Quality Assurance

weerdBy Kathy Borsuk

Paul de Weerd has served as Superintendent of TCI’s Financial Services Commission for the past three years, steering it through a veritable blizzard of international initiatives. He remains upbeat and positive about the future of one of TCI’s most important and deep-rooted industries. He recently took time from his busy day to answer questions poised by Times of the Islands Editor Kathy Borsuk.

What is the current role of the Financial Services Commission? How has it recently changed?
The Financial Services Commission (FSC) is the financial services regulator for the Turks & Caicos Islands. It is responsible for monitoring our banks, insurance industry, trustees and corporate service providers. We also have responsibility for the Registry of Companies and the Registry of Trademarks.

The FSC is currently a government department, but a Bill which is before our Legislative Council would transform the FSC into a statutory board. All being well, the new Board should be in place by Autumn 2001.

How does the FSC work in conjunction with the Financial Industry Association?
The formation of the Financial Industry Association (FIA) has been a major step forward. It allows the whole industry to take a view of the future of financial services in the Islands. As well as providing a single, consistent voice for the industry in talking to government, the FIA has taken over responsibility for promotion of the Islands as a place to do business in financial services. The FSC was strongly in favour of its formation and I think that it will be a major long term asset to the Islands.

What are the most recent statistics in terms of number of companies formed? How does this compare with previous years? In 2000 there were just over 2,300 Exempted companies (IBCs) and 400 Ordinary companies (local businesses) formed. That is a fairly typical year for TCI, which has averaged 2,500 to 3,000 companies annually for several years. We are not a bulk incorporator of IBCs, which we view as an important element of many structures, but an aspect of the industry which is rather a commodity and largely ex-growth.

TCI has often been described as being on the cutting edge of new legislation. What are some of the recent bills that have been passed? Do they make TCI a more attractive jurisdiction?
The Mutual Funds Ordinance is just about to take effect and that should increase the attractions of TCI as a place from which to operate these investment funds. One of the aspects which my colleagues have developed is a definition of qualifying investor (for specialist funds) which relies upon the investor’s actual knowledge and investment experience rather than simply total wealth. This allow sophisticated investors to use such funds even if their gross wealth is lower than in some other jurisdictions.

The Electronic Transactions Ordinance was passed last October. It provides for recognition of electronic signatures and contracts in line with standards set by the United Nations body UNCITRAL. This is an item of essential infrastructure. It allows businesses and their customers to have legal certainty. As such it is an important part of the development of e-commerce, but not the answer in itself.

People come to TCI because of the quality of lifestyle and professional services. Legislation can bring in business, but the essential thing is having the right product: it is the quality of the financial services industry which ultimately brings people to TCI.

We have also updated our trademarks legislation and plan to replace it completely over the next year.

I read your comment that the financial services industry is providing jobs for local graduates. Are education and training primarily being sponsored by the government or by the private sector?
A well-educated workforce is essential in today’s world. The TCI has invested heavily in further education over the past years, through scholarships for study abroad (mainly in the USA and University of the West Indies) and through expansion of the Community College, which will move into a new campus later this year.

To date, the Government has concentrated on getting people up to degree standard and relied mainly on the private sector to sponsor vocational training. This year, members of the trust industry put a dozen staff through the pre-professional stage of the Society of Trust and Estate Practitioners (STEP) examinations, out of less than 100 people employed by the trust industry in the Islands.

What were some of the major findings of KPMG’s recent regulatory review of TCI’s financial services industry? What is happening in response?
KPMG’s specialist financial services consultancy, based in Leeds, England, was employed to carry out a review of financial services regulation in the six UK Overseas Territories (OTs) in the region. The OTs met half the cost of the study themselves. We all recognise that our competitive edge comes from being amongst the cleanest and safest places to invest offshore. The report measured us against best international practice and was published last October.

In response to the report, we have already brought forward Bills to establish the FSC as a statutory Board and to increase our powers to assist overseas regulators and three amendments to cover specific priorities in the fight against money laundering. The rest of KPMG’s recommendations are being tackled in priority order and should be complete by the end of 2002 at the latest.

What is the status of the OECD’s “harmful tax competition” report and the TCI government’s reaction?
We have a longstanding policy that in so far as the OECD initiative addresses criminal tax evasion, the TCI sympathises with the initiative. We continue to have misgivings about the OECD’s plans for the extension of the same principles to legal tax planning, but are continuing discussions. It is noteworthy that a recent speech by the OECD Secretary-General decried tax evasion, but recognised the legitimacy of tax planning.

How much relevance does the work of the FSC have for the average person living in the Islands?
More than it might appear at first glance. Of course the industry provides jobs, but there is more to it than that. We regulate the local insurance companies and we are looking into ways to provide a framework for improvements to local services. There are plans for a Bill for credit unions, to encourage savings amongst the poorer groups in society who are not commercially attractive to the banks. We are also looking into consumer credit provisions to require lenders to supply a written APR to borrowers, thus helping them to compare offers on different terms. Both of these steps should lead to better informed, and hopefully, better served, consumers and savers.

