Change in the BVI FSC’s policy towards listed subsidiaries of trust companies and company managers

The FSC has recently clarified that subsidiaries of licensed trust companies and company managers in the BVI will no longer be permitted to undertake registered agent and registered office business in or from within the BVI. Licensees have until June 2019 to comply with the proposed changes.

The current form of the Banks and Trust Companies Act 1990 (BTCA) and the Company Management Act 1990 (CMA) allows for licensees to incorporate and operate subsidiaries and for these subsidiaries to be included on the parent company’s licence. The BVI Financial Services Commission (the Commission) has decided that the listing of subsidiaries on a parent company’s licence will no longer be allowed and that all subsidiaries that are currently listed on their parent company’s licence must be removed. The Commission is likely to change this position soon, as a result of the following:

• the various financial services legislation does not expressly provide for subsidiaries to comply with regulatory obligations including the requirement to seek prior approval for certain changes, e.g. changes in ownership and the appointment of directors;
• the FSC has communicated that it has encountered resistance from some licensees who maintain that the subsidiaries are not licensees and do not need to comply with the regulatory obligation;
• the FSC asserts that authorising subsidiaries to provide services such as registered agent services is contrary to the BVI Business Companies Act 2004; and
• there is an on-going need for the FSC to explain to international financial examiners why there are more registered agents than licensees – which is because subsidiaries, which do not hold their own licence, are authorised to provide registered agent services.

There is a regulatory concern that the FSC does not have full regulatory oversight of entities that it has authorised to conduct regulated business. In order to address this concern, the FSC ceased approving subsidiaries to act as registered agents and amended the Financial Services Commission Act 2001 to enable the FSC to take enforcement action against subsidiaries.

As a result of the above, it is likely that the BTCA, CMA and other subsidiary legislation will likely be amended in the very near future.

In the meantime, the following options are available and will need to be complied with:

• the FSC has decided that listing subsidiaries on a licensee’s licence will no longer be allowed
• all subsidiaries that are currently listed on licences will need to be removed;
• the subsidiaries have the following options:
  • obtain their own licence; and
  • merge with the parent licence; or
  • liquidate the subsidiary.

We would highlight that while the FSC have written to licensees requiring that action be taken to remove the subsidiaries from the main licence. It is unclear, at this stage, what status the correspondence has in law and whether the licensee would be subject to any possible enforcement action if the licensee failed to take the requisite action by the deadline.

Please do feel to get in touch with any member of the Harneys Regulatory practice group should you require any assistance on this new policy.