The regulatory regime applicable to banks
i Recent legislative changes
The IFSA has now been repealed by the Financial Institutions (Amendment) Act, 2018 (amended FIA). A new Guideline applies to licensees previously licensed under that Act and that are transitioning to the Financial Institutions Act (FIA). Such licensees are now deemed to be licensed under Part IIIB of the amended FIA as foreign currency earning banks (FCB) since 1 January 2019. The amended FIA provides in Part IIIA for the licensing of financial holding companies. Section 41G of the amended FIA contains the transitional provision for companies licensed under Part IIIB and carrying on the functions of a financial holding company. Licence fees continue to be applied at current levels until otherwise advised by the CBB.
Subsequent to the statutorily permitted transition, there will be a six-month grace period, which commenced from January 2019, during which a licensee's status continues uninterrupted and during which any legal or regulatory matters that emanate from the transition to the amended FIA (such as filing amended articles with the Corporate Affairs and Intellectual Property Office (CAIPO), or attending to outstanding filings with the Barbados Revenue Authority or the National Insurance Department) can be completed. The CBB has indicated that it will give consideration to extending the grace period in extenuating circumstances, but it reserves the right to recommend that a licence be suspended where a licensee fails to attend to any legal or regulatory matters within the grace period.
In cases where an amendment is needed to the articles of incorporation of an IFSA licensee transitioning to the amended FIA, authority for approval regarding the amendments to the articles of incorporation has been delegated to the CBB under the amended FIA. Section 114 of the amended FIA has been retained so as to provide for any consequential amendments to the Companies Act that may arise from the introduction of the FCB regime. CAIPO and the CBB are expected to collaborate as necessary to establish and communicate a common regulatory position.
As regards licensees that are transitioning to the amended FIA and whose ownership or subsidiary structures include entities licensed under statutes that have been repealed, such as the International Business Companies Act, they must notify the CBB of any proposed group reorganisations with 90 days of the issuance of the January 2019 guideline. This notification seeks to facilitate identification of changes in group organisations or holdings that would deviate from what was previously approved, allow for regulatory review if warranted and also ensure continued effective consolidated supervision.
Regulators are also expected to collaborate with the purpose of enhancing the regulatory regime for regular business companies (RBCs), which have now replaced international business companies (IBCs). These enhancements seek to facilitate the CBB's review of all banking groups that IBCs in the future will include RBCs, and allow for the determination of any conditions that may be deemed necessary.
ii Savings or grandfathering policy
Section 35 of the amended FIA contains a saving or grandfathering provision for the benefit of licensees. It allows old rules to apply to those entities that opt to be grandfathered. Hence, in spite of the repeal of the IFSA, the rights and benefits conferred upon licensees under the IFSA are saved as provided in the following manner: a licensee holding a valid licence issued prior to 17 October 2017 is entitled to receive the benefits until 30 June 2021; and a licensee holding a valid licence issued on or after 17 October 2017 ceases to be entitled to the benefits after 31 December 2018. The latter licensees will be subject to the arrangements for transitioning to the amended FIA. Furthermore, any obligation or penalties incurred by a licensee under the IFSA during the period of operation of that Act shall not be affected; and any related investigation, legal proceeding or remedy may be instituted, continued or enforced with penalties imposed as if the IFSA had not been repealed. If a licensee wishes to avail itself of the savings or grandfathering provisions, it must advise the CBB of its intent to be grandfathered as provided in Section 35 of the amended FIA. A grandfathered licensee must also amend its articles of incorporation, as applicable, within the six-month grace period.
Provision is also made for exiting the grandfathered status. In cases where a grandfathered licensee chooses to exit its grandfathered status before 30 June 2021, it must notify the CBB. Upon notification and subsequent confirmation of non-objection by the CBB, the licensee is then deemed to be fully licensed under the amended FIA, and the transitioning arrangements shall apply.
There are additional benefits and exemptions. Holders of a foreign currency permit (FCP) are able to benefit from income tax concessions for specially qualified individuals for a period of three years, and are exempted from:
- exchange control;
- withholding tax on the payment of dividends to non-residents;
- withholding tax on all other payments to non-residents;
- payment of stamp duty and property transfer tax (save and except real estate) other than nominal duty of Bd$200 on all instruments and agreements; and
- payment of value added tax and duties on the importation of plant and machinery.
To apply for the FCP permit, a licensee must generate 100 per cent of its income in foreign currency. An application for an FCP together with the relevant fees should be made to the International Business Unit.
iii Regulatory history
The establishment of the CBB eliminated the need for external monetary regulation and management by the East Caribbean Currency Authority, thus promoting national autonomy. Unlike a commercial bank, the CBB does not offer public banking services. Rather, it works with the government to create sound monetary and fiscal policies that promote development and maintain public confidence in the economy. The CBB is committed to promoting monetary stability, creating a sound financial structure, strong monetary and capital markets, and the investment of commercial bank credit into productive activities.
As the nation's central bank, the CBB has the following main areas of responsibility:
- monetary regulation;
- acting as banker to government and commercial banks;
- advising the government on monetary and financial issues;
- foreign exchange reserves management;
- public debt management; and
- supervising financial institution operations.
In seeking to safeguard the integrity of the financial system, it has two key objectives: to regulate and monitor the financial environment, and to provide a stable monetary framework and sound financial structure. The Bank Supervision Department of the CBB is responsible for regulating and supervising international banks licensed in Barbados. The goals of the Department are:
- developing legislation and regulations for the financial system;
- inspecting licensed financial institutions to ensure that their operations are safe and in compliance with the legislation; and
- reporting on the performance and condition of each licensed financial institution.
Barbados' regulatory framework has been developed to conform with international standards and best practices, as contained in the Basel Core Principles for Effective Banking Supervision. In the past decade, an increase in cross-border expansion of regional financial institutions has occurred. In response, the CBB has improved its ability to supervise banks with cross-border operations, and to monitor risks on a solo basis and on a consolidated basis. To facilitate cooperation and information sharing, Caribbean regulators have signed a memorandum of understanding (MOU) and meet twice yearly as supervisory colleges of pan-Caribbean banks. The CBB continues to be an active member of other regional and international regulatory groupings, such as the Association of Bank Supervisors of the Americas, the Group of International Finance Centre Supervisors, the Financial Action Task Force and the Caribbean Financial Action Task Force. Furthermore, the CBB continues to work closely with the other sectoral regulators of non-banking institutions that comprise the financial system in Barbados, and a domestic MOU has been implemented to allow for information sharing among domestic regulators. A large percentage of the banking institutions originate in Canada (more than 50 per cent of the six commercial banks and bank holding companies. As a result, Barbados has developed a strong relationship with the Canadian regulators. In 2010, the CBB and Canada's Office of the Supervisor of Financial Institutions (OSFI) signed an MOU to facilitate cooperation and information sharing, and the CBB visits and meets with the OSFI once a year.