Important updates to the BVI Regulatory Code 2009

12 Nov 2019

The BVI Regulatory Code 2009 (the RC09) was amended by the Regulatory (Amendment) Code 2019 (the Amendment). The Amendment was issued and Gazetted on 11 November 2019 and comes into force on 13 November 2019. There are a number of important points to note from the Amendment. We outline some of them below:

Staff training and development

There is now a requirement in the RC09 that expressly requires licensees to establish and implement policies and procedures that require employees to be adequately trained, or to undertake sufficient professional development, to perform their duties within the licensee.

Terms of business

The RC09 now contain provisions that regulate the terms of business on which licensees operate with their clients. BVI licensees shall:

inform its customers, in writing, of the agreed terms of business between the licensee and the customer, including the instructions received and the capacity and scope of discretion, if any, within which the licensee will act for the customer; and
ensure that the agreed terms of business includes:
a description of the products and services to be provided;
the fees to be charged and the basis for the calculation of those fees;
where applicable, the terms upon which customers’ monies are to be held;
any exit fee and the basis upon which the fee is calculated; and
the means by which the complaints about the licensee’s services can be made.

The written terms of business should make provision that the relationship between the licensee and its customer should be terminated upon giving reasonable notice, unless there are good reasons for not doing so.

Advertisements and communication practices

The BVI licensee should adopt advertising and communication practices that promote advertisement that is clear and fair, and is free of false or misleading statements.

Directors to be physically resident in the BVI

The following categories of licensees are now required to have at least one of its directors physically resident in the BVI. The categories include: Class I, Class II or Class IV trust licence, or a Class III or Class V licence, including a restricted Class II trust licence or a restricted Class III licence.

Board responsibilities

The RC09 now codifies additional responsibilities on the board of directors, such as:

delegating such functions of the board as the board considers appropriate;
establishing a policy on conflicts of interests to address standards of behaviour within the licensee, including the consequence for non-compliance with the policy.

Where the board of the BVI licensee delegates a function, it should record or cause to be recorded the function that is delegated and have ultimate responsibility for the performance of the function that has been delegated.

Responsibilities of the board and senior management

The board and senior management of a BVI licensee need to:

undertake a self-assessment of its effectiveness with respect to the matters required of it under the RC09; and
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 its customers for which the licensee is acting in other countries: (i) in which it is carrying on business and (ii) in which the assets are being managed or held.

Internal audit function

Class I and II trust licensees are now required to have in place an internal audit function. However, this does not apply if the licensee does not hold customer monies or, having regard to the nature, size and complexity of the licensee, the licensee determines that it does not require an internal audit function. Where such a determination is made, the licensee should within 14 days notify the BVI Financial Services Commission (FSC) in writing of that fact, stating its reasons.

Compliance officer reports (COR)

The annual compliance officer reports are required to be prepared and submitted to the FSC within 3 months after the end of the year to which the report relates.

Contents of the COR

The COR will now need to contain:

the number of employees within the regulated person, the names and positions of the employees that underwent training, including training in AML/CFT obligation, the content of material covered, the dates of the training and a copy of the regulated person’s training register;
a list of any BVI laws that may have been breached by the regulated person, the remedial action taken and within what time frame, and a copy of the regulated person’s register of compliance breaches;
the number of suspicious activity reports made during the year of the report;
a list of significant complaints made by the customers of the regulated person, indicating the dates of the complaints, the nature of the complaints, and how the complaints were dealt with;
an indication of whether there has been a significant breakdown in the internal control structure of the regulated person, including any compliance risks that may be associated with the licensee’s business relative to:
its existing risk management strategy, policies, systems and controls and whether the internal controls remain sufficient and appropriate for the licensee’s business; and
whether the strategy, policies, systems and internal controls are being implemented and complied with in an effective manner;
confirmation of whether or not the licensee remains properly resourced, structured and organised to enable it to effectively undertake its business activities, including serving the number and types of its customer; and
confirmation of the level of compliance by the licensee with its reporting, filing and other obligations to the FSC under financial services legislation, the Financial Services Commission Act and the RC09.

It is important for licensees to ensure that all of these elements are provided for in the COR that is filed with the FSC.

Accounting and audit standards

Where the auditor of a licensee has issued a management report with respect to an audit of a licensee, the licensee should submit to the FSC a copy of the auditor’s management report and the management’s response to the report within 6 months after the end of the licensee’s financial year or, where an extension has been granted, within the period of the extension.

Notification in relation to professional indemnity insurance

The RC09 now requires a licensed trust company and a licensed company manager should notify the FSC and the licensee’s insurer of any claim or potential claim on its professional indemnity insurance.

Assessing financial soundness of an applicant

In assessing the financial soundness of a regulated person or applicant, the FSC will assess the source of wealth and source of funds of the significant owner or controller of the regulated person. A regulated person must be able to demonstrate legitimate sources of funds and wealth of the significant owner or controller (i.e. any person that has influence over the activities of the undertaking without having a significant interest in the undertaking).

Should you have any questions on any of the new regulatory obligations or require us to review any of the licensee’s policies and procedures and assist with putting in place the necessary documents to ensure a licensee’s compliance with the regulatory framework, please do get in touch with us.