New Private Trust Company Regulations for the BVI

A small number of leading offshore jurisdictions have established themselves in recent years as suitable destinations in which to set up private trust companies (PTCs). This very select group has done so by creating specific legislation which has satisfied onshore advisors, and by providing a regulatory framework within which PTCs can be managed in a way that fully meets the standards of presentday compliance. By responding to a clear industry need, the British Virgin Islands (BVI ) has now joined this elite group.

With effect from 1 August, 2007, the BVI has introduced new private trust company (PTC) legislation, which will provide a platform from which a new generation of private trustee structures is expected to flow.

This long-awaited development has come in the form of the Financial Services(Exemptions) Regulations, 2007, and, subject to certain conditions, provides for the exemption of BVI companies from the requirement to obtain a trust licence under the Banks and Trust Companies Act, 1990 (the BTCA) as amended. The conditions that apply are as follows:

•   The company must be a BVI company, which was incorporated under the BVI Business Companies Act (the BCA). Additionally, certain BVI companies that were incorporated under the old International Business Companies Act and which were subsequently either re-registered on a voluntary basis, or which were automatically re-registered as Business Companies under the BCA, will also qualify for exemption.
•   Exemption under these new Regulations applies only to limited liability companies (whether limited by shares or by guarantee).
•   The company’s name must include the designation ‘PTC’. Existing companies seeking exemption will, therefore, have to effect a change of name to comply.
•  The memorandum of the company must state that the company is a private trust company.
•   The PTC must be a private trust company and, as such, must not solicit business from members of the public.
•   All PTCs must use a registered agent in the BVI that holds a ‘class 1’ trust licence under the BTCA, such as AMS Trustees Limited.
•   The company must restrict its business to that of being a trustee and to the administration of trusts. Related and ancillary services, such as acting as a protector, are also permitted.
•   All the business undertaken by the PTC must be “unremunerated trust business” or “related trust business”, and these requirements are the key tests that differentiate the BVI Regulations from those of Bermuda and the Cayman Islands. If, at any stage, these two conditions are not met, then the PTC will be obliged to apply for a trust licence.

The Regulations give clear definitions of what constitutes unremunerated trust business and related trust business. Appropriate anti-abuse provisions are sensibly included and provide clarity, for instance, regarding the treatment of payments to directors and employees. Unremunerated trust business is defined as trust business, which is carried on “if no remuneration is payable to or received by the PTC or any person associated with it, in consideration for, or with respect to, the services that constitute trust business”.

The definition of related trust business is a little ‘trickier’.

A PTC will be permitted exemption if it acts as trustee of:

(i) A single trust of which all the beneficiaries are either charities, or have certain specified blood, marital or adopted relationships to the settlor, or

(ii) More than one trust, where the respective settlors and beneficiaries have specified blood, marital or adopted relationship to each other, or are charities.

VISTA Trusts and the Ownership of a PTC

It should be noted that an exempt PTC in the BVI cannot set up VISTA trusts. VISTA trusts are trusts which are established under the Virgin Islands Special Trusts Act, 2003, and one of the key requirements is that they require a trustee licensed under the BTCA. Thus, a licensed BVI trust company can establish VI STA trusts for clients and can incorporate PTCs for clients, but those PTCs cannot, in turn, create VISTA trusts themselves.

Nevertheless, the trustees of VI STA trusts can own the shares of an exempt PTC in appropriate cases and under certain circumstances. The way the ownership of a PTC is structured is most important, and requires specialist trust advice as there will be tax and succession issues to be considered. Similarly, the directors of the PTC will need to be fully aware of their obligations with respect to trustee matters, as well as their generic director liabilities.

Government Fees

An attractive feature of the new Regulations is the reasonableness of the Government fees, thus giving the BVI an important advantage over other traditional PTC jurisdictions:

•   To incorporate a new exempt PTC with 50,000 shares or less, the Government fee is US$750 and the annual renewal fee is US$750.
•   For PTCs with more than 50,000 shares, the fee for incorporation will be US$1,500 and the annual renewal fee will be the same.
•   The fee for changing the name of an existing BVI company to enable it to become an exempt PTC is US$425.

Registered Agent’s Responsibilities

The registered agents of PTCs now have a number of new responsibilities and obligations, and these are driven directly by the necessity to monitor compliance with the Regulations and, ultimately, to ensure an effective framework within which to control fiduciary risk.

Specifically, the registered agent of exempt PTCs must:

1.   Satisfy itself, on an ongoing basis, that the all conditions that provide eligibility for the exemption are met at all times.
2.   Undertake compliance reviews on a periodic basis, and inform the Financial Services Commission (FSC) if the standards and requirements for exemption are not being maintained.
3.   Maintain current copies of all trust deeds and documents involved in the creation or amendment of trusts established by the PTC.
4.   Maintain supporting documentation evidencing that the PTC is fully compliant with the Regulations.

None of the documents to which thesepoints refer have to be actually filed with the FSC, further demonstrating the Government’s desire to take a ‘commonsense’ and pragmatic approach to controlling PTC activity. However, PTCs must file their Memorandum and Articles of Association. Registers of directors and shareholders must also be maintained at the offices of the registered agents, as they are for all companies incorporated under the BCA.

Prior to the issue of these Regulations, there was arguably some lack of clarity regarding the definition of “carrying on trust business”. These new regulations make this an obsolete concern, and consequently it should be noted that The Banks and Trust Companies (Application Procedures) Directions, 1991, have been revoked.

Trustee’s Responsibility

By allowing the establishment of exempt PTCs in the BVI , the regulators are placing responsibility upon those BVI trust companies (and other service-providers) acting as the registered agents. In practical terms, it will also be essential to ensure that there is adequate knowledge, experience and fiduciary controls available across the spectrum of trust administration.

Here, BVI trust companies can assist both family offices and advisors by undertaking the management of the PTC and the administration of the underlying trusts. Above all, a close, professional relationship between the client, the advisors and the BVI trust company will be essential to build the platform needed for success.