financial services Archives - George Henry Partners

Legal Update – European Court of Justice invalidates provision of the 5th Anti-Money Laundering Directive relating to public registers of beneficial ownership

Jennifer Potter — Fri, 16 Dec 2022 19:53:46 +0000

In a decision handed down on 22 November 2022, the Court of Justice of the European Union (the ECJ) invalidated a provision of the 5^thAnti-Money Laundering Directive (the 5AMLD) which required EU Member States to ensure that information on beneficial ownership of EU incorporated entities is accessible in all cases to ‘any member of the general public’ (Beneficial Ownership Information).

The ECJ considered that such public access constitutes a serious interference with the fundamental rights guaranteed in Articles 7 and 8 of the Charter of Fundamental Rights of the European Union (the Charter) relating to, respectively, respect for private life and the protection of personal data. The decision is final and binding on all EU Member States.

Download our legal update European Court of Justice rules on public registers of beneficial ownership

In its clearly reasoned judgment, the ECJ opined that:

The limitation on the exercise of the rights guaranteed by Articles 7 and 8 of the Charter, resulting from the general public’s access to Beneficial Ownership Information, fulfils the principle of legality.
Making available to the general public only ‘adequate’ Beneficial Ownership Information which is related to the purpose of the 4^th Anti-Money Laundering Directive as amended (the 4AMLD), would not undermine the essence of the rights guaranteed by Articles 7 and 8 of the Charter.
It is an objective of general interest to provide such public access thereby creating, by means of increased transparency, an environment less likely to be used for purposes of money laundering and terrorist financing (ML/TF). However, the principle of transparency cannot of itself be considered an objective of general interest capable of justifying interference with Articles 7 and 8 of the Charter.
The general public’s access to Beneficial Ownership Information is appropriate for contributing to the objective of preventing the use of the EU financial system for purposes of ML/TF (the Objective).
Notwithstanding the above, the interference resulting from the general public’s access to Beneficial Ownership Information is not strictly necessary to achieve the Objective.

(i) The ECJ noted that the 4AMLD, in the version prior to its amendment by the 5AMLD, made access to beneficial ownership information conditional upon the establishment of a ‘legitimate interest’. However, the lack of a uniform definition of the concept of ‘legitimate interest’ had given rise to practical difficulties in its application. The ECJ held that the difficulty in providing a detailed definition of the circumstances and conditions under which the public may access beneficial ownership information is no reason to resort to general public access.

(ii) To the extent that the recital in the 5AMLD states that the general public’s access to Beneficial Ownership Information allows greater scrutiny of the information by civil society, the ECJ held that the press and civil society organisations that are connected with the prevention and combatting of ML/TF have a legitimate interest in accessing Beneficial Ownership Information.

The provisions in the 4AMLD allowing (i) any member of the general public to access the prescribed minimum Beneficial Ownership Information and (ii) Member States to provide access to ‘additional information enabling the identification of the beneficial owner’ are not sufficiently defined and identifiable. Accordingly, such provisions do not meet the requirement of clarity and precision.
Unlike the previous version of the 4AMLD which provided for access by competent authorities and financial intelligence unities, entities required to carry out customer due diligence and any person or organisation capable of demonstrating a ‘legitimate interest’, the regime introduced by the 5AMLD was a more serious interference with the rights enshrined in Articles 7 and 8 of the Charter without being offset by any additional benefits.
The optional provisions of the 4AMLD, which allow Member States to make information on beneficial ownership available on condition of online registration and to provide for exemption from access in exceptional circumstances, were not in themselves capable of achieving the appropriate balance between pursuance of the Objective and respect for the rights enshrined in Articles 7 and 8 of the Charter.

What are the implications of this decision?

It is evident from the ECJ’s decision that more restricted access to public registers of beneficial ownership is preferred and indeed required by the Charter. Member States have already taken down public beneficial ownership registers in response to the judgment.

The ECJ appeared to look favourably upon an approach that restricts access to Beneficial Ownership Information to persons who are able to show a ‘legitimate interest’ (including competent authorities and financial intelligence units, any entity required to carry out customer due diligence, the press, and certain members of civil society).

It also appears from the reasoning of the ECJ that any public beneficial ownership regime that is likely to satisfy the requirements of the Charter should set out a detailed definition of the circumstances and conditions under which the public may access Beneficial Ownership Information. Additional acceptable safeguards may include a mandatory requirement for an online registration process to access such information (including payment of a fee), clear specifications as to what additional Beneficial Ownership Information Member States may request in their national laws as well as exemptions from access.

The British Virgin Islands intends to introduce publicly accessible beneficial ownership registers during the course of 2023. It has already undertaken significant preparatory steps in this regard. The judgment of the ECJ is not binding on the United Kingdom or its overseas territories. The Governor’s Office has nevertheless indicated that it will work with colleagues in the British Virgin Islands and the United Kingdom to understand the implications of the judgment while the Territory continues its work towards publicly accessible registers of beneficial ownership.

