. The FSA has power to request access to information from any financial entity which falls within its remit, and from auditors or any other person believed to be in possession of the information sought.
5. Administrative penalties as well as the sanction of the criminal law are provided for under the new law.
The above changes are highly commendable, and are proof that both the government and the regulator treat the sector with respect and seriousness. However, the changes do not go far enough so as to give the jurisdiction a more effective ‘punch’ on the international scene.
Two areas that need urgent attention are (1) the establishing of a list of designated professional qualifications to be held by directors and senior staff of regulated entities, and (2) putting in place a modern and viable Regulatory Code of Practice.
Both the regulatory authority and the government are aware that these further improvements need to be put in place, and no doubt will include these in the next raft of changes to be implemented in the coming year.
Technical and Professional Qualifications
One such area that needs to be immediately addressed is that of training and professional competence. The problem may be solved by attracting more expatriate highly skilled offshore practitioners to the jurisdiction, or, by training local staff. This latter course will take several years to bear fruit.
Further, it is anticipated that, FSA, the new unified regulator, will shortly stipulate requisite professional qualifications to be undertaken and passed by persons intending to hold senior positions within regulated entities. For example, one would expect that senior insurance personnel would hold qualifications such as the Chartered Insurance Institute (CII); Trust practitioners would be required to have qualifications such as the Society of Trust and Estate Practitioners (STEP), and company administrators would hold the ICSA Certificate/ Diploma in Offshore Finance and Administration.
Regulatory Governance Code
It is also anticipated that the FSA will shortly put in place a modern ‘Regulatory Code’ to deal with the issues of corporate governance, directors’ responsibilities towards regulated entities, ethics, risk management, conflicts of interests and so forth. After the recent debacle of British American and CLICO insurance frauds, which originated in Trinidad and Tobago but had the effect of decimating policyholder’s wealth throughout the entire Caricom region, the region is crying out for such a change. The FSA should grasp the opportunity and set the pace for other Caricom regulators to follow.
Clearly, such a Code, on its own will not do the job. Mere letters on a page do not provide for effective regulation and supervision. It all comes back to personnel, and the need to build that strong nucleus or cadre of highly skilled and properly trained personnel referred to above.
SVG is currently punching well below its potential weight as an IFC. It is an appealing and geographically beautiful jurisdiction (as any visitor will testify), boasting a well-respected flag being flown by many vessels on the high seas. The menu of offshore legislation is as diverse and sophisticated as in any other leading IFC. Its regulatory regime is credible. The local law has its foundations in English legislation, English common law and the rules of equity, supplemented by locally passed statutory laws, particularly in the areas of international financial services. The court of final appeal is Her Majesty’s Privy Council, based in London.
In short, SVG has many positive attributes and assets at its disposal as it launches towards the next level as a leading IFC.
With the implementation of recent progressive changes, and a realisation that more needs to be done, and quickly; there is no doubt that its future as a credible IFC should be well and truly preserved.