BVI - Guidance: Effective Enhanced Customer Due Diligence Measures

On November 26, 2024, the British Virgin Islands Financial Services Commission (BVI FSC) released updated guidance on "Effective Enhanced Customer Due Diligence Measures." This initiative aims to strengthen financial institutions' (FIs) and Designated Non-Financial Businesses and Professions' (DNFBPs) compliance frameworks, focusing on anti-money laundering (AML), counter-terrorist financing (CTF), and the mitigation of risks related to introduced business relationships.

The guidance emphasizes the application of a risk-based approach and adherence to existing regulatory frameworks, such as the Anti-Money Laundering and Terrorist Financing Code of Practice and the Financial Investigation Agency Act. It highlights the responsibility of entities to ensure robust due diligence, particularly concerning the identification of ownership and control structures, as well as the management of third-party introducers.

This measure aligns with global standards, including FATF Recommendation 17, to enhance the territory's financial integrity and ensure entities are equipped to prevent financial crimes effectively.

The provided section elaborates on Enhanced Customer Due Diligence (ECDD) under the Anti-Money Laundering and Terrorist Financing Code of Practice (AMLTFCOP). It outlines the additional measures entities must implement when dealing with high-risk customers or transactions to mitigate risks such as money laundering (ML), terrorist financing (TF), and proliferation financing.

Key Points of ECDD:

1. Purpose of ECDD:

   • Acts as a supplementary layer to standard Customer Due Diligence (CDD) measures.

   • Focuses on truly identifying customers and verifying their details, including the legitimacy of their source of funds or wealth.

   • Tailored on a case-by-case basis, depending on the risk level, customer circumstances, and specific threats identified.

2. Examples of ECDD Measures:

   • Collecting additional customer details (e.g., volume of assets, public database information).

   • Conducting deeper inquiries into customer activities and backgrounds.

   • Verifying the customer’s source of funds and wealth with documentation and independent sources.

   • Securing senior management approval for initiating or continuing high-risk relationships.

   • Implementing stricter transaction controls, such as senior management sign-off for certain thresholds or first payments through regulated financial institutions.

   • Enhancing monitoring of the customer relationship, including scrutinizing transaction patterns and reasons for particular activities.

3. Application in High-Risk Scenarios:

   • Existing customers re-assessed as high-risk must immediately undergo ECDD measures.

   • Businesses are expected to heighten AML/CFT protocols for such customers to manage the risks effectively.

The framework ensures compliance with global standards, including the Financial Action Task Force (FATF) Recommendations, to secure the financial system from abuse by illicit actors.

Summary of Enhanced Customer Due Diligence (ECDD) Requirements:

The guideline has also drawn the requirements for Enhanced Customer Due Diligence (ECDD), summary as below:

1. Beneficial Ownership:

• Identifying and verifying customers’ beneficial owners is essential for assessing money laundering (ML), terrorist financing (TF), and proliferation financing (PF) risks.

• For non-natural person customers, licensees must understand the ownership structure across all layers, including the role of directors or equivalent management positions.

• Complex ownership structures with no clear purpose should be scrutinized for potential risk, requiring ECDD.

2. High-Risk Countries:

• Customers from countries with insufficient AML/CFT/CPF (e.g., those identified by FATF) must undergo ECDD.

• Reference FATF, CFATF, and local guidance to determine risk levels associated with these countries.

3. New and Emerging Technologies:

• New technologies or products that favor anonymity may bypass existing AML controls, posing ML/TF/PF risks.

• Licensees must conduct ECDD for customers or transactions involving such technologies and update risk assessments before introducing new products or services.

4. Source of Wealth (SoW) and Source of Funds (SoF):

• SoW refers to the accumulation of a customer’s total assets, while SoF relates to the origin of funds for specific transactions.

• ECDD requires verifying SoW and SoF using reliable documents, including bank statements, payslips, legal documents, and public records.

• Higher-risk cases require deeper verification and more robust documentation.

5. Politically Exposed Persons (PEPs):

• PEPs always require ECDD due to their higher risk. Measures include verifying SoW/SoF, understanding business relationships, monitoring for unexplained changes, and assessing the legitimacy of their financial growth.

• Procedures should identify PEPs, relatives, and close associates during onboarding and ongoing monitoring.

6. Suspicious Activity Reporting:

• Suspicious behavior, such as unexplained wealth or inconsistent transactions, should trigger internal reviews and potentially a Suspicious Activity Report (SAR) to the Financial Investigation Agency (FIA).

• ECDD measures support the early detection of such activities.

7. Introducer Relationships:

• Third-party introductions pose non-face-to-face risks, requiring ECDD and continuous monitoring of these customers’ activities.

8. Governance and Compliance:

• AML/CFT/CPF measures must integrate strong governance, modern risk management, and agile compliance frameworks.

• ECDD procedures should include annual reviews for high-risk customers, staff training, and continuous updates to compliance programs.

This framework ensures that licensees remain vigilant and adaptable to evolving financial crime risks while maintaining compliance with AML/CFT regulations.

