Bank Account Holders in St. Vincent and the Grenadines: Protect Your Account Balance When Banks Without Deposit Insurance Fail or Stop
Approximately 100.000 people live in St. Vincent and the Grenadines, a Caribbean Island group in the West Indies. The independent jurisdiction is a member country of the commonwealth, the Organization of Eastern Caribbean States (OECS), the Eastern Caribbean Currency Union (ECCU), and the Eastern Caribbean Central Bank (ECCB). The official language is English and the country is considered a parliamentary democracy and constitutional monarchy. The Queen of England is the head of state, represented by the Governor-General of Saint Vincent and the Grenadines.
The lower-middle-income economy of St. Vincent and the Grenadines with a GDP of 800 million USD is based on services and agriculture. Tourism is an important driver of the services sector followed by offshore finance. Despite the efforts of the government, unemployment remains high. Foreign Direct Investment and other public incentives seek to attract international businesses able to create employment and capital inflows. As the Harlequin Property investment debacle and the Loyal Bank closure revealed, this does not always produce the desired results.
International Business, Banking and Finance
St. Vincent and the Grenadines participates with 14 other less developed and more developed countries in the political and economic union, CARICOM. With 5 associates and 8 observers, its members have access to a market of 18,5 million people. This free trade zone deepens economic integration whilst expanding the economic mass of the Caribbean community. Most local business activities and retail transactions in St. Vincent are cash-based. As a result, local financial institutions mainly serve small and medium-sized businesses and retail customers.
Similar to many other Caribbean jurisdictions, St. Vincent and the Grenadines incorporated an International Business Companies Act (Chapter 149). This international and offshore financial sector in St. Vincent and the Grenadines is plagued by historical compliance issues in relation to weak customer due diligence (CDD) and know your client (KYC) procedures. This triggered international custodians and correspondent banks to terminate relationships with many of the financial institutions operating in the jurisdiction. As a result, international transactions became difficult and many account holders, and even one of the licensed and supervised offshore banks (Euro Pacific Bank) decided to move their holdings, assets and licenses out of the country.
The regulatory framework was improved and efforts to restore confidence in the St. Vincentian offshore financial sector include the improvement of transparency and compliance with the automatic exchange of information via CRS (2018) and FATCA (2015). Still, the jurisdiction remains an attractive location for the incorporation of unregulated businesses and affordable licenses.
Bank Regulation: The Financial Services Authority and the ECCB
The legal framework for financial services in St. Vincent and the Grenadines is laid down in the ECCB Agreement Act of 1983, the Banking Act of 2015 and the International Banks Act of 2009 (Chapter 99). The domestic financial market and the global financial is further distinguished by supervision of the ECCB for financial institutions that operate in the local market and a mandate for the SVG Financial Services Authority (FSA) to control offshore banks and non-bank institutions operating within the jurisdiction.
ECCB Agreement Act: The ECCB Agreement Act established a common central bank, uniform code, and monetary authority for the participating governments. It maintains and manages a common currency, safeguards its international value, promotes monetary stability and a sound financial structure and furthers economic development in the region.
ECCB Banking Act: The comprehensive Banking Act defines the lifecycle of domestic deposit taking credit institutions from the granting of a license to operate to the forced or voluntary closure of the institution. Important parts of the Act when it comes to institutional challenges include Part II (Licenses), V (Financial Requirements and Limitations), VII (Supervision), IX (Official Administration), X (Receivership and compulsory Liquidation), and XI (Voluntary Liquidation).
International Banks Act: A company established in St. Vincent and the Grenadines may apply for a Class A or Class B International Banking License. The Act requires all international banks to maintain a physical place of business in the jurisdiction and employ at least two local staff members. Furthermore, international banks are prohibited from financial related business with residents of St. Vincent and the Grenadines.