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JERMAINE O CASE

Senior Associate │George Henry Partners LP

📞 + 1 284 393 7004 │ + 1 284 346 4422

📧 jermaine.case@ghpbvi.com

The content of this guide is intended for general information purposes only and is current as at the date of publication indicated. This guide does not constitute legal advice and should not be relied upon as such. You should always seek specific legal advice that takes into account your individual circumstances.

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Jennifer A Potter joins GHP as Director of Operations

Paul Mellor — Fri, 22 Apr 2022 13:44:05 +0000

GHP BVI continues growth and expansion strategy with critical hire

George Henry Partners LP is pleased to announce that Jennifer Potter joined the firm on 5 April 2022 as Director of Operations. Jennifer has extensive experience in the implementation of innovative solutions to manage and optimise business systems and resources. Jennifer is particularly adept at identifying and harnessing advances in technology to achieve business objectives.

An experienced executive, Jennifer led strategic solutions for the BVI financial services regulator for over two decades and has demonstrable experience in delivering change and innovation in the fields of risk-management, corporate governance and regulatory compliance.

“We are delighted to welcome Jennifer to the team. Jennifer’s skills and experience, particularly in the areas of risk-management, corporate governance and regulatory compliance will be of fundamental importance to the growth and development of our firm. Jennifer’s unique experience better positions the firm to provide our clients with comprehensive solutions. We are excited to have Jennifer join us at such a critical stage of our development, as we continue to broaden and enhance our offering” said Sheila George, Managing Partner.

Jennifer joins a team of professionals who are widely recognized as experts in their field and who are dedicated to serving clients in a culture of excellence where people are the core.

View Jennifer’s profile.

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Legal guide – Compliance Officer’s Reports

Jennifer Potter — Fri, 19 Mar 2021 17:41:30 +0000

Introduction

Except where a specific exemption applies, an entity holding a BVI financial services licence (each a licensee) is required under the Financial Services Commission Act 2001 (the Act) to appoint an individual approved by the Financial Services Commission (the Commission) as its compliance officer (the Compliance Officer).

As part of his or her core functions, as articulated in the Regulatory Code 2009 (as amended) (the Code), the Compliance Officer must prepare and submit to the Commission an annual Compliance Officer’s report (COR) detailing the level of the licensee’s compliance with the Code and any other applicable financial services legislation.

Download a PDF of our Legal Guide – Compliance Officer’s Reports

When are CORs due?

There was previously no express deadline for the submission of CORs. However, as a matter of convention, a licensee would have up to 12 months after the end of the year to which the report relates to submit its COR to the Commission. Following the amendments to the Code as contained in the Regulatory (Amendment) Code 2019, which came into force on 13 November 2019, a licensee is now required to prepare and submit its COR to the Commission within 3 months after the end of the year to which the report relates. Accordingly, all licensees must submit their CORs relating to the 2020 compliance year by 31 March 2021.

What should a COR contain?

The Code sets out, in precisely the following terms, the minimum details that a COR should contain:

the number of persons employed by the licensee;
the names and positions of those employees who participated in any training, the content of material covered, the dates of any such training and a copy of the licensee’s training register;
a list of any BVI laws that the licensee may have breached over the period under review and a summary of any remedial action and time frame taken to address any such breach;
a copy of the licensee’s register of compliance breaches (which it is required to maintain under the Code);
the total number of suspicious activity reports made during the year of the COR;
a list of significant complaints (as defined in the Code) made by customers of the licensee indicating the dates of the complaint, the nature of these complaints and how they were handled;
an indication of whether there has been a significant breakdown in the internal control structure of the licensee including any compliance risks that may be associated with the licensee’s business relative to:
- its existing risk management strategy, policies, systems and controls, and whether the internal controls remain sufficient and appropriate for the licensee’s business; and
- whether the strategy, policies, systems and internal controls are being implemented and complied with in an effective manner;
confirmation of whether the licensee remains properly resourced, structured, and organised to enable it to effectively undertake its business activities, including serving the number and types of its customers; and
confirmation of the level of compliance by the licensee with its reporting, filing and all other obligations under the Code and any other applicable financial services legislation.

Can a licensee request an extension of time to prepare and submit its COR?

There are no clear provisions in the Code or the Act governing whether and how the Commission would consider requests for an extension of time to file a COR. It is likely that the Commission will, as it did prior to the 2019 amendments to the Code, continue to deal with such requests on a case-by-case basis to determine whether the circumstances justify any extension being given or if any enforcement action ought to be taken where a COR has not been submitted by the specified deadline. Considering the likely discretionary nature of that exercise, licensees are well advised to submit their COR to the Commission on time to avoid the risk of any enforcement action being taken against them.

What enforcement action might the Commission take if a licensee fails to submit a COR on time or at all?

The Commission has broad enforcement powers under the Act which it may exercise in any case where it is of the opinion that a licensee has contravened any provision of the Code or any other financial services legislation. In exercising such powers, the Commission has several options ranging from the issuance of a warning letter against a licensee to the revocation or suspension of its licence. In cases where a licensee has failed to submit its COR, the Commission typically imposes a fine commensurate with the degree of non-compliance. However, repeated infractions could result in more severe enforcement action.

