On 13 November 2019, the BVI Regulatory Code 2009 (the "Regulatory Code") was amended by the Regulatory (Amendment) Code 2019 (the "Amendment Code"), which introduced important changes to the Regulatory Code and new regulatory requirements which build upon its existing provisions.
All entities applying for a licence under any legislation included at Part 1 of Schedule 2 to the Financial Services Commission Act 2001 (the "Regulatory Legislation") will be assessed against the requirements set out in the Amendment Code. Existing licensees (i.e. those who hold a licence that was issued prior to 13 November 2019) will have until 1 July 2020 to comply with the new requirements of the Amendment Code.
The BVI Financial Services Commission (the "FSC") has also set out, in its January 2020 newsletter to industry, specific timelines for the submission of annual compliance reports for licensees. A summary of the relevant timelines and an outline of other important changes under the Amendment Code is below.
Staff Training and Development
Licensees are now expressly required, under the Amendment Code, to establish and implement policies and procedures that require their employees to be adequately trained, or to undertake sufficient professional development, to perform their duties.
Corporate Governance Framework
A licensee must take reasonable care to ensure that its employees are appropriately supervised and take all reasonable steps to ensure that it obtains sufficient information about its customers to ensure that any discretion or power it has, is exercised in a proper manner and for a proper purpose.
Terms of Business
The Amendment Code includes provisions regulating the terms of business under which licensees may operate with their customers and requires a licensee to:
(a) Inform its customer, in writing, of the agreed terms of business between the licensee and its customer, including instructions received and the capacity and scope of discretion, if any, within which the licensee will act for the customer;
(b) Ensure that its terms of business include:
(i) a description of the products and services to be provided;
(ii) details of the fees to be charged and the basis on which such fees will be calculated;
(iii) where applicable, the terms on which the customer's monies will be held;
(iv) details of any exit fee and the basis on which any such fee will be calculated; and
(v) the means by which complaints about the licensee's services can be made.
A licensee's written terms of business must also now provide that the relationship between the licensee and its customer may be terminated upon giving reasonable notice, unless there are good reasons for not doing so.
Advertisements and Communication Practices
BVI licensees are now required to adopt advertising and communication practices that promote advertisement that is clear and fair, and is free of false or misleading statements.
Directors of a BVI Licensee
The categories of licensee required to have at least one director physically present in the BVI has been expanded to include holders of a Class I, Class II or Class IV trust licence, or a Class III or Class V licence, including a restricted Class II or Class III trust licence.
The Amendment Code introduces a number of additional responsibilities for the board of a BVI licensee including:
(a) Periodically reviewing senior managers and other employees' competence, having regard to the nature, size and complexity of the licensee;
(b) Delegating such functions of the board as the board considers appropriate; and
(c) Establishing a conflicts of interest policy to address standards of behaviour within the licensee, which should include consequences for non-compliance with the applicable policy.
Where the board of a BVI licensee delegates a function, it will need to record (or cause to be recorded) the function that is delegated and will remain ultimately responsible for the performance of that function.
Responsibilities of the Board and Senior Management
The board and senior management of a BVI licensee must:
(a) Undertake a self-assessment of its effectiveness with respect to matters required of it under the Regulatory Code; and
(b) Ensure that, where applicable, the licensee has appropriate policies and procedures in place that enable a full understanding of the duties arising under the laws relevant to the administration and affairs of the customers for which the licensee is acting in other countries: (i) in which it is carrying on business; and (ii) in which relevant assets are being managed or held.
Internal Audit Function
Class I and Class II trust licensees are now required to have an internal audit function in place unless the licensee does not hold customer monies and / or, due to the nature, size and complexity of the licensee, it is not deemed, by the licensee, to be necessary.
Where such a determination is made, the licensee must notify the FSC in writing of that fact, and the reasons for the relevant determination, within 14 days of such determination having been made.
Duties and Responsibilities of Compliance Officer
The register of compliance breaches, which each licensee's Compliance Officer is responsible for maintaining under the Regulatory Code must now include additional details of remedial action taken to address any recorded breach and the timeframe within which such remedial action was or is to be taken.
Compliance Officer Reports
The annual compliance report required by the Regulatory Code (the "COR") must now be prepared and submitted to the FSC within three months after the end of the year to which it relates.
The COR should also now include:
(a) The number of employees within the relevant regulated person, the names and positions of such employees that underwent training, including training in AML / CFT obligations, the content of material covered in such training, the dates of the relevant training and a copy of the relevant regulated person's training register;
(b) A list of any BVI laws that may have been breached by the relevant regulated person, the remedial action taken and within what timeframe, and a copy of the relevant regulated person's register of compliance breaches;
(c) The number of suspicious activity reports made during the year of the report;
(d) A list of significant complaints made by customers of the relevant regulated person, indicating the dates of the complaints, the nature of the complaints, and how the complaints were dealt with;
(e) An indication of whether there has been a significant breakdown in the internal control structure of the relevant regulated person, including any compliance risks that may be associated with the relevant licensee's business relative to: (i) its existing risk management strategy, policies, systems and controls and whether its internal controls remain sufficient and appropriate for its business; and (ii) whether its strategy, policies, systems and internal controls are being implemented and complied with in an effective manner;
(f) Confirmation of whether or not the relevant licensee remains properly resourced, structured and organised to enable it to effectively undertake its business activities, including serving the number and types of customers; and
(g) Confirmation of the level of compliance by the relevant licensee with its reporting, filing and other obligations to the FSC under Regulatory Legislation, the Financial Services Commission Act and the Regulatory Code.
Applicable Timelines for Pending Compliance Officer Reports
For existing licensees, the COR with respect to 2019 (the "2019 COR") must be submitted by 1 October 2020. The FSC has, in its January 2020 industry newsletter, encouraged existing licensees to submit their 2019 COR in accordance with the new requirements of the Amendment Code.
The COR with respect to 2020 (the "2020 COR") must be submitted, for all licensees, by 31 March 2021. The 2020 COR must include all of the new information set out in, and meet all additional requirements introduced by, the Amendment Code.
Accounting and Audit Standards
Where an auditor of a licensee has issued a management report with respect to an audit of a licensee, the licensee should submit a copy of such report, and the management's response to such report, to the FSC within six months after the end of the licensee's financial year or, where an extension has been granted, within the period of such extension.
Notification of Professional Indemnity Claims
The Amendment Code requires licensed trust companies and licensed company managers to notify the FSC and the relevant licensee's insurer of any claim or potential claim on its professional indemnity insurance.
Assessments of Financial Soundness
When assessing the financial soundness of a regulated person or applicant, the FSC will now also assess the source of wealth and funds of the significant owner or controller of the relevant regulated person or applicant.
A regulated person will need to be able to demonstrate that its significant owner(s) or controller(s) have legitimate sources of wealth and funds.
Originally published May 5, 2020.
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