FinTech. ICOs. Blockchain. It is increasingly rare for a dialogue within the financial services industry to take place without reference to one of these words (or similar, related concepts).
The Anti-Money Laundering and Terrorist Financing (Amendment) (No. 2) Code (the "Code")
The Code applies to persons (the "Entities") licenced or registered to carry out any 'relevant business' (as such term is defined in the Anti-Money Laundering Regulations, 2008 and which includes, among other matters, banking business, insurance business and the business of company management), and also to non-financial businesses (designated as such in the Non-Financial Business (Designation) Notice, 2008). Any Entity that falls within the ambit of the Code is now able to take advantage of the following three key changes to the BVIs AML regime.
The AML Code requires that any identifying information obtained by an Entity during the process of identification must be verified, by checking reliable, independent source documentation, data or information to confirm that the customer/applicant for business (the "Applicant") is who they say they are.
The Code now explicitly permits the use of electronic or digital means in order to carry out this verification exercise. Accordingly, in addition to the traditional methods of reliance on physical paper form information, the use of digital, electrical, magnetic, optical, electromagnetic, biometric and photonic methods may also now be used in order to conduct verification. As with physical verification, it remains the responsibility of the Entity to adopt qualitative checks in order to properly assess the strength of the information sourced and received. Relevant factors to be considered will include:
- the security of the electronic/digital data or source;
- the method used in collecting, storing and maintaining the information;
- the level of privacy attached to the electronic/digital data source; and
- whether the electronic/digital data or source is reviewed and updated regularly.
Reliance on third party platforms
Under the Code, an Entity may now also engage, and rely on the data of, a third party (such as a Blockchain provider) to carry out the verification of an Applicant's identity, provided that the Entity is satisfied that the information obtained and stored by that third party is sufficiently extensive, accurate and reliable. The third party itself must:
- be independently established, operate independently and be independent of the Applicant;
- use and access a range of positive and negative information sources;
- access a wide range of alert data sources;
- have transparent processes that enable an Entity to know what checks have been carried out, what the results of those checks were and to determine the level of satisfaction provided by the checks; and
- not have been convicted of a criminal offence or sanctioned for a breach of data or providing misleading data.
An Entity relying on the electronic/digital and other data of a third party organisation must record its satisfaction that the above conditions are met. It must also engage in a cyclical monitoring process to keep track of any changes to the above conditions and to ensure the third party's continued compliance with these conditions.
Non face-to-face transactions
Due to the speed at which transactions take place, and the global reach of these transactions, in this new digital era, it is becoming increasingly common for transactions to take place, and for business relationships to be established, without any face-to-face contact. Recognising and facilitating this, the Code no longer requires that every Applicant is automatically treated as high risk due only to the fact that there has been no face-to-face contact.
Other factors may now also be taken into account, including the nature and characteristics of the product or service requested, the assessed money laundering or terrorist financing risk presented by the Applicant, and the likelihood as to whether face-to-face contact has been deliberately avoided by the Applicant.
Whilst further amendments to existing regulation in the BVI (including the AML Code), and the implementation of new laws and regulations, will be required in order to fully embrace and regulate the growth of FinTech, Blockchain and the ICO industry in the BVI, the changes brought about by the Code provide a helpful indication of the BVIs forward thinking and technologically supportive approach in developing its antimoney laundering policies.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.