Conclusion

CORs assist both the Commission and the licensee in monitoring the licensee’s compliance with the Code and other applicable financial services legislation. Accordingly, it is enormously important for licensees to prepare accurate and comprehensive CORs that comply with the Code. In doing so, licensees not only avoid the risk of enforcement action for failure to submit a compliant and timely COR; they also benefit from the opportunity to assess their compliance functions against the background of this obligatory regulatory self-inspection.

If you need any further guidance on preparing and submitting a COR or determining whether a licensee is exempt from this reporting requirement, please email us or reach out to one of our lawyers using the contact details below.

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BVI Financial Services Business Continuity

Jennifer Potter — Fri, 26 Jun 2020 21:24:08 +0000

The Financial Services (Continuity of Business) Act, 2020 (the Act) came into force on 28 March 2020. It was enacted to provide for special measures to support the continuity of financial services business either from within or temporarily outside the Virgin Islands in an “exceptional circumstance”.

Download a PDF of our Guide to the Financial Services (Continuity of Business) Act, 2020

In this guide, we examine the scope of application of the Act and some of the special measures that may be deployed whenever an “exceptional circumstance” has arisen or is likely to arise within or outside the Virgin Islands.

At the start of the 2020 hurricane season, it is timely for entities carrying on financial services business to review and be aware of the provisions of the Financial Services (Exceptional Circumstances) Act, 2020 (the FSECA) which may apply to the financial services industry in the case of any disruption.

The FSECA came into force on 28 March 2020. It repeals the Financial Services (Continuity of Business) Act, 2017 which was put in place for a transient period to deal with the interruption in BVI financial services business in the aftermath of Hurricanes Irma and Maria. The FSECA now provides a permanent framework for the adoption of special measures relating to the conduct of financial services business in the event of an exceptional circumstance arising within or outside the Virgin Islands including but not limited to pandemics, earthquakes and hurricanes.

Whom does the FSECA apply to?

The FSECA applies to:

all persons holding a financial services licence; and

any person otherwise subject to the Financial Services Commission Act, 2001 (the FSCA) or any other financial services legislation including approved, recognised and authorised persons,

(together referred to as Relevant Persons).

When does the FSECA apply?

The special measures provided for by the FSECA will apply when the Minister with responsibility for financial services issues an Order published in the Virgin Islands Official Gazette declaring that an exceptional circumstance has arisen or is likely to arise whether within or outside the Virgin Islands (the Order). An exceptional circumstance has arisen or is likely to arise when:

it has become difficult or impossible to carry out financial services business in and from within the Virgin Islands in accordance with the FSCA or any other financial services legislation; or

different or special measures are otherwise required to facilitate the conduct of financial services business in and from within the Virgin Islands.

The Order may indicate whether all or only specified provisions of the FSECA will apply or if it applies to all or only specified Relevant Persons. It must indicate the date from which the provisions of the FSECA will apply and, unless specified otherwise, the duration of application. The Order may also specify that the FSECA is to be applied retroactively if necessary.

What are the main allowances under the FSECA?

In an exceptional circumstance, the Board of the Financial Services Commission (the Board), which has the responsibility for monitoring and overseeing the operation of the Financial Services Commission, will be afforded added flexibility to continue to discharge its functions. In particular:

the Board may not be able to meet for the number of times stipulated in the FSCA. Under FSECA, it will have additional flexibility to meet at any other time or place, whether within or outside the Virgin Islands, or by any convenient medium, including via electronic means;

the Chairman and/or the Managing Director of the Board may make urgent decisions on their own which would have otherwise required a majority vote of the commissioners of the Board. Such decisions, however, will require subsequent ratification by the Board.

The Order may also specify that:

a Relevant Person may temporarily relocate the whole or part of his or her business to another jurisdiction or to a new address within the Virgin Islands in order to continue the operation of his or her business;

the provisions of the Insurance Act and the Regulatory Code relating to the licensing of loss adjusters are disapplied;

directors or authorised agents normally required to be resident in the Virgin Islands may be resident outside the Virgin Islands for the period that the Order remains in force;

the Commission may extend the time for Relevant Persons to perform outstanding obligations, including the payment of any administrative penalty;

records that are normally required to be kept in the Virgin Islands may be temporarily kept in the jurisdiction of relocation; and

certain specified fees that would have otherwise been payable are waived.

What are the additional points to note under the FSECA?

Where a Relevant Person relocates temporarily outside the Virgin Islands due to an exceptional circumstance, he or she will be deemed to be operating in the Virgin Islands and must continue to comply with all applicable laws.

The FSECA also establishes a Financial Services Complaints Tribunal to receive and investigate complaints made by a client or customer of a licensee regarding the handling of claims made against the licensee.

The Minister has already issued an Order in light of the disruptions caused by the Covid-19 pandemic. Although hopefully further orders under the FSECA will not be required, the FSECA now provides a permanent legislative framework to help facilitate the ongoing operation of the financial services industry in or temporarily from outside the Virgin Islands in the event of any exceptional circumstance.

For more information and to discuss how the FSECA could inform your business continuity plans and strategies, please feel free to email us or reach out to one of our lawyers using the contact details below.

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