The British Virgin Islands (BVI) are one of the leading and globally accepted offshore international financial centers. There are approximately 800.000 businesses registered in the jurisdiction that generate substantial income in government fees and therefore safeguard the business friendly ecosystem. The position of the jurisdiction was furthered in 2004 when it replaced personal and corporate income tax with a payroll tax between companies and their employees. Together with its attractive and flexible international business law, the jurisdiction is internationally recognized for its corporate services, company formation, and other financial activities.
The Role of the BVI as an International Financial Center
International Financial Centers are independent territories that facilitate international activities. They operate under acceptable regulatory frameworks and provide financial services to international customers. These international customers often require a business friendly environment with access to global markets and flexible and straightforward rules to operate their international activities. The BVI fulfills these criteria for many business professionals who need a reputable international financial center with an appropriate infrastructure and steady financial center development.
Administrative, legal and financial services are the backbone of international financial centers. With an estimate of 35.000 inhabitants, the services sector of the BVI has a strong focus on the substantive non-resident customer base that use the territory for their corporate affairs. To intercept the risk derived from this disproportionate situation, BVI lawmakers pay close attention to its overall company law and insolvency regime. This is, when it comes to bank deposit protection in the BVI, for example visible in the Anti-Money Laundering Code of Practice, the Business Companies Act, the Bank and Trust Companies Act, the Companies Act, the Financial Services (International Co-operation) Act and of course the Proceeds of Criminal Conduct Act.
Domestic and Offshore Banking and Finance
Financial transactions support living standards and the development of society. Banking and finance therefore play a prominent role in society. Without a proper functioning financial system, among other things, payments would not be effectuated, merchandise difficult to obtain and income hard to be paid. Stability of the financial system is therefore critical.
Because of their business friendly administrative infrastructure and welcoming attitude towards international business, offshore and international financial centers are frequently used by non-resident business professionals. The jurisdiction benefits from such activity and attracts government fees and public income via this alternative way of foreign direct investment. To maintain its position as a leading offshore and international financial center, the BVI must provide for a secure and stable financial system. To provide such security, the Banks and Trust Companies Act of 1990 only allows licensed institutions to engage in banking activities. Three categories of licenses can be obtained under the Act; a general banking license, a class 1 restricted banking license, and a class 2 restricted banking license.
Local markets have different needs than non-resident professionals and international businesses that use the jurisdiction for their corporate benefit. Even though the amended company law does not distinguish between local companies and international business corporations, lawmakers and regulators treat the financial system in a segmented way. Different classes of banking licenses therefore require financial institutions to hold minimum paid up capital, deposit collateral in a way prescribed by the governor and pay hefty annual government fees. A banking license class also allows or restricts deposit taking and credit facilitation with BVI residents.
Legal Foundations and International Recommendations
BVI bank regulation places a strong emphasis on internal risk management and liquidity maintenance. The Financial Services Commission (FSC) supervises the financial sector. Its mandate is provided for in the FSC Act of 2001 and its amendments of 2004. The Bank and Trust Companies Act is interconnected with company and insolvency frameworks to protect the financial industry and the public interest.
Several factors can trigger a financial crisis. Minimal capital requirements aim to protect the financial institution from failing for financial reasons. Financial crime and money laundering can also have serious effects on the viability of banks and other financial institutions. The Financial Actions Task Force, and for the BVI in particular the CFATF, the UN security council and the Egmont Group provide guidance and recommendations to combat the abuse of the financial system. The BVI has therefore implemented several of these recommendations.
Although banks mainly fail for financial reasons, regulatory violations may trigger a forced closure of the institution and thus must not be forgotten. To investigate white collar and other serious financial crimes, a financial intelligence unit was in 2004 established in the BVI under the Financial Investigation Agency Act. The Proceeds of Criminal Conduct Act and the AML Code of Practice help to deter any type of money laundering via regulated institutions.
The Inception of a Deposit Insurance Scheme in the Virgin Islands
Deposit insurance seeks to maintain confidence in banking and payment systems. It also protects account holders who are unable to properly assess important financial matters and the relationship with a deposit taking financial institution. The general framework for bank deposit protection in the BVI is currently completed and should take effect after the legal and resolution framework for financial institutions in distress is completed.
