Response to Industry on the Corporate Service Provider Business Act 2012 (2012-03-02)

Summary

This is a letter from the Bermuda Monetary Authority responding to industry comments received on the draft Corporate Service Provider Business Act 2012 (the Bill). It does not itself impose new legal requirements but clarifies the Authority's policy positions on several contentious points raised during consultation, ahead of the Bill's enactment.

• Double vetting: Duplicate vetting by both the Authority and corporate service providers (CSPs) will be phased out once an effective CSP licensing regime is in place, but CSPs will need systems and procedures to vet clients responsibly.
• Exchange control: The Authority will not abolish exchange control regulations on share issuances and transfers; companies using a licensed CSP that maintains the register of members will be exempted from seeking Controller of Foreign Exchange permission.
• Reputation of the jurisdiction: CSPs must assess jurisdictional and reputational risk at incorporation, partnership formation and share issuance or transfer, using non-prescriptive, risk based systems and procedures rather than a fixed checklist.
• Group and tiered licensing: The Authority rejects group wide or tiered licensing; each CSP entity offering services to third parties outside its group needs its own licence, though intra-group only CSP activity may be exempted.
• Lawyers and law firms: Lawyers or law firms acting as company or partnership formation agents, or arranging for directors/officers in a manner amounting to carrying on CSP business, will require a licence under the Bill.
• Beneficial ownership vetting threshold: CSPs must comply with the Proceeds of Crime Act 1997 and apply risk based due diligence to beneficial owners; a 25 percent threshold may apply depending on the case, but other beneficial ownership thresholds are policy matters for other authorities.

Because this is a consultation response letter rather than the enacted legislation itself, it signals the Authority's intended approach on licensing scope, vetting duties and exchange control treatment, which compliance staff should expect to see reflected in the final Corporate Service Provider Business Act and its Minimum Criteria.

Key obligations

• Under the anticipated Bill, CSPs will need systems, policies and procedures to vet potential clients and assess jurisdictional reputation risk at incorporation, partnership formation and share issuance or transfer
• CSPs offering services to third parties outside their corporate group will require a separate licence, even if the group is otherwise licensed and regulated by the Authority
• Lawyers or law firms acting as company or partnership formation agents, or arranging directors/officers in a manner amounting to carrying on CSP business, will require a licence under the Bill
• CSPs must comply with the Proceeds of Crime Act 1997 and related regulations on vetting beneficial owners, applying risk based due diligence (a 25 percent threshold may apply depending on circumstances)

Applies to

corporate service providers (CSPs), lawyers and law firms acting as company or partnership formation agents, financial institutions with affiliated CSPs, companies incorporated in Bermuda