What do you see for the future of TCI’s financial services industry?
I think that there will continue to be pressure on purely tax-driven business, but our most successful product, the Producer Owned Reinsurance Company, is tax neutral in that there is no tax advantage in forming the company here rather than in the US–it is quality of service that brings people here. Our priority will be to have TCI recognised as a safe place to invest, not just one which is tax-advantageous.

When you leave in June, where will you go next, and who will follow in your footsteps?

I plan to return to the UK so I can see some rain and fog again! Whoever takes over will have a good team to work with and I hope that the flood of international initiatives will finally abate a little.


The Financial Industry Association (FIA) has made brisk strides forward in its first full year of operation. FIA President Joseph P. Connolly, Managing Director of PricewaterhouseCoopers Ltd., recently discussed this progress with Times of the Islands Editor Kathy Borsuk.

Why was the FIA formed?
For some time, the Financial Services Commission (FSC) had wanted one voice to represent the financial services industry when it came to legislation recommendations, but it was really the Edwards Report that acted as a catalyst. The Edwards Report recommended that organizations such as the FSC should not be involved in marketing in the jurisdiction it was tasked to regulate. It was decided that the FIA could step into place to advertise and promote the financial products available here. At the same time, the serious international targeting of financial centers required that the industry present a united front.

Member organizations include the Bar Association, Society of Accountants, Association of Insurance Managers, Association of Bankers, Society of Trust Practitioners and Association of Securities Dealers. Soon to be added is the Association of Company Managers. Each group has one representative on the Executive Committee, with the larger Bar and Bankers associations having two representatives each. The representatives have the responsibility of presenting to FIA the consensus viewpoint of their association, then returning to their association to share FIA consensus.

What has been the FIA’s major role so far?
This year, we focused our attention on dealing with recommendations from the KPMG regulatory review and responding to international initiatives which affect the industry, including the OECD harmful tax competition report and the FATF efforts to implement anti-money laundering recommendations. Our goal was to ensure that the FIA’s views were made clear to the Financial Services Commission, who in turn make representation to the UK government and the various bodies.

It has been a very difficult year for the industry, which has had to come to grips with the various initiatives and changes in the law that have affected all the financial centers of the Caribbean. One thing that has been made clear is that the status quo was not an option. I believe that the FIA has been instrumental in ensuring that we protect the financial industry while actively engaging in a constructive dialogue.

How has recent legislation worked towards this cooperative effort?
Actually, much of the legislation had been under discussion for several years, including the Money Laundering and Company Managers Regulations, both of which are now in effect. The purpose of these regulations is to protect the consumer and to ensure that TCI is not used as a base for criminal activities by emphasizing “know your client” type rules. Basically, the money laundering bill puts the onus on the financial service professional with a legal obligation to report suspicious transactions to the Financial Investigations Unit. There is no doubt in my mind that if we did not have this legislation, we would be on the FATF “black list.”

The new company managers legislation serves to regulate company managers through licensing and approval (in the same fashion as trustees), and there is an ordinance in the works to do the same for securities dealers. A major part of this legislation, which is also reflected in the bearer shares bill currently under consideration, is a strong “know your client” emphasis. Again, the onus is on the financial professional to check references, evaluate character, and make every effort to ensure that a client is not a financial fraudster or money launderer.

A secondary result of these legislative efforts, as well as the Control of Drugs (Trafficking) Ordinance 1998 and Proceeds of Crime Ordinance 1998, is that TCI was recently granted Qualified Jurisdiction status by the US Internal Revenue Service (IRS).

What does the Qualified Jurisdiction Status entail?
This status was granted after application to the IRS demonstrated that TCI implemented appropriate “know your customer”/anti-money laundering and drug trafficking procedures to international standards. As a result, TCI financial institutions (banks) wishing to deal in US securities have the opportunity to apply for Qualified Intermediary status. If accepted, those institutions will be able to receive income on behalf of US clients in a streamlined manner, without being required to provide as much information as a non-qualified intermediary. It’s basically an IRS stamp of approval that TCI is a well-regulated jurisdiction.

It was the Bankers Association, led by Evrard Bordier, who spearheaded the application process, but they looked to the FIA for support. Our members agreed that this status would benefit the industry as a whole and voted to provide the financial support that helped make it possible.

How does FIA see the future of TCI’s financial services industry?
We’re a small, robust jurisdiction that does certain things very well: producer-owned reinsurance, for instance, is one of our specialties. As such, we have probably positioned ourselves as a “boutique” financial services market rather than as a mass market player such as BVI or Cayman. With the international view of the industry now, and competition from many other financial centers, I doubt we’ll ever become another Cayman. And actually, that’s probably not a bad thing.

FIA Marketing Chairman Keith Burant discussed FIA’s promotion plans for the upcoming year:
We are developing a web site that will include general information about TCI financial services as well as links to each of the financial services providers. We also plan to produce a bi-annual newsletter which will be direct-mailed to business professionals who have used the Islands’ financial services in the past. Resources have been set aside to support a TCI presence at the annual RIMS conference and to fund advertisements in selected publications.

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