Deadline approaches for BVI registered agents and trust companies to regularise the status of regulated subsidiaries

The Banks and Trust Companies Act, 1990 (the Act) has been amended by the Banks and Trust Companies Act, 2018 (the Amendment Act) which requires BVI licensed registered agents and trust companies to remove listed subsidiaries from their licences and apply to have them separately licensed where necessary. The Amendment Act was gazetted on 3 August 2018 and came into force on 1 October 2018.

Subsidiaries to be removed from the licence of licensees

The Amendment Act clarifies that where, prior to the coming into force of the Amendment Act, a company engaged or approved to engage in company management or trust business was listed in a schedule of the licence of a Class I or Class II trust licence, or a Class III licensee as a subsidiary of the licensee, that company must no later than 30 June 2019, submit a written application to the BVI Financial Services Commission (the Commission) to be separately licensed. As a consequence, the provisions of the Act dealing with adding and removing subsidiaries to the licences of licensees have been repealed.

Where a company fails to comply with the requirement to remove subsidiaries from its licence after the deadline stipulated above, the subsidiary in question would be deemed to have ceased to be listed in the schedule of the licence of the Class I or Class II trust licensee or the Class III licensee. Further, all licensees holding Class I or Class II trust licences or Class III licences and on whose licence, a company is listed as a subsidiary, must surrender its licence to the Commission by 31 July 2019. The Commission will re-issue the Class I or Class II trust licensee’s or the Class III licensee’s licence but without a list of any subsidiary included on the licence.

Affected subsidiaries can each opt to make an application to the Commission for its own licence, merge with the parent licensee or liquidate. The decision as to which option is to be taken by an affected subsidiary is really a commercial one depending on the structure of the group in which the subsidiary is a member and the need and scope required for the subsidiary going forward.

However, in considering its options, it is to be noted that, a Class I or II trust licensee or Class III licensee cannot merge into a company that is listed as a subsidiary on its licence unless the company has applied for and obtained a separate licence under the Act. On the other hand, however, a company that is listed as a subsidiary on the Class I or II trust licensee’s or Class III licensee’s licence may, before 30 June 2019, merge into a licensee.

A company that is listed in the schedule of a Class I or Class II trust licence or Class III licence that engages in company management or trust business after the deadline stipulated in section 9 of the Act without obtaining a separate licence commits an offence and is liable on conviction to a fine not exceeding US$50,000.

What are the reasons for this move by the Commission?

For a number of years the Commission, international organisations and the industry have noted shortcomings with the current regime, some of which include the following:

• Financial services legislation does not expressly provide for subsidiaries to comply with the regulatory obligations (eg dispositions of significant interest and appointment of directors etc).

• The Commission has encountered resistance from some licensees who maintain that the subsidiaries are not licensees and do not need to comply with any regulatory obligations.

• The Commission has communicated that authorising subsidiaries to provide services such as registered agent services is contrary to section 91(3) of the BVI Business Companies Act.

• The need for the number of licences issued by the Commission to reflect the actual number of registered agents conducting regulated activity in the BVI. This is important to provide comfort to international financial examiners who have raised the issue as to why the Commission has more registered agents providing registered agent and registered office services than it has licensees – the reason being that subsidiaries which do not hold their own licence, are authorised to provide registered agent services.

• There is regulatory concern that the Commission does not have full regulatory oversight of entities that it has authorised to conduct regulated business. In order to address this issue, the Commission ceased approving subsidiaries to act as registered agents in 2018 and has amended the legislation to include subsidiaries in the definition of a licensee in order to enable the Commission to take enforcement action against subsidiaries.

Licensees should note their obligations against the upcoming deadlines in relation to their subsidiaries and comply accordingly in order to avoid possible enforcement action.

Other changes brought in by the Amendment Act

Other changes reflected in the Amendment Act include a definition for registered agent; allowing registered agents to act as registered agent to entities other than those incorporated under the BVI Business Companies Act and the Partnership Act. These now include other corporations incorporated under or pursuant to an enactment, including the newest baby to join the family of available BVI companies, the micro business company.

The functions of an authorised agent have also been amended to include accepting service and other legal processes on behalf of a licensee.

The Amendment Act also added two new classes of licences, namely, the Class IV trust licence, for the purposes of carrying on trust business and company management business by family offices and other closely held groups; and a Class V licence, for the purposes of carrying on company management business only by family and other closely held groups. The holder of a Class IV trust licence is restricted to administering no more than 500 BVI companies and 50 trusts, must have a physical presence in the Virgin Islands and must not engage in introduced or third party business. The holder of a Class V licence is restricted to administering no more than 300 BVI companies, must have a physical presence in the Virgin Islands, must not engage in any trust business and must not engage in introduced or third party business. The Regulatory Code 2009 may be updated to define the nature and scope of these family operated businesses and other closely held group business.

Harneys is the only firm in the BVI with a dedicated regulatory practice and has dedicated and experienced regulatory lawyers. Please feel free to reach out to any member of the Harneys Regulatory practice group or your usual Harneys contact should you require any assistance with any of the foregoing.