Deposit Protection in St. Vincent & the Grenadines
Deposit protection, where bank accounts are insured up to a predefined amount, currently does not exist in St. Vincent and the Grenadines. Therefore, financial institutions are restricted in their activities and must maintain high capital levels. While this limits the failure of financial institutions, it does not exclude it. In order to mitigate depositor risk and protect the public interest, the legal framework ensures statutory administration, restarting of activities, receivership, and bank liquidation. The following case studies reveal how bank risk management in exorbitant situations is executed on institutional and regulatory levels:
2013 – The Saint Vincent Building and Loan Association (BLA): A run on deposits was prevented after FSA intervention in collaboration with the World Bank. Deposits became inaccessible for a period of 18 months; the IT systems of the bank were revised and updated and a financial and forensic audit revealed the true state of its financial position; non-performing exposures were actively managed and creditor discipline was restored; and as a result, spill over effects to other financial institutions was avoided.
2016 – Harlequin Property (SVG) Limited: Even though this is not related to banking, several thousand international investors lost considerable amounts of money in an (unregulated) investment project that turned out to be a façade. The company took around GBP 400 million for property development products in St. Vincent and the Grenadines, St. Lucia, Barbados and the Cayman Islands. The Financial Services Compensation Scheme has thus far only paid GBP 125 million compensation to 2.700 investors.
2017 – Euro Pacific Bank Ltd.: The full-reserve bank was officially incorporated in St. Vincent and the Grenadines and founded with the objective of making international banking safe, digital and global. Its alternative business model excludes traditional bank risk derived from prop trading and lending and earns its income on fees and commissions. Changes in the regulatory framework and a lack of correspondent relationships in St. Vincent and the Grenadines led to the bank relocating to Puerto Rico as a licensed and supervised International Financial Entity in 2017. It was rebranded into Euro Pacific Intl. Bank Inc. Yet, banking operations were suspended in 2022 for allegedly using client funds to finance the banks day to day operations. Self-liquidation under the laws of Puerto Rico was approved in August 2022. Bank deposit protection is not available to the international clientele of the bank.
2018 – Loyal Bank Limited: The US Department of Justice implicated Loyal Bank Limited in securities fraud, stock manipulation, money laundering and other illicit operations. Consecutively, the bank lost all of its correspondent relationships and access to electronic payment services via Mastercard. In August 2018, the license of the bank was revoked and Deloitte & Touche (Barbados) was appointed as liquidators. Creditors were asked to submit claim evidence to receive interim dividend as compensation. A first payment of 25% was expected at the end of January 2022 but is further delayed because of (sic) ‘recent global developments’.
Asset and Fund Recovery for International Creditors
The laws in St. Vincent and the Grenadines seek to protect depositor interest. The strong focus on self-governance, limited external controls, and Central Bank examinations at least once every 36 months could pose a threat to creditors. This is not a problem for institutions that comply with global standards, meet capital requirements and refrain from wrongdoing. However, those entities that strive to push the boundaries of legitimacy and abuse the system undermine the stability and confidence of the local financial system. The theoretical background appears strong, but implementation and supervision are lacking and thus placing an emphasis on civil action by creditors.
A bank under supervision by the St. Vincentian regulators may be subject to intervention by its regulators if it conducts its activities in a way that adversely affects the interests of its depositors or the national and regional economies. Upper management of the bank may be held liable for its misconduct. Upon the receipt of information by a third party, or as a result of an audit, the bank may be placed under statutory administration. A moratorium is then placed on all transactions, including online banking, electronic payment services and cards. Following Article 127.2 of the ECCB Banking Act, on and during the appointment of an official administrator, no creditor, shareholder, depositor or any other person shall have any remedy against the licensed financial institution or licensed financial holding company in respect of any claim. This means that the position of creditors who wish to act against the bank must overrule the Banking Act and the public interest. Difficult, but in special circumstances not impossible.
Contact us for More Information and to Discuss Your Case…
This website is an initiative of Legal Floris LLC. We assist international creditors recover money when their bank fails or their investments disappears. Due to our vast experience in bank failures in different countries, we are able to maximize repayments and minimize risks for our clients. Contact us right now to find out how we can help you too to reclaim your account balance if your bank in St. Vincent & the Grenadines stops operating:
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