24 August 2017 by Gareth Thomas and Simon Gray
An insight into the British Virgin Islands’ new private beneficial ownership platform.
One of the Just So Stories by Rudyard Kipling, ‘The Elephant’s Child’, includes the verse: ‘I keep six honest serving-men: / (They taught me all I knew) / Their names are What and Why and When / And How and Where and Who.’
As the British Virgin Islands has just introduced the new Beneficial Ownership Secure Search (BOSS) system, we take a look at the ‘six honest serving-men’ of the system, explaining what it does, when and who started it and how, why and where it functions.
New legislation has been passed in the British Virgin Islands (BVI), requiring registered agents to make certain information on the ultimate beneficial owners (UBOs) of all BVI companies accessible via a secure government search system.
The Beneficial Ownership Secure Search System Act 2017, which created the BOSS system, is in addition to the BVI’s established and robust anti-money laundering and counter-terrorist financing legislation. This already required registered agents to collect and maintain beneficial ownership information for the entities for whom they provide services.
The act came into force at the end of June 2017, with the BOSS system introduced in accordance with the terms of the Exchange of Notes that the BVI signed with the UK in April 2016.
At the same time, the UK also entered into similar Exchange of Notes with the other British overseas territories and crown dependencies.
The BOSS system is a private decentralised data repository, containing basic information on UBOs that will only be accessible by the local BVI competent authority, to comply with requests specifically from the UK competent authority. This structure means that each registered agent maintains its own secure database with encryption.
Advanced encryption has been developed to protect the data and to block potential cyber attacks with infrastructure being secured in a G7 country other than the UK. Only basic information on UBOs will be uploaded to the system, such as the individual’s name, residential address, date of birth and nationality.
“Advanced encryption has been developed to protect the data and to block potential cyber attacks”
The BOSS system also allows for scenarios where, instead of reporting on the individual UBO, certain classes of corporate shareholders will be considered registrable legal entities, and therefore information on the entity for a BVI company can be uploaded, as opposed to having to submit any information on UBOs above the entity further up the structure.
Examples of registrable legal entities are listed companies on a recognised exchange, regulated companies or a company owned by a sovereign state.
For BVI companies that are ultimately held by trusts, the reporting would depend on the type of trust. For discretionary trusts (the most common in BVI) only the trustee’s details will be uploaded to BOSS, which is similar to the position that the Cayman Islands and the UK have taken in relation to their own UBO reporting on trusts.
To keep the data safe, the BVI competent authority will only comply with requests received from the UK competent authority if it is satisfied that the request is valid under the terms of the Exchange of Notes.
Each BVI corporate service providers’ client UBO information will be housed in a secure cloud separately from other providers’ client information, and the BVI competent authority will be able to search across all 132 clouds simultaneously.
Professional services group BDO has designed the BOSS platform using top-tier cyber security and data encryption systems to protect the data from outside interference and unlawful access. IT industry experts believe that BOSS is the most sophisticated IT system securely housing UBO data in any of the overseas territories and crown dependencies.
The legislation provides for certain categories of BVI companies to be deemed out of scope from the BOSS reporting, which includes BVI companies regulated by the BVI Financial Services Commission, BVI companies listed on a recognised stock exchange, or where a BVI company is a subsidiary of a listed company on a recognised exchange.
As well as this, a company that is recognised, registered or approved as a mutual fund under the BVI Securities and Investments Business Act 2010 will be deemed out of scope. For exempt companies, the only requirement is to report on why the particular BVI company qualifies as exempt.
The introduction of BOSS further strengthens BVI’s position as a well-regulated offshore jurisdiction.
For many years, the BVI has had robust anti-money laundering and counter-terrorist financing rules and regulations for systems and controls; fitness and propriety; and effective policies and procedures, whereby corporate service providers are required to collect and verify UBO information on the client companies it provides services to.
“The Commission’s website provides ample evidence of significant administrative fines imposed where its standards fail to be satisfied”
All new provider applications go through a rigorous application process, and all existing providers are subject to routine and thematic supervisory inspections by the Financial Services Commission. The Commission’s website provides ample evidence of significant administrative fines imposed where its standards fail to be satisfied by relevant licensees.
The Commission follows the criteria set by the Financial Action Task Force, which is the international standard setter for anti-money laundering and counter-terrorist financing principles.
The task force’s principles are assessed by the International Monetary Fund via its Financial Sector Assessment Programme. This programme is designed to ensure regulatory compliance with these international principles.
As for the future, the BVI will continue to evolve standards and practices in line with the best international practice, balancing commercialism and pragmatism with appropriate regulatory due diligence.