New financial services law will ‘cost us’

Minister of Health and Social Development Ronnie Skelton has told the territory to brace for possible fallout in the financial services industry, adding that the intensified clamp down on the industry  will directly affect especially businesses operating in the British Virgin Islands (BVI).

He made the comments on Friday (May 12) as the House of Assembly debated the contentious Secure Search (Beneficial Ownership) System Bill 2017.

The proposed law will – among other things – facilitate a central location where particularly law enforcers will easily access information on people who are behind the companies involved in the financial services industry.

While suggesting that the BVI is under pressure to pass the bill being pushed by the United Kingdom, Skelton cautioned: “Eventually, what we are doing, we are taking the financial services business back to the basics. It is gonna cost us; it is gonna have some fallout. It is gonna have some fallout whether we could continue to collect $175 million a year; it might drop to $150 million. It is serious business here,” he told the House of Assembly.

Skelton said, under the bill, mutual funds are exempt from such level of scrutiny being established. So too are companies registered under a ‘recognized’ stock exchange, as well as subsidiaries of those companies.

Skelton further reasoned that, based on those exemptions, it is highly possible that local companies will be predominantly left open to scrutiny because they are less likely to meet the requirements for exemption.

International companies will flee the jurisdiction instead of allowing themselves to be so scrutinized, added Skelton.

“It seems to me like the only set of people who are going to be on this secure exchange [of information system] are gonna be BVI companies – companies who are doing business in the BVI… We cannot continue to just destroy our local things that we have grown,” he reasoned.

“If you go into China or you go into Hong Kong, I am sure some of those companies are trading on some stock exchange – unless you don’t ‘recognize’ the stock exchange over there; then it becomes an issue and they are gonna pull their business out [of the BVI].”

Skelton further said: “I know that you can’t really trace a company registered on the New York Stock Exchange, like the owners of BiWater… I think it might be difficult for you to get those beneficial owners [into the BVI system]…They are exempt. All companies that are registered under a recognized stock exchange; they are exempt. And mutual funds are exempt.”

Company incorporation in the British Virgin Islands has been suffering a major blow. For example, according to the BVI Financial Services Commission,  company incorporation dropped by 35 percent in the third quarter last year, compared to the corresponding quarter in the year 2015. The number of company incorporations recorded for the third quarter last year was 7,766.