Authorised Custodians of Bearer Shares of BVI Incorporated Companies (Aide Memoire #3, May 2004)

Summary

This BVI Financial Services Commission Aide Memoire (May 2004) sets out the criteria the Commission will use to approve firms as authorised custodians of bearer shares issued by BVI International Business Companies (IBCs). It follows Aide Memoire #2 and explains how the custodian regime under the International Business Companies (Amendment) Acts 2003 and 2004 and the Financial Services Commission (Amendment) Act 2004 will operate in practice, ahead of bearer shares becoming subject to mandatory immobilisation.

• Who can be a custodian: An authorised custodian is either an existing BVI-licensed financial service provider or a company incorporated outside the BVI with no BVI residence or place of business; a recognised custodian is an FATF-member investment exchange or clearing organisation gazetted by the Commission.
• Approval criteria: Applicants must pass a fit and proper test (honesty, integrity, competence, financial soundness) and demonstrate internal control systems covering KYC/CDD, suspicious transaction reporting, standard custodian agreements, safekeeping arrangements, record keeping and MIS.
• Custody and safekeeping: Bearer shares must be held under joint control, segregated from the custodian's own assets, held in a secure vault with restricted access and dual controls, with detailed deposit/withdrawal records.
• Ongoing duties under the IBC Act: Custodians must notify the registered agent within 14 days of receiving a bearer share, keep records of beneficial ownership and any transfers of interest, keep records of the share's location in the BVI, and give notice within 7 days of transferring possession to another custodian or the company.
• Reconciliation and reporting: Custodians must reconcile client bearer share activity daily on change and at least twice a year, investigate discrepancies promptly, report regularly to the Commission on holdings and suspicious activity, and notify the Commission without delay of any non-compliance or reconciliation failure.
• Application requirements: Applications must include three years of audited financial statements (or projections for start-ups), an organisational chart, a manual describing internal control systems, and resumes and two references for executive management.

The custodian regime is tied to legislation coming into force in stages: the FSC (Amendment) Act 2004 from 1 July 2004 (from which date the Commission will accept custodian applications) and the IBC (Amendment) Acts from 1 January 2005 (from which date immobilisation obligations bite for new IBCs, with a transition period for existing ones).

Key obligations

• Applicants for authorised custodian status must satisfy the Commission's fit and proper test and demonstrate adequate security and compliance systems for safe custody of bearer shares
• Authorised custodians must notify the registered agent of the company within 14 days of receiving a bearer share
• Authorised custodians must keep records of the beneficial owner's identity and of any transfer of beneficial ownership or interest in a bearer share, and submit transfer notices to the registered agent
• Authorised custodians must keep a record of the physical location of each bearer share at an approved BVI office
• Authorised custodians must give notice within 7 days when transferring possession of a bearer share to another custodian or to the company
• Authorised custodians must reconcile client bearer share holdings at least twice a year (and daily upon any change) and inform the Commission in writing without delay of any non-compliance or reconciliation failure
• Authorised custodians must report regularly to the Commission on their bearer share holdings and any suspicious activity, and provide clients with regular statements unless instructed otherwise
• IBCs incorporated before 1 January 2005 must place their bearer shares with an authorised or recognised custodian and immobilise them by 31 December 2010
• IBCs incorporated on or after 1 January 2005 must place bearer shares with a custodian from their date of formation

Applies to

Authorised custodians of bearer shares, Recognised custodians (investment exchanges/clearing organisations), BVI International Business Companies (IBCs) with bearer shares, Registered agents of BVI companies

Deadlines

• 1 July 2004: Financial Services Commission (Amendment) Act 2004 comes into force; Commission begins accepting applications for authorised custodian status
• 1 January 2005: International Business Companies (Amendment) Acts 2003 and 2004 come into force; IBCs formed on or after this date must immobilise bearer shares with a custodian from formation
• 31 December 2010: Deadline for IBCs formed before 1 January 2005 to place bearer shares with a custodian and immobilise them
• 14 days after receipt of bearer share: Authorised custodian must notify the company's registered agent that it holds the bearer share
• 7 days after transfer: Authorised custodian must send notice of transfer of a bearer share to the registered agent
• twice a year (minimum): Required frequency of reconciliation of client bearer share activity absent an intervening change