INTERNATIONAL BUSINESS COMPANIES (AMENDMENT)

Finally, the BVI legislature has approved and released the much awaited provisions dealing with the immobilization of Bearer Shares and the definition of “Custodian” that is incidental to the restrictive use of bearer shares. As expected, the Bearer Shares changes came as an amendment to the BVI International Business Company Law. The “Custodian” legislation came as a modification to the Financial Services Commission Act.

Although some of these provisions are yet to formally be made public in the BVI Gazette, such publication is expected in the coming weeks. Below is a summary of the most relevant aspects, for your reference:

1. INTERNATIONAL BUSINESS COMPANIES (AMENDMENT) ACT, 2004.Amendments to the International Business Companies (IBC’s) will ultimately require that all bearer shares in BVI IBC’s be held by a custodian and thus immobilized. Companies formed after 1 January 2005 must comply with these requirements from their date of formation. Alternatively, BVI IBC’s may be issued with registered shares.

However, Section 2 of the International Business Companies Act is amended to move back the deadline for the immobilization of bearer shares that are in existence prior to 1 January 2005, from the initially proposed date of 31 December 2004, to 31 December 2010. Thus, you will not need to be concerned about the restrictions on bearer shares for those companies formed previously, and up to 31 December 2004, at least until the year 2010.

2. FINANCIAL SERVICES COMMISSON (AMENDMENT) ACT, 2004:
a. Authorized Custodian of Bearer Shares
This amendment act introduces a new section 50A to the BVI Financial Services Act that provides for the approval of authorized custodians by the BVI Financial Services Commission (“FSC”).

An Authorized custodian will be either (i) the holder of a license under any financial services legislation; or (ii) a body corporate formed outside the BVI that is not resident in, and does not have a place of business in the BVI. In both cases, an applicant for approval must satisfy the FSC that it is a fit and proper person to act as an authorized custodian, and that it has the necessary security and compliance systems and procedures in place.

In determining whether a body corporate incorporated and operating outside the BVI is fit and proper to act as an authorized custodian, the FSC will also consider the prudential regulation exercised over, and anti-money laundering obligations imposed on such corporate body outside the BVI.

The amendment act provides in its new section 50C that the FSC may establish conditions for the approval of an authorized custodian and to vary or revoke said conditions. Also, under section 50D, the FSC is enabled to issue Guidance Notes specifying the practices and procedures it expects authorized custodians to follow.

To assist potential applicants for custodian status, the FSC has issued a new Aide Memoire, entitled Criteria for Approval of Authorized Custodians of Bearer Shares of BVI Incorporated Companies. In addition to providing an outline of the criteria that will be used by the FSC when approving custodians, the Aide Memoire addresses, inter alia, the duty of custodians and the grounds on which the FSC may revoke approvals. Based on the stringent requirements and compliance obligations, it is unlikely that many non-BVI companies, offices, trusts or firms, will be willing to apply for a custodian license.

Further, section 50E of the amendment act allows for the automatic revocation of an authorized custodian’s license by the FSC if such person is no longer fit and proper to act as an authorized custodian, breaches any conditions to which its approval is subject, breaches any Guidance Notes issued by the FSC, or being a non-resident corporate body operating outside the BVI a person becomes resident or establishes a place of business in the BVI.

b. Recognized Custodian of Bearer SharesUnder a new section 50B, the FSC is also empowered to acknowledge as a recognized custodian of bearer shares, an investment exchange or a clearing organization operating securities clearance or settlement systems in a jurisdiction that is a member of the Financial Action Task Force (“FATF”).

c. Other ProvisionsThe principal Financial Services Act is amended such as to clarify that only courts of competent jurisdiction in the BVI are empowered to make an order for the disclosure of privileged information held by the FSC.Additionally, the amendment extends immunity from being sued to persons who disclose information pursuant to a request from the FSC under the Financial Services Act.