British Virgin Islands Confident in light of KPMG OECD Report

October 2001

The long awaited KPMG Independent Review of Financial Sectors in the Caribbean Overseas Territories was finally published in late October of this year – some 3 months behind schedule. The Report has been well received by the BVI Financial Services Industry.

Following positive developments in the wake of the Organisation For Economic Co-operation and Development and the Financial Action Task Force initiatives, the Report comments favourably on the BVI’s regulatory standards, and whilst highlighting areas of the financial services industry which should be improved, is seen as positive affirmation that, in general, regulation in the BVI meets international standards.

The Report did not contain any fundamental surprises to the industry as many of its recommendations have been under active consideration in the BVI. The BVI Government has, for some time, been considering how it can assist in providing greater transparency in financial matters where there is a legitimate reason to do so, whilst continuing to protect client confidentiality. The Honourable Chief Minister, Ralph T. O’ Neal indicated, in June of this year, that the BVI Government was prepared to amend existing legislation to:

(a) require particulars of directors to be recorded at the Companies Registry; and

(b) restrict the mobility attaching to bearer shares by requiring them to be deposited with licensed financial institutions.

Both of these proposed amendments were included as recommendations in the KPMG Report and, because they were anticipated, have been discussed and accepted by the industry as necessary for the BVI to meet international standards. Accordingly, draft legislation to effect these changes is likely to happen early next year.

At the same time as the report was released, a press release was issued by the Foreign and Commonwealth Office and Her Majesty’s Treasury in which it was noted that priority should be given to three particular recommendations in the KPMG Report. The 3 priorities for action are:

• the establishment of an independent regulatory authority;

• enhancement of laws and systems for combating money laundering; and

• the enactment of compulsory investigative powers legislation to enable regulators to obtain and to share vital information with overseas regulators.

The BVI Government is close to satisfying the last two recommendations. The outstanding recommendation, the establishment of an independent regulatory authority, will require more time to effect. It is anticipated that a bill dealing with this recommendation will be tabled in 2001. The Financial Services Industry views the recommendation of an independent regulatory regime favourably. It is believed that it will lead to a more efficient and less bureaucratic financial services industry - something that can only assist in promoting the Industry.

It is clear that there is still work to be done in the BVI to meet international regulatory standards. What is equally clear is that the BVI has been credited with having made significant strides in achieving the standards set out in the KPMG report. The jurisdiction is further committed to achieving these standards within a reasonable time frame so as to be viewed by the international financial community as a co-operative jurisdiction, thus avoiding any threat of OECD sanctions or being put on the FATF blacklist. It will also provide a springboard for an application as a qualified jurisdiction under the new US backup withholding tax regulations – a step which the Industry and the BVI Government are presently considering taking.

For further information on the BVI KPMG report please contact us.