To align the domestic financial sector with international standards, and upon suggestion by a report on the British offshore financial centers and the IMF assessment on global financial sectors, the BVI formulated and adopted the Virgin Islands Deposit Insurance Act in 2016. The act seeks to establish the VI Deposit Insurance Corporation and the Deposit Insurance Fund.
Currently, several characteristics of the BVI Deposit Insurance Fund are known while the exact parameters will be announced at a later stage. A repayment event for insured deposits is triggered for financial institutions in distress. Insurable deposits under the Act exclude deposits of other financial institutions and deposits held by public authorities and government companies. The state of financial distress is announced when the FSC intervention is justified in the interest of and for the protection of depositors, when the financial institution failed to satisfy prudential criteria and minimum solvency standards, when it is unable to pay its debts, or when proceedings for the dissolution – voluntary or forced – of the institution has commenced in court.
Bank Deposit Protection in the BVI
A safe and secure financial system is built on different pillars. Licensing and supervision is furthered by internal capital requirements and risk management. Comprehensive and well-established regulatory frameworks enable bank supervisors to intervene where needed and send out a signal to market players to color between the lines. Mandatory participation in an external deposit guarantee scheme for licensed and supervised financial institutions provides for a tangible level of protection for account holders and their deposits.
Proper functioning of the financial sector is critical for economic development whilst it significantly contributes to the prosperity and well-being of the BVI. In the absence of a complete legal framework for bank resolution and deposit insurance, financial institutions in distress are resolved via traditional methods. The FSC plays a prominent role to protect and maintain the stability of the financial sector. Its primary functions are to protect consumers, promote public financial literacy, instigating and pursuing action against corporate offenders, and the monitoring, detecting and prevention of financial crime.
Bank deposit protection in the BVI is currently handled by the Bank and Trust Companies Act. The Act applies to deposit taking financial institutions that are licensed in the BVI. To maintain stability, licensed institutions shall at all times keep the prescribed risk weighted capital adequacy ratio and minimum level of liquid assets calculated as prescribed. Shell banks are prohibited from registering in the BVI and licensees shall not keep or maintain anonymous accounts on behalf of its customers. A special role is given to the auditor of a licensed institution to detect deficiencies. The FSC must be notified by the auditor on issues relating to the solvency of the institution, criminal offenses being committed by or via the institution, breaches of the Bank and Trust Companies Act, and significant weaknesses in internal controls. The FSC may require licensees to effect a policy of insurance to protect the institution from several losses. These include claims of negligence or breaches of duty, dishonesty of employees or the licensee, loss of documents, and other substantial risks.
Adverse effects of the failure and liquidation of a bank should be limited. Therefore, the FSC can revoke the license of a supervised financial institution, impose new or additional conditions upon the licensee, substitutes any director or officer of the licensee, appoint an external professional at the expense of the licensee to advise or assume control over the operations of the licensee and even dissolve the financial institution in the best interest of the depositors.
The FSC revokes the license of a supervised institution when the licensee has ceased to carry on banking business, has gone into liquidation, has made any arrangement or composition with its creditors, is unable or appears likely to become unable to meet its obligations as they fall due, or when it carries on business in a manner detrimental to the public interest, the interest of the depositors, beneficiaries, trustees and other creditors.
Contact us For More Information and to Recover Your Money
Deposit protection provides bank account holders with peace of mind when their bank fails. Applying to a deposit insurance fund however is not always easy. Especially where the creditor and the failed financial institution are in different countries with distinct legal frameworks. This website aims to provide the necessary information needed by creditors ambushed by the closure of their bank. International creditors are assisted with the submission of their DGS claim and where needed the further recovery of their account balance.
This is an initiative of Legal Floris LLC. Since more than a decade, we have helped international creditors recover money when their bank fails or their investments disappear. Due to our vast experience in dozens of bank failures in different jurisdictions, 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 the BVI stops operating:
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