The Demystification of the BVI Financial Services Industry: The New Financing and Money Services Act, 2009

The BVI Financing and Money Services Act, 2009 (the Act) came into force on March 31, 2010. The Act introduced a new regulatory regime for the licensing, registration and supervision of individuals and businesses who carry on ‘financing business’ and ‘money services business’ in or from within the British Virgin Islands (BVI) together with criminal offences for breach or non-compliance. The primary focus of the legislation is on business activities being conducted within the BVI or with BVI residents. Therefore, international business activities that do not conduct business in or within the BVI but through BVI companies or other entities will not be affected.

The introduction of the Act is yet another example of the BVI’s strengthening commitment in establishing a legislative and regulatory framework on par with international best standards in the combat of money laundering and terrorist financing purposes. The Act is intended to adhere to Recommendation 23 of the Financial Action Task Force’s (FATF) 40 Recommendations on combating money laundering. FATF is an inter-governmental body whose purpose is the development and promotion of national and international policies to combat money laundering as well as terrorist financing. Under Recommendation 23, businesses “providing a service of money or value transfer, or of money or currency changing should be licensed or registered, and subject to effective systems for monitoring and ensuring compliance with national requirements to combat money laundering and terrorist financing.”

Significantly, the application of the Act does not extend to banks or post offices operated by the Government and carrying on money services business, unless such person is operating as an agent or franchise holder of a non-bank financial business or a money services business. Specifically, financial institutions holding a general banking licence pursuant to the BVI Banks and Trust Companies Act, 1990, as amended (the BTC Act) are expressly excluded from the scope of the Act and remain subject to the rules and regulations of the BTC Act.

Financing Business

Under the Act, a person carrying on any of the following activities will be considered to be carrying on ‘financing business’ and be required to be licensed:

•  the business of providing ‘credit’ under ‘financing agreements’ to borrowers resident in the BVI (or in the course of any other business, providing ‘credit’ under a ‘financing agreement’ in an amount or to a value exceeding US$50,000 to a borrower in the BVI);
• the business of leasing moveable property to a person resident in the BVI under a ‘financing lease’; or
• carrying on such other business or activity as may be later specified in the regulations as financing business.

The Act defines the term ‘credit’ to include a cash loan, a deferred payment and any other form of financial arrangement. The term ‘financing agreement’ refers to an agreement whereby a person provides, or promises to provide, the other person (the ‘borrower’) with credit. A ‘financing lease’ is a lease whereby the property to be leased is acquired by the lessor from a third party (the ‘supplier’) for the purposes of leasing it to the lessee under the lease.

Only BVI companies or foreign companies who are licensed under the Act may hold themselves out as carrying on financing business.

Money Services Business

Any person carrying on the business of providing the following services will be considered to be carrying on ‘money services business’ under the Act:

1. money transmission services;
2. cheque cashing services;
3. currency exchange services;
4. the issuance, sale or redemption of money orders or traveller’s cheques;
5. other services as may be specified in the regulations; or
6. operating as an agent or franchise holder of a person carrying on one of the businesses specified in paragraphs (a) to (e) above.

Only BVI companies or foreign companies that are licensed under the Act may carry on or hold themselves out as carrying on money services business in or from within the BVI. Furthermore, BVI companies that carry on, or hold themselves out as carrying on, money services operating outside of the BVI will be deemed to be carrying on, or holding themselves out as carrying on, money services business from within the BVI.

Licensing and Regulation

Applications for a licence under the Act are to be made to the BVI Financial Services Commission (the “Commission”). The Commission will consider a variety of criteria when making its determination to grant a licence, including, without limitation, the applicant’s financial wherewithal, whether the applicant, its directors, senior officers and any persons having a significant interest in the applicant satisfy the Commission’s fit and proper criteria, and whether the issuance of the licence would be contrary to public interest.

The Act also introduces a framework to regulate and supervise a licensee’s business and contains various restrictions such as conditions in respect of a licensee’s financial soundness and capital resources and deposits. Furthermore, a licensee will be required to obtain the prior written approval of the Commission in connection with the appointment and termination of its directors and senior officers, disposing of or acquiring a ‘significant interest’ in a licensee, and establishing and maintaining a principal place of business.

Under the corporate governance provisions of the Act, a BVI licensee will, amongst other things, be required to have a minimum of two individual directors and maintain sufficient records at its principal office which:

1. show and explain its transactions;
2. at any time, enable its financial position to be determined with reasonable accuracy;
3. enable it to prepare such financial statements and make such returns as it may be required to prepare and make under the Act; and
4. if applicable, enable its financial statements to be audited.

BVI licensees and foreign company licensees (vis-à-vis their business in the BVI) will also be required to take reasonable care to maintain a clear and appropriate apportionment of significant responsibilities amongst its directors, senior officers and key functionaries and establish and maintain systems and controls appropriate to its business. A foreign company licensee will also be required to maintain at its principal office records that are sufficient to (a) show and explain all transactions in respect of the business it carries on in the BVI; and (b) enable it to prepare such returns as may be required to prepare and make under the Act and the Regulatory Code, 2009 (British Virgin Islands).

The financial statements and audit provisions of the Act require, amongst other things, a BVI licensee to prepare and submit to the Commission financial statements for each financial year within six months of the end of the financial year to which they relate and be accompanied by an auditor’s report, a director’s certificate, any reports on the affairs of the licensee made to the members of the licensee in respect of the relevant financial year, and such other documents as may be prescribed. In addition, BVI licensees will also be required to appoint an auditor, such appointment requiring the Commission’s prior written approval.

Penalties

Under the Act, a person who makes or assists in making false or misleading representations, statements, reports or returns commits a criminal offence and may be found liable on summary conviction. The Act also contains a prescribed list of offices and penalties for carrying on, or holding oneself out as carrying on financing business or money services business without a licence and penalties for committing such an offence under the Act range from US$10,000 to US$60,000 and/or imprisonment of up to three years.