By Peter Larder, the Managing Director of the AMS Group in the British Virgin Islands (BVI)

For many years the trust industry has used Private Trust Companies (PTCs) in situations in which a family trust or group of family trusts was involved. International financial centres (IFCs) have approached the regulation of PTCs in a variety of ways, but have chosen primarily either to issue restricted trust licenses, or to ignore the license requirement. The sometimes high cost of the former route has been a deterrent to clients in certain IFCs and the complete lack of regulation in others has similarly been seen as out of step in the modern era of transparency and compliance.

The British Virgin Islands has looked carefully at the issues involved and in August 2007 provided clarity through the enactment of the Financial Services (Exemption) Regulations, 2007. ('Exemption Regulations'). In the creation of this Act the BVI has successfully recognised the need for an acceptable and practical level of control while acknowledging the need to respond to the market on cost. The result is a progressive piece of legislation which meets the needs of the industry in that it clears up past confusion over the ability of a BVI company to act as a private trust company while now enabling practioners to structure PTCs within a sensible legal framework without excessive cost.

Detailed provisions are provided in the Exemption Regulations to enable the establishment of a PTC in the BVI. These include the legal requirements that are imposed on PTCs. The BVI Business Companies (Companies Names) Regulations, 2007 and the BVI Business Companies (Amendment of Schedules) Order, 2007 make up the legal framework within which a BVI PTC must be structured. The former determines that the letters "PTC" must be included in the company name, and the latter sets out the fees that are payable. Where the maximum number of shares is less than 50,000 the Government Fee for a PTC is $750, and where the issued shares exceed 50,000 the cost is $1,500.

To qualify as a PTC the company must be a fully compliant BVI limited liability company, and it's Memorandum and Articles must state that it is a private trust company. PTCs are not regulated as such and the status therefore of a PTC does not depend on an approval or the issue of a license from the Financial Services Commission (FSC). It must, however operate within the strict parameters of the Exemptions Regulation which identifies the following key requirements:

  1. The registered agent of a PTC seeking exemption must hold a Class 1 Trust License under the Bank and Trust Companies Act, 1990 as amended. (All BVI companies are required to have a registered agent)
  2. The PTC must carry on no other business than that of being a private trust company and as such may act as a trustee, protector, or administrator of trusts. This includes activities that are considered ancillary to acting as a trustee and administering trusts
  3. The PTC's trust business must be either "unremunerated trust business" (S 2.1) or "related trust business" (S 3.1), (see below). A company may, however, act as a bare trustee without applying either for a trust license or for exemption as a PTC.
  4. The PTC must be a private trust company and as such must not solicit business from members of the public

Unremunerated trust business is defined in section 2.1 of the Regulations as trust business carried on by a PTC where no remuneration is payable to, or received by, the PTC or any person associated with the PTC, in consideration for, or with respect to, the services that constitute trust business. There are exceptions that include persons that have a legal or beneficial interest in the PTC, act as current or past directors, or are employed by the PTC. (Section 2.1-5)

Related trust business occurs where a PTC acts as a trustee of (a) a single trust, all the beneficiaries of which are charities or have certain specified blood, marital or adopted relationships to the settlor, or (b) a group of trusts, which are related trusts, where each trust in the group is related to all the other trusts in the group. Where the settlor of one trust is related to the settlor of a second trust, he or she is considered a "connected person" (Section 3.1.) and the trusts are considered related trusts.

Additionally, the roles and the responsibility of the registered agent of a PTC are of paramount importance and are central to the approach that the FSC has taken to the control of PTCs. On one level the registered agent must maintain certain records, including copies of the trust deed or other documents evidencing the creation of each trust for which the PTC is providing services and copies of any and all documents that vary the terms of such a trust. Furthermore, and of vital importance, the FSC will look to the registered agent to monitor the activities of the PSC to ensure that the requirements of the exemption are being met at all times. The onus for notifying the FSC should the registered agent believe that the PTC is not complying with its obligation lies firmly with the registered agent. Class 1 Licensed Trust Companies have the experience to undertake this role and hence the importance of this basic requirement. To support this reliance the registered agent will therefore undertake compliance reviews of the PTC on a periodic basis. A part of this will be to ensure, on an ongoing basis, that the directors of the PTC are fully conversant with their role and responsibilities,

A word on VISTA trusts. It should be noted that an exempt BVI PTC cannot itself establish VISTA trusts, which are trusts, set up under the Virgin Islands Special Trust Act. One of the key requirements of VISTA is that the trustees must themselves hold a Class 1 Trust License. Thus, a licensed BVI trust company can establish VISTA trusts for clients and can incorporate PTCs for clients, but those PTCs cannot in turn establish VISTA trusts.

With this framework for PTCs the BVI has positioned itself to meet the need of today's families and their advisors. With a modern approach to regulation, which permits responsible flexibility, the BVI has balanced market requirements and regulation in a cost effective an innovative manner.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.