Financial Services Industry Continues To Be Bouyant
The year 2001 will be one of consolidation. re-engineering and development for the vital financial services industry, with a number of amended legislation to be introduced to refine, update and modernise financial services legislation in the Virgin Islands, it has been announced here. Chief Minister and Minister of Finance the Honourable Ralph T. O'Neal gave the commitment when he presented the 2001 Budget Address on Tuesday November 28th in the Legislative Council. "The overriding object of the process will be keeping our programmes, practices and laws at the cutting edge of the provision of cross border financial services."
The Chief Minister noted that 2000 was an eventful year and one of mixed blessings, as the industry continued to operate within an environment of intense global scrutiny as a result of a sea of initiatives targeting offshore financial centres. At least eight such initiatives are current - the Organisation for Economic Co-operation and Development (OECD) Harmful Tax Competition Initiative; the Financial Action Task Force (FATF) Non-Coopertaing Countries and Territories (NCCT) Initiative; the Financial Stability Forum's (FSF's) 3-item categorisation of offshore financial centres; and the United Nations Global Anti-Money Laundering Programme. Between them, the initiatives cover all the areas which are of strategic concern to the major countries of the industrialised world: taxation, financial regulation, international cooperation, anti-money laundering. "Mr. Speaker, dealing with the plethora of international initiatives has been a daunting, taxing and time consuming process," he declared. "It has caused us to re-examine the relevance and probity of all our industry related policies, programmes and legislation, with a view to refining, updating and re-engineering where necessary." However, he reported that notwithstanding the anxieties and uncertainties caused by the implementation and execution of these initiatives, preliminary indications suggest that the out turn from the territory's financial sector activities in 2000 will be at least consistent with that from our record year 1999. "Significant growth and increased activity being recorded in all segments of the industry is testimony to the maturisation of the industry."
New International Business Companies (IBC) incorporations in the year are expected to approach new levels. In 1999, more new captive insurance companies were formed and licenced to operate from within the BVI than in any other captive domicile. There were 50 new captives last year. In the Mutual Funds subsector, the BVI continues to be one of the most attractive jurisdictions for offshore collective investment schemes. Since the implementation of the Mutual Funds Act, 1996, over 2,000 mutual funds have been placed on the Mutual Funds Register. At the end of the 3rd quarter, some new funds had been registered or recognized. Overall, the level of new Mutual Funds business has been at around 40 new applications per month, represnting an annual growth rate of 20%. "As the KPMG Report points out, as the ongoing supervisory worth increases, additional staffing will be necessary," Hon. O'Neal continued. He said this will become more evident later in the new year when the Mutual Funds Code of Practice is issued and the domain is charged with onsite supervision as well as oversight of investment business and investments intermediaries. According to the Finance Minister, the Financial Services Department is intensifying its efforts to make the BVI more attractive as a situs for mega growth and government is resolved to doing whatever is necessary to preserve, protect and enhance the international competitiveness of the financial services sector activities. The much-awaited Merchant Shipping Act should be brought to the House shortly and a new system of annual ship registration licences is being considered by government for implementation in the new year.
"We will ensure that all financial sector related programmes, legislation, regulatory and supervisory practices fully comply with established international standards of prudential supervision and industry best practices," Chief Minister O'Neal pledged. Already, the Financial Services Department, acting through its consultative committees (the Mutual Funds Advisory Committee, the Financial Services Legislation Advisory Committee and the Harmful Tax Competition Task Force), has been collaborating with the BVI Society of Trust & Estate Practitioners, the Association of Registered Agents and the BVI Bar Association on diversification of the industry to make it more internationally competitive. Several legislative amendments are expected to be brought to the House during the course of the new year.
The Chief Minister told the House that Her Majesty's Government intends to use the recently published KPMG Independent Review of Financial Sectors in Bermuda and the Caribbean Overseas Terriotries as the blueprint for charting the way forward. "Thus...the comprehensive KPMG Report must be considered the watershed for the BVI financial services industry." He pointed out that the Report contains positive endorsement of BVI's success in achieving international regulatory standards and a number of detailed suggestions for legislative and regulatory change. He said many of these recommendations have been under active consideration by the government and the local industry for some time. He said government is poised to act expeditiously on the implementation of some of the recommendations, but others will entail a longer time scale for implementation to facilitate an industry/government consensus on the way forward.
The three priority recommendations of the Report which require immediate attention 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. Mr. O'Neal said the BVI has technically satisfied the latter two recommendations. However, he said substantial work would have to be done before a properly sourced independent regulatory authority (The Financial Services Commission) can be established by September 2001. A Bill is expected to be brought to the House sometime nex year. "Similarly, work is currently ensuing on the OECD Harmful Tax Competition Initiative, with a view to keeping the territory off the OECD blacklist," the Chief Minister continued. He said his government is prepared to play a full and meaningful role in the process towards greater transparency and intends to engage in constructive dialogue with the OECD, which has raised concern about the ringfencing of International Business Companies from taxation and other measures applicable to the domestic companies. Hon. O’Neal said strategies aimed at reconciling the differences are being developed by the Ministry of Finance and the Financial Services Department. He said government is conscious that the strategy selected must be incorporated by the end of year 2001 and year 2002 deadlines specified by the OECD for standstill and roolback measures.
"To ensure that the financial industry remains internationally competitive, we are determined to ensure that the resources necessary to safeguard our interests are efficiently and effectively allocated and utlitised for the benefit of us all," he stated. He added that new markets would be sought to generate new growth. Government will spearhead a public/private sector mission to Asian Countries in the new year to determine existing opportunities for future business. In addition, the 2001 Budget Estimates provide for $1,700,000 in local resources as loan funding for a total of $5,450,000 in the Capital Budget to commence work on the Government's Financial Complex. Already, the Department is housed in three buildings and is said to be in dire need of additional accomodations. "With the increased workload being occasioned by the KPMG Report, the Department may have to acquire additional rental premises for the integrity of its regulatory purpose," Chief Minister O'Neal concluded on this subject.