Kenneth Baker's Presentation on Risk-Based Approach in Financial Services

In autumn 2007, Deputy Managing Director Mr. Kenneth Baker's speaking was discussed twice. It was described that on October 16, the BVI Financial Services Commission published 2 presentations of Kenneth Baker that regarded the amendments to the BVI corporate legislation and on the Private Trust Companies Regulations.

Recently, another interesting presentation of Deputy Managing Director Mr. Kenneth Baker was published on BVI FSC site. The presentation is entitled Emerging International framework for Financial Services - Risk-Based Approach.

In his presentation, Mr. Baker disclosed the main purposes of risk-based approach and its benefits and challenges as well as described the Risk-Based Approach itself.

What seemed the most interesting to me was the descriptive part where Deputy Managing Director has structured and described in simple words the Customer Due Diligence procedures.

What does the BVI Financial Services Commission expect from Licensee?
1) Licensee must develop procedures to identify and verify identity of each customer and beneficial owner, as well as obtain appropriate information to understand customers business and transactions.
2) Licensee should apply differentiated approach based on predetermined risk levels. There are 3 recommended levels of Due Diligence requirements:
a) Increased Due Diligence for determined Higher Risk customers (correspondent banking, politically exposed persons, specific geographic location);
b) Reduced Due Diligence for Lower Risk cases (publicly listed companies and regulated financial institutions, individual where main source of funds comes from salary, transactions involving de minimis amounts);
c) Standard Due Diligence to Rest of customers.

Mr. Kenneth Baker emphasized that suspicious transaction reporting is critical for the BVI to combat money laundering, terrorist financing and other financial crimes and that reporting a suspicious transaction or activity to the BVI FIA is mandatory, but he also pointed out that, to make the system, there should be thresholds below which an activity will not be reviewed.

It should be also noted that a substantial part of the presentation was dedicated Training and Awareness as well as Internal Controls Framework.