Revisions to financing and money services regulation in the British Virgin Islands following 2018 consultation

Following a consultation process arranged by the BVI Financial Services Commission (FSC) in 2018, in which Harneys was heavily involved, the regulator instructed the BVI government to revise and update the jurisdiction’s financing and money services regime to do two things:

  • firstly, to make it fit for purpose for local businesses based purely in the BVI which were involved in consumer financing, lending and on-the-ground money (payment) services; and
  • secondly, to prepare the groundwork for the BVI’s drive to become a hub for international FinTech businesses.

What happened?

The Financing and Money Services Act 2009 (the FMSA) was recently amended by the Financing and Money Services (Amendment) Act 2018 (the Amendment), taking effect on 1 March 2019. This article looks at the various substantive changes to the FMSA made by the Amendment including the changes to the meaning of financing business and Class F licence which can now be issued under the FMSA.

By way of background, the FMSA regulates financing business and money services business in the BVI. Contained within the FMSA is a prohibition against any person carrying on, or holding himself out as carrying on, “financing business” or “money services business” unless that person is licensed under the FMSA or otherwise falls within an exemption.

Widening of financing business regulation

Following the Amendment, the definition of financing business in the FMSA now covers the following types of BVI financing business:

  1. the business of providing credit[1] under financing agreements[2] to borrowers resident in the BVI;
  2. the business of providing credit, including pay day advances, or consumer finance loans, under a financing agreement to a borrower in the BVI;
  3. the business of leasing[3] property to a person resident in the BVI under a financing lease[4]; and
  4. (once implemented by subsidiary legislation) the business of conducting international financing and lending business in relation to a Class F licence.[5]

Limbs (1) to (3) are generally intended to capture domestic island-based financing business within BVI rather than international business involving BVI companies around the world.

In relation to limb (2) of the definition of financing business, the Amendment provides that a “consumer finance loan” is a loan of money, credit, goods or choses in action including, except as otherwise specifically prescribed, provision of a line of credit, in an amount or of a value which is not less than US$5,000 and not more than US$35,000 for which the lender charges, contracts for, collects or receives interest at a rate prescribed unless the borrower has defaulted. To the extent that the thresholds referred to are not triggered then the transaction will not be subject to the FMSA.

The introduction of consumer finance regulation followed the results of the 2018 consultation process.

Widening of money services regulation

Money services business now includes some new business activities and captures, dispensing money, facilitating deposits, payments, transferring money, reporting account information via automated teller machines (ATM) and transmitting money in any form, including electronic money, mobile money or payments of money.

New classes of licences have been developed

Prior to the Amendment, a person could have only held a financing business licence or a money services business licence depending on the nature of their activity. However, with the Amendment in place the categories of licences have been expanded to include the following:

  • Class A: which allows a licensee to carry on business of transmitting money in any form, including electronic and mobile payments of money;
  • Class B: which allows a licensee to carry on the business of issuing, selling or redeeming money orders or travelers cheques, cheque cashing and currency exchange;
  • Class C: which allows a licensee to engage in financing business;
  • Class D: which allows a licensee to carry on the business of financing lease;
  • Class E: which allows a licensee to carry on the business of operating an ATM;
  • Class F: which allows a licensee to carry on the business of international financing and lending in the peer-to-peer (P2P) FinTech market, including peer to business (P2B) and business-to-business (B2B) markets; and
  • Class G: which allows a licensee to carry on the business of such other service as may be specified on the regulations.

Class F licence: Special licensing for international financing and lending

The FMSA now provides for the issuance of a special class of licence for entities that are engaging in international financing and lending ie the Class F licence. This class of licence represents a positive and progressive step on the part of the FSC to embrace the age of FinTech and to accommodate more modern and sophisticated methods for facilitating financing transactions.

The licence will be relevant to BVI business companies and qualifying foreign companies licensed under the FMSA which operate in the following markets:

  • the P2P FinTech market: this involves the lending of money to individuals or business through online services that match lenders with borrowers;
  • the P2B market: this is an alternative to a traditional bank loan and can be a great asset to small business start-ups looking for funding to expand, take on staff or to cover day-to-day expenses; and
  • B2B markets: this is the electronic exchange of capital between businesses.

The Class F licence was designed with start-up companies in mind and is very much designed to offer a “light touch” regulatory regime, aimed at permitting licensed entities with a certain amount of latitude to conduct various trials of new products. Further guidance in the form of subsidiary legislation is being developed to give context to this new licensing regime.

Maintenance of capital resources and deposit

To the extent that the capital resources fall below the standard set by the Regulatory Code 2009 the licensee would need to notify the FSC and the licensee will need to prepare and submit a plan as to how it intends to rebuild its capital resource to the required regulatory levels. This has to be done within 30 days and failure to do so could result in enforcement action taking place.

Duty of management to ensure the licensee complies with the law

Personal liability is now imposed on individuals in senior management positions to the extent the licensee fails to comply with the FMSA and any of the financial services legislation relevant to money laundering, terrorist financing and proliferation financing. The penalty can be in an amount up to US$30,000.

Segregation of customer assets

To the extent that the licensee receives monies from customers there should be no commingling of the licensee’s money and the customer’s money. Strict separation of assets should be in place.

Prohibition on solicitation or receipt of money

No person may solicit or receive money from another person in relation to conducting financing business or money services business in or from within the BVI. If this takes place that is considered to be an offence and strict penalties apply, US$50,000 in the case of an individual or US$75,000 for a corporation.

Consumer protection measures

The FSC can provide consumer measures for licensees that may include placing restrictions on interest rates, allowing or requiring instalments payments, limiting excessive charges and requiring loan statements and receipts to be provide to customers.

These recent updates to the FMSA highlight the ever progressive and forward thinking approach which has become the hallmark of the BVI financial services industry and demonstrate its ongoing ability to adapt to the constantly evolving global financial environment and to set the trends for others to follow.

If you have any questions, please contact Mirza Manraj or your usual Harneys contact.

 

[1] Credit refers to a cash loan, a deferred payment and any other form of financial arrangement.

[2] A financing agreement is an agreement which outlines the terms of credit between parties, most typically between a lender and a borrower.

[3] A lease is an agreement where a person ie the lessor grants another person ie the lessee the right to possession and use of any movable/immovable property for an agreed period in return for a periodic payment.

[4] A financing lease is a lease where the property to be leased is acquired by the lessor from a third party ie the supplier for the purpose of leasing it to the lessee under the lease.

[5] This is a class of licence issued under the FMSA which permits the holder to carry on the business of international financing and lending in the peer-to-peer FinTech market, including business-to-business markets.