A bill designed to amend the territory’s regulation of international financial service companies cleared its first hurdle Wednesday after receiving mixed testimony at the final hearing of the 31st Legislature’s Committee on Finance.
The committee voted to forward to the Rules and Judiciary Committee for further consideration Bill No. 31-0489, which makes several changes to Act No. 7390, known as the International Banking Center Regulatory Act.
The International Banking Center Regulatory Act was passed in 2012 with the goal of creating a capital market in the territory. It aimed to do so by enticing international financial service companies with hefty lending power to the USVI via tax breaks.
The legislation was modeled on Puerto Rico’s largely successful attempt to attract the same types of entities in recent years.
Under current law the director of Banking and Insurance, who works under the Lieutenant Governor’s Office, has the power to approve or deny licensing and tax break applications from International Banking Entities who set up offices in the territory. But that is one thing that will change if recently proposed revisions are passed.
According to Glendina Matthew, assistant director of the Division of Banking and Insurance, the law as currently written has not been fully tested because only one of the USVI’s three licensed IBEs is currently operating in the territory.
Since April 2015 there has been a moratorium issued by Lt. Gov. Osbert Potter on the licensing of any new IBEs until the territory’s regulatory mechanisms can be strengthened.
Matthew said her office is in full support of the proposed amendments, which would change the entity in charge of licensing IBEs from the director of Banking and Insurance to the Virgin Islands Banking Board.
The bill would also create a two-step application process under which tax benefits for IBEs would be sought through the V.I. Economic Development Commission, as is the case with other companies that pursue incentives to do business in the territory.
In addition, the bill proposes to substantially increase license and application fees for IBEs and make background checks on investors more rigorous.
Strengthened regulations would include the hiring of an individual to monitor the compliance of IBEs and would be financed by a newly created revolving fund.
Matthew said the bill would “allow for greater transparency and the creation of the necessary regulatory safeguards needed to oversee the IBE program.”
She also said that increases in fees for IBEs – from $10,000 to $50,000 for an application and from $5,000 to $75,000 annually for a license – “are commensurate with the allowable activities that can be conducted by an IBE.”
According to her testimony there are more than 18 types of financial services that IBEs, which would be relabeled as International Financial Service Entities under the proposed amendments, are permitted to conduct.
“The term International Banking Entity does not accurately categorize the type of activities IBEs are allowed to conduct in the territory,” Matthew said. “The activities that could be conducted by an IBE include not only banking, but money services, securities, and insurance, etc.”
Wayne Biggs Jr., acting chief executive officer of the V.I. Economic Development Authority, said the EDA also supports the proposed amendments to the International Banking Center Regulatory Act and is prepared to take on new regulatory duties if they are passed.
“The EDC’s applications and compliance staff are knowledgeable and well-versed professionals,” Biggs said. “They are very familiar with the nuances of financial service entities.”
Testimony from attorney Erika Kellerhals, however, expressed reservations about the law’s amendments.
Kellerhals’ law firm is one of the firms in the USVI that helps businesses relocate to the territory through economic development programs.
She said her firm does not support the amendments as proposed because they “stray far from the original intent of the IBCR Act” and “fail to take into account many of the legal issues that would result.”
“These proposed revisions will make the rules that govern IBEs even more confusing, complicated and expensive than before,” Kellerhals said.
Giving the EDA and the Division of Banking and Insurance jurisdiction over two different parts of the IBE application process would create a “cross governmental division maze” that would discourage investment, Kellerhals said.
She said many jurisdictions are competing to attract IBEs as an economic development model, including Puerto Rico, which has over 40 IBEs in operation and application approval times of less than a month.
Finance Committee Chairman Clifford Graham said that given the late date in the Senate term, any tweaking of the bill would likely to have to be done by the incoming 32nd Legislature.
Business conducted at Wednesday’s Finance Committee hearing also included approving a bill to find emergency funding for a project to be completed at the Gov. Juan F. Luis Hospital.
The legislation, Bill No. 31-0496, will also go on to the Rules and Judiciary Committee for further consideration.
The bill reallocates a total of $2 million to the St. Croix hospital to help fund the replacement of its heating, cooling and ventilation system, a project that will ultimately require an additional $13 million.
During a November survey of the hospital, the Centers for Medicare and Medicaid Services noted excess moisture and mold at the facility that would need to be addressed in order for JFL to retain its CMS certification.
“The staff and management of the Juan Luis Hospital, particularly our facilities team, have been holding this hospital together with shoestring finances, and I am in support of this measure that will help to abate one of the grave challenges facing JFL’s HVAC system,” said Aracelis Bermudez Walcott, chairperson of JFL’s governing board.
Richard Tomas Evangelista, JFL’s acting CEO, also testified before the committee.
All senators present voted to move forward the funding reallocation bill. Those senators were Graham, Sens. Kurt Vialet, Marvin Blyden, Myron D. Jackson, Nereida “Nellie” Rivera-O’Reilly, Positive Nelson and Tregenza A. Roach.
The Finance Committee also approved a bill appropriating $300,000 from the Union Arbitration Award and Government Employees Increment Fund to the V.I. Waste Management Authority, and a bill altering language in a section of the V.I. Code related to retirement benefits for members of the Judiciary.