There are 15.000 people living in Anguilla, a tiny British Overseas Territory in the Caribbean. The economy of the island combines tourism and fishing with financial services. The financial services industry includes (offshore) banking, insurance and company formation. A distinction is made between domestic banks and commercial offshore banks. The Banking Act of 2015 and the Trust Companies and Offshore Banking Act regulate the sector while supervision is mandated to the East Caribbean Central Bank (ECCB) and the Anguillan Financial Services Commission (AFSC).
Banking in Anguilla has a distinct risk profile from the well-known global financial centers. The banking sector is well-capitalized and loan portfolios are considered healthy. Over the last decade, three banks were closed and their assets taken over by other institutions. These defuncted banks are the Caribbean Commercial Bank (Anguilla) Limited, the FirstCaribbean International Bank (Barbados) Limited, and the National Bank of Anguilla Limited. Their closures reveal helpful information on the stability of the Anguillan financial system and the way bank failure is handled.
Deposit Guarantee Scheme (Anguilla): A combination of a small population and the bank risk profile result in a strong legal framework to resolve financial institutions in distress. The ECCB Agreement Act, the Trust Companies and Banking Act and the ECCB Banking Act of 2015 provide for the legal framework on financial institutions that operate in Anguilla. Deposit insurance is not part of its safetynet and creditors rely on the resolution framework for repayment of their account balance and other assets held at failing financial institutions.
Secured Deposit Limit: Zero – Bank deposit insurance does not exist (at this moment) in Anguilla.
Minimum Capital Requirements: The paid-up share capital for an Anguilla offshore bank that is only authorized to serve non-Anguillan customers and foreign currency is set at 250.000 Eastern Caribbean Dollars. To operate as a bank, the minimum required capital is set at 20.000.000 Eastern Caribbean Dollars and for credit and financial institutions 5.000.000 Eastern Caribbean Dollars. Licensed financial holding companies maintain unimpaired, paid up capital of three times the minimum amount applied to its licensed subsidiaries.
Reserves and Statutory Deposits: Banks and credit institutions that hold an insurance division are required to hold an unearned premium reserve, outstanding claims reserve, reserve for claims incurred but not reported and an unexpired risk reserve. Credit institutions may experience a transformation and maturity mismatch where they misalign short term assets with long term liabilities.
Institutional Insurance Requirements: The Trust Companies and Offshore Banking Act may require a licensee to effect and maintain a policy of insurance with an approved insurance company. The policy should insure losses arising out of claims of negligence and breach of duty, dishonesty, loss of documents, other identifiable risk factors.
Early Intervention: The Governor of the ECCB may decide to revoke or suspend a license of a supervised financial institutions for different reasons. These include the lack of qualifications of the licensee, the business activities of the licensee detrimental to the public interest or to the interest of the creditors, its declining solvency and financial situation, violations or contraventions of the applicable Acts and respective AML regulation, and the termination of the activities as a financial institution.
Resolution Procedures: An official administrator is appointed for a maximum period of 12 months, furthered by another 12 months if necessary, by the ECCB when a licensed financial institution or financial holding company has violated any provision of the Banking Act, or engaged in unsafe and unsound practices leading to a decrease in the value of the banks assets and thus threatening creditor interest. The official administrator assumes control over the financial institution with all its powers, functions and responsibilities.
Duties and Powers of the Administrator: To avoid a strong decline in value of the troubled financial institution, the administrator suspends the payment of dividend and other capital distributions to staff members while placing a moratorium suspending some or all payment facilities. The administrator does an inventory and drafts a plan of action to resolve the challenges at the financial institution for consultation with the ECCB. Consequently within 30 days an inventory of assets and liabilities is presented; within 90 days a report on the financial condition, future prospects and an assessment of the assets likely to be realized. This report also defines a plan of action to a) return the institution into compliance again, b) liquidate the financial institution, or c) any other course of action to resolve the financial institution in a manner that minimizes disruption to depositors and preserves the stability of the financial system.
Historic Events and Future Prospects: The Resolution Plan for the failed National Bank of Anguilla Ltd and the Caribbean Commercial Bank (Anguilla) Ltd. justified – alongside the transfer of deposits to a new bank (the National Commercial Bank of Anguilla) and the NPL portfolio to the Eastern Caribbean Asset Management Corporation – the establishment of two Depositor Protection Trusts to protect large depositors holding deposits in excess of EC$4 million and to make payments to the Social Security Board via the Bank Resolution Obligations Act (2016). The novel Bank Resolution Obligations Act was primarily formed to resolve the issues with the National Bank of Anguilla Ltd and the Caribbean Commercial Bank (Anguilla) Ltd. There is as of today no deposit protection framework yet to protect other financial institutions in similar situations.
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