The Continuum of Enhanced Service Providers Regulation in Barbados

Barbados, as a select financial services jurisdiction, has taken another step towards ensuring that its business environment is on par with international best practices. This step has come with the proclamation of the Corporate and Trust Service Providers Act 2015 (“the Act”) on May 1, 2015. The Act seeks to maintain the excellent reputation Barbados […]

By Clennell Jackman

May 20, 2015

Barbados, as a select financial services jurisdiction, has taken another step towards ensuring that its business environment is on par with international best practices. This step has come with the proclamation of the Corporate and Trust Service Providers Act 2015 (“the Act”) on May 1, 2015.

The Act seeks to maintain the excellent reputation Barbados enjoys as a well-regulated international financial services centre, through the establishment of a framework for the licencing and regulation of persons and companies wishing to render corporate secretarial, trustee and similar company administrative services for profit, within the island’s international business sector. It is expected that the Act will foster greater confidence in investors and international oversight agencies that only “fit and proper” persons are authorised to participate as duly recognised and licenced service providers in one of the island’s key economic sectors.

The 2015 Act is not the first attempt of this type of regulation, as in 2011, a similar statute was enacted. However, this previous legislation contained some deficiencies and it was, by policy, not fully enforced.

As a starting point, the Act itself takes account of the “compartmentalised” business environment in Barbados where there are distinct domestic and international divisions and it only applies to services being rendered to what are termed “Specified Entities” which include the traditional suite of special purpose vehicles operating under their particular incentive legislation and regimes and those entities holding certain facilitative exchange control authorisations.

The Director of International Business (“the Director”) assumes the administrative and regulator roles under the Act, determining the grant and renewal of licences. As such regulator, certain material changes in the ownership and management of service providers now fall within the reporting requirements to the Director as well as legal proceedings – some not necessarily directly connected with its business – that may be instituted against a service provider, its owners or its senior management. Reinforcement of the Know Your Client / Due Diligence practices, imposed under other anti-money laundering statutes, is also a feature of the Act and the Director is vested with powers of inspection in respect of records of service providers to ascertain compliance with the anti-money laundering dictates or to otherwise enforce provisions of the Act.

The Act envisions a register of service providers to be maintained by the Director and open to public inspection which will reflect details of each licenced service provider as well as any matters relating to the suspension, revocation or surrender of a licence.

From a client perspective, provisions imposing obligations on service providers in respect of deemed conflicts of interest with clients; the investigation of client complaints; the need for business continuity contingencies and insurance coverage are all included. Client interest is further protected through the requirement for service agreements/contracts to set out the arrangements for the payment of interest on any client funds held by the service provider and the conditions for the termination of services and any refunds of fees. There is also provision that, in the absence of agreement to the contrary, client monies or other assets held for more than 30 days should be held separately from the monies or assets of the service provider in an account “designated as the account of the client”.

Penalties of the breaches of provision of the Act vary from $5,000 to $50,000 fines, two years’ imprisonment and the revocation of licences.

Recognising that circumstances change rapidly in today’s environment and that every conceivable eventuality cannot be encompassed by legislation, the Act makes provision for the Director to issue binding directives and guidelines for the efficient administration of the Act without further legislative amendment.

Though this statue is a welcomed move towards introducing standards of services and minimum bona fides for those serving the international business sector and also attempts to bring clarity to the uncertainties which existed in the 2011 version, there are still some uncertainties which it is hoped would be clarified – by the issuance of guidelines/directives one presumes – before the issue of the first licences.

For example:

  • Individuals serving as directors of Specified Entities do not need to be licenced to so serve. However, the legislation does not explicitly extend such exemptions to individuals who may also hold the position of an officer.
  • In the areas of conflicts of interest which may arise with and among clients, the Act requires the service provider to give the client(s) written notice of the conflict. Though there is no specific description of what could be deemed as a conflict of interest it is not unheard for service providers to serve clients with global reach who compete in a given industry.   Many service providers, and indeed clients, have traditionally not deemed this as an issue given the inherent confidentiality and professionalism the sector requires.
  • Will service providers and their principals be required to hold more than one licence if they undertake the prescribed services through their operating entities as well as in their own individual capacities?
  • The services which fall under the licencing regime include the filing of statutory forms and returns. As such could the Act then also apply to an independent accountant who prepares and files Corporation Tax or Valued Add Tax returns for international clients?

From a practical perspective, in addition to the BB$2,500 annual licencing fee, the introduction of this legislation will mean some fine-tuning of service providers’ processes to take account of reporting under the Act such as the requirement to advise the Director within one week of the termination of a client relationship or other legal matters affecting clients. Client on-boarding and transaction monitoring processes will have to pass muster with regards to expected due diligence already prescribed under other legislation. The Director’s office will have to examine its resources and capacity to undertake the inspections as proposed – the related costs which may be imposed on the service provider.  There is also the mandatory declaration of gross revenue and assets annually to the Director and where those gross revenues or assets meet the threshold set out in the Companies Act, service providers will be required to provide audited financial statements as well.

The Corporate and Trust Service Providers Act 2015 is a welcomed addition to the Barbados international financial services sector’s regulatory and governance framework. Though not perfect, time and testing will hopefully see it evolve into a catalyst for further embracing standards demanded by international practices beyond front office service delivery.

Clennell Jackman

Senior Manager, Corporate Services, Tricor Caribbean