How does it impact me as a potential BVI Company Owner?

The enhanced customer due diligence (ECDD) requirements for setting up a company in the British Virgin Islands (BVI) have specific implications for prospective customers, including individuals or entities looking to establish a BVI company:

1. Increased Documentation Requirements

Customers must provide detailed documentation to meet ECDD standards, including:

• Identification of Beneficial Owners: Clear information on who ultimately owns or controls the company, including evidence verifying their identities.

• Source of Wealth and Source of Funds: Customers need to demonstrate the origin of their wealth and the specific funds used for the business, supported by reliable documentation like bank statements, audited financials, or legal documents.

• Proof of Corporate Structure: Customers must disclose the full ownership structure, especially if the structure is layered or complex.

2. Enhanced Scrutiny for High-Risk Customers

Customers deemed high-risk (e.g., those from high-risk jurisdictions, politically exposed persons (PEPs), or involved in certain industries) face:

• More extensive verification of provided documents.

• Continuous monitoring of their activities.

• Annual reviews and heightened management oversight.

3. Potential Delays in the Company Formation Process

Given the rigorous verification processes and additional requirements under ECDD:

• Customers might experience delays while collecting, submitting, and verifying the required documents.

• Customers from countries with insufficient AML/CFT/CPF measures or those using non-face-to-face application methods might face extra scrutiny.

4. Costs and Effort

Complying with ECDD measures may lead to increased costs and administrative burdens for customers, including:

• Fees for notarization, certification, or procurement of required documents.

• Hiring compliance professionals or legal advisors to assist with meeting ECDD standards.

5. Risk Mitigation for Customers

While the process is rigorous, it protects legitimate customers by reducing the risk of association with fraudulent or criminal activities. It also ensures a secure business environment in the BVI, enhancing the jurisdiction's reputation.

How to Navigate These Requirements

• Preparation: Customers should prepare all required documents in advance and ensure they meet the high standards of reliability and independence.

• Engage Professionals: Using a registered agent or legal advisor familiar with BVI regulations can streamline the process.

• Transparent Communication: Maintaining clear communication about the company's purpose and expected activities can help address concerns and speed up approvals.

Does it impact me as a current BVI Company Owner?

The enhanced customer due diligence (ECDD) measures in the British Virgin Islands (BVI) also impact current company owners, particularly if they are identified as high-risk or if their circumstances change. Here’s how these measures might affect them:

1. Ongoing Monitoring and Reviews

• Current owners may face regular reviews of their company’s activities and documentation, particularly if the company or its operations are classified as high-risk.

• Companies identified as having high-risk customers, beneficial owners, or complex structures are subject to enhanced scrutiny, including annual reviews by senior management.

2. Source of Wealth (SoW) and Source of Funds (SoF) Verification

• Existing company owners may be required to provide additional information about the origins of their wealth or funds used for transactions if these are not already on record or if concerns arise during monitoring.

3. Changes to Ownership or Management

• Suppose beneficial ownership changes or the corporate structure becomes more complex. In that case, company owners may need to provide updated documentation and comply with additional verification procedures to address the risks of obfuscation or illicit activity.

4. High-Risk Factors

• If the company operates in or deals with countries identified as having insufficient AML/CFT measures or if the owners themselves are deemed high-risk (e.g., they are PEPs), ECDD will apply. This could lead to additional documentation requests and closer scrutiny of all transactions.

5. Transaction and Activity Monitoring

• Account activity and transactions will be closely monitored for anomalies. Owners could be asked to justify transactions that appear inconsistent with their company’s profile or expected operations.

6. Potential Filing of Suspicious Activity Reports (SARs)

• If any activities or transactions raise red flags (e.g., unexplained wealth, irregular activities), service providers are required to file SARs with the Financial Investigation Agency (FIA). This could lead to further inquiries and increased regulatory attention on the company.

7. Costs and Administrative Efforts

• Current owners may incur additional costs for compliance, including fees for providing updated documentation, certifying documents, or responding to regulatory inquiries.

• Administrative efforts may increase, as maintaining compliance will require a more robust internal record-keeping and reporting process.

How to Mitigate Impact

• Proactive Compliance: Ensure all records are up-to-date and align with current regulations.

• Risk Assessment: Periodically assess the company’s risk profile to preempt any issues.

• Professional Support: Engage compliance professionals or legal advisors to navigate the requirements efficiently.

• Transparent Communication: Maintain open and clear communication with registered agents or service providers.

  
  

In summary, while the ECDD measures enhance regulatory compliance, they can create additional obligations for current BVI company owners, particularly those operating in higher-risk areas or facing complex ownership structures. For more details on the press release, please refer to https://www.bvifsc.vg/sites/default/files/pr_15_of_2024_-_fsc_fia_effective_enhanced_customer_due_diligence_measures_.pdf

For more details on the guidance, please refer to

https://www.bvifsc.vg/sites/default/files/guidance_-_effective_enhanced_customer_due_diligence_measures_revised_19_nov.pdf