BVI regulator updates the AML and KYC regime for the Fintech era

The BVI Financial Services Commission (FSC) has amended the Anti-Money Laundering and Terrorist Financing Code of Practice 2008 (the AML Code), effectively the financial services industry’s rulebook for customer verification and KYC, so that credit and financial institutions based in the jurisdiction may now rely on the latest electronic innovations to expedite customer verification.

On 19 July 2018 the AML Code was amended by the Anti-Money Laundering and Terrorist Financing (Amendment) (No. 2) Code of Practice, 2018 following consultation with the Joint Anti-Money Laundering and Terrorist Financing Advisory Committee (JALTFAC). The amendments came into force as of 1 August 2018.

Electronic verification clarified

The recent amendments deal mainly with the verification of individuals. Section 23 of the AML Code governs the general verification of customers, termed ‘applicants for business’ by BVI entities or professionals (each a BVI institution). The section has been amended to specifically permit the use of electronic and digital means of verification.

The AML Code now expands the ways a BVI institution may carry out verification procedures, whether in physical ‘wet ink’ paper form or by electronic and digital means. This verification process may include the use of proprietary software and/or programme by a BVI institution to conduct electronic/digital verification – including verification by digital, electrical, magnetic, optical, electromagnetic, biometric and photonic form.

A BVI institution relying on this type of verification, must ensure that it engages in an cyclical monitoring process (at least every three years) to keep track of any changes in the stipulated conditions or to satisfy itself as regards compliance or non-compliance with the stipulated conditions, and to act accordingly.

The new rules also stipulate circumstances in which a BVI institution should not rely on electronic/digital records, including but not limited to circumstances where the relevant information contained in the record is not capable of being displayed in a legible form, the electronic/digital record appears to be damaged, altered or incomplete, or where an electronic/digital signature or other kind of authentication accompanying or included with the electronic/digital record appears to be altered or incomplete.

Reliance on third party platforms

The new rules clarify that BVI institutions that carry out verifications relying on the electronic, digital or other data of an organisation, should ensure that they are independently established and that they use and access an extensive range of accurate and reliable information sources (generating both positive and negative information) which could link a customer to current and historical data.

In an interesting twist to the on-going data harvesting scandals plaguing both the US and EU markets at this time, the organisation being relied upon must be clear of any criminal offence or otherwise being sanctioned for breach of data or providing misleading data and the organisation must also be independent of the person to whom the verification relates (in terms of the collection, administration and management of data).

The amendments to the AML code contain other factors which BVI institutions should take into account when determining the reliability and independence of electronic and digital data. These expansive provisions are welcomed and are largely consistent with recent guidance issued by the UK Joint Anti-Money Laundering Steering Group (JMLSG) following amendments to the UK AML regime in late 2017. In light of this, the financial services industry would expect the market leading KYC verification tools adopted by global banks and other institutions to be suitable for the revised BVI requirements.

Non-face to face meetings clarified

The amendments clarify that in the case of electronic or digital verification or identity in relation to a transaction which is not held ‘face to face’, a BVI institution need not automatically treat an applicant for business or a customer as high risk.

The BVI institution need only treat such a customer as high risk in circumstances where it is satisfied that the applicant for business or customer presents a high risk or is otherwise engaged in money laundering or terrorist financing. Explanatory notes issued alongside the revised rules contain additional commentary dealing with further methods of verification in order to check against fraud and other criminal behaviour.

Certified documents

Under the old rules KYC documents such as passports and utility bills would need to be appropriately certified by designated professionals such as lawyers. Such certifiers would be required to attest, in general terms, that the copy resembled the original. Under the amended rules, in a move to bring the BVI closer in line with other reputable jurisdictions such as the UK, it is now acceptable for BVI institutions to rely on copies where they conduct an appropriate risk assessment.

Reflections in light of fintech and blockchain innovation

The amendments are timely considering the shift in many business models now relying on financial technology to conduct operations. The technology to support or enable financial services is now one of the fastest growing industries in the world. As online financial transactions occur more quickly, more efficiently and more cost effectively, more and more clients are readily embracing these on-line based products.

It is acknowledged that the fintech world continues to explode and cryptocurrencies and digital tokens continue their energetic movement through the world’s investment markets. The BVI therefore need to keep pace with developments in this space in order to attract and service clients who call upon the strong financial services community in the BVI to structure these new and innovative digital products. In establishing itself as a leader in offshore financial services and maintaining its integrity as a world-class jurisdiction, the BVI continues to examine and amend existing legislation to ably facilitate these developing digital trends. Creating digital flexibility in its AML regime achieves this goal and allows the BVI to meet customer needs in this fintech era whilst it continues to offer new and innovative products to include the new micro business company; and at the same, balance its international obligations in the fight against fraud and other financial crimes.