Monday, 12th September 2011FSC Onsite Inspection Imminent!

Kyria AliAre You Prepared?

During the 2011 first quarter Meet The Regulator (the "MTR") forum, we were made aware of the intention of the Financial Services Commission (the "FSC") to apply a risk based methodology to the entire portfolio of regulated entities (e.g. licensed banks, fiduciary services business providers, fund administrators and fund managers, insurers and insurance managers and insolvency practitioners) within the British Virgin Islands in order to determine, amongst other factors, the

-prioritization of entities to be inspected

-type of inspection (full, limited scope etc.) to be conducted; and

-frequency of inspection.

Once the FSC applies its risk methodology using the information it maintains internally for each entity, it is reasonable to expect that it would need to confirm the validity of the initial risk ratings generated by its risk assessment tool. Therefore, all licensees should expect and prepare for an onsite inspection within the short-term.

Subsequent to the MTR forum mentioned above, the FSC published its Compliance Inspection Procedures Manual 2010 (the "Inspection Manual") to provide guidance to its inspection team as it relates to the inspection process.  This document also provides some valuable insight for the industry with regards to the types and methods of inspection/regulatory monitoring and oversight, which can be exercised; and, more importantly, what can be expected from the FSC and its inspection team before, during and after an inspection.

Of particular interest within the Inspection Manual is Part III which describes a host of areas that the FSC may include within its inspection, as at any given date. Below are some topical and some neglected areas of which you should be mindful:

-Insolvency Practioners are also subject to inspection; however a separate inspection manual governs these licensees.

-Controls and Systems

-Do you have a documented policies and procedures manual?

-Have you addressed succession planning?

-Do you have conflict of interest policies and procedures?

-Internal Testing and Management Reports

-Do you have arrangements in place to assess, through a process of internal audit and the production of management reports, the effectiveness of your internal controls and procedures, as well as your business operations?

-Internal Testing

-An independence test will be performed by the FSC on your internal audit function.

-A test to determine whether adequate resources have been allocated to your internal audit function will also be performed by the FSC.

-Contracts of Employment

-Do each of your employees have a contract of employment which addresses the requirements highlighted within the Inspection Manual?

-Training and Competence

-A licensee's recruitment procedures can be reviewed.

-Do you assess the competence of your staff from time to time? If yes, is this process documented?

-Complaints Handling

-This is a requirement of all licensees under the Guidelines for the Approved Persons Regime.

-Disaster Recovery

-Need to include procedures to address not only natural disasters but operational and other issues which may occur as well.

-Staff education and training

-Training required on not only Anti-money Laundering and Terrorist Financing subject matters.

Can you say comfortably that you are prepared for a full scope onsite inspection by the FSC? If not or you are unsure, let us help you! Don't become an entity listed on the FSC's website as non-compliant and on which enforcement action has been taken. Such a publication could be detrimental to your organization's reputation.

Though a regulated entity cannot outsource its Compliance Function, it can seek assistance with regards to ensuring its effectiveness. Baker Tilly (BVI) Limited has extensive experience in business advisory, especially as it relates to compliance with the various legislations within the British Virgin Islands, as well as with the provision of internal and external audit services.  Our unique team of business advisors and auditors has provided assistance to various companies with respect to their compliance and regulatory needs and can assist you with fulfilling your statutory obligations whilst adding value.  For further information, contact Kyria Ali FCCA CIA CFE, Head of Business Advisory, at kali@bakertillybvi.com or at 852-2584.