An amendment currently before the House of Assembly seeks to give the Financial Services Commission more tools to handle banking crises and would set a long-awaited framework to bring into force the Virgin Islands Deposit Insurance Act, 2016, according to an explanation of the bill provided by the Ministry of Finance.

The bill, introduced for its first reading on Sept. 27, seeks to amend the Banks and Trust Companies Act, giving the commission the power to designate a bank as “systemically important” in the territory.

The proposed law is “designed to ensure efficiency and effectiveness in properly handling any crisis that may arise in relation to a licensed bank which has the potential to lead to the failure of such bank,” according to the “objects and reasons” section of the bill.

The bill also outlines measures for the creation of a “bridge bank,” which would allow the FSC to operate a failed bank temporarily until it is sold or liquidated. Additionally, the bill provides new definitions for “principal office” and “bank resolution” and makes provisions related to them.

VIDI amendments

Other clauses seek to bring the act in line with the VIDI Act, which was passed in 2016, and enable that act to come into force.

Under one clause, banks would have an additional licensing condition, which would require them to provide the commission with a copy of a deposit insurance policy issued “within a specified time” after the VIDI Act comes into force.

Also under the amendment, banks that receive an audit report “that is qualified or contains any emphasis of a matter within the report” would be required to immediately notify the commission, giving the regulator a chance review the report and assess any potential risks.

Another clause would change how appeals to the Financial Services Appeal Board are handled under the Financial Services Appeal Board Act.

“These provisions of the bill, if adopted, will enhance the territory’s ability to effectively deal with potential crisis that may arise in relation to any of the licensed banks,” according to the “objects and reasons” section.

VIDIA background

In 2016, the HOA passed the VIDI Act, which provides for the establishment of the VI Deposit Insurance Corporation and a Deposit Insurance Fund to protect small depositors from losing their savings in the event of a bank failure via a regime similar to other countries’.

But years of delays followed.

In February 2020, then-Premier Andrew Fahie announced that government had signed a contract for an undisclosed amount with United States-based consultant Vilma Rosa Leon-York to aid in creating a legal and resolution framework for the VIDI Corporation.

He initially announced a target completion date of Jan.1, 2021, though he later said pandemic-related delays hampered progress. In May 2021, he said the government was at an “advanced stage of this work,” with a target completion date of mid-second quarter of 2022.

At the time, he added that Ms. Leon-York had already drafted subsidiary legislation covering five areas within the act, as well as amendments needed to name the VIDIC as the deposit insurance and resolution authority in other laws, which included the Banks and Trust Companies Act, the Insolvency Act, and the FSC Act, an amendment to which was also introduced in the HOA on Sept. 27.