Shawna Lake, Director, Marketing and Development Department, Ministry of Finance.

St. Kitts Regulates and Modernizes its Financial Services Sector
St. Kitts is part of the twin island Federation of St. Kitts and Nevis. It is a 68 square mile island formerly dependant on sugar production as its main industry. Due to the absence of guaranteed markets and prices for St. Kitts sugar as a result of World Trade Organization rulings and new European Union policies, St. Kitts diversified its economy in order to continue to grow and to develop while earning foreign exchange revenue.

Tourism has become one of the main industries for the island. The tropical climate, developing hotel infrastructure and its friendly people have assisted greatly with this transition. Financial services are also being developed as another economic pillar for the island, since this industry is not as vulnerable to external shocks such as natural disasters or international events that can impact travel.

The financial services sector of St. Kitts was officially launched in 1996 when the Companies, Trusts and Limited Partnerships Acts were passed along with supporting regulations for the licensing and regulation of persons or entities engaged in financial services or corporate activities.

The regulation and marketing of the financial services sector was carried out by the Director General of the Financial Services Department under the provisions of the Financial Services Regulations Order. However in 2001 after the passing of the Proceeds of Crime Act, the Anti-Money Laundry Regulations and the Financial Services Commission Act, a separate regulatory division was established, headed by the Regulator for St. Kitts. The marketing, development and promotion of new products for the financial services sector were passed on to a new department established in 2001 within the Ministry of Finance, named the Marketing and Development Department. This separation was made to preclude conflict in the marketing of the financial services sector and the regulation of the persons and entities that operate within the sector in St. Kitts.

A Financial Services Commission was also established as a central body to monitor the regulation of the financial services sectors on both St. Kitts and Nevis. The regulator for St. Kitts along with a similarly appointed regulator for Nevis both sit on the commission and make reports on any irregularities or issues that may cause suspicion of money laundering or terrorist financing. The commission and the regulators also have the authority to cooperate with regulators from other jurisdictions if cooperation is required to investigate any money laundering, terrorist financing or other illegal matters.

Although St. Kitts and Nevis are part of the same Federation, the legislation passed by the Federal Parliament in relation to financial services products is not adopted by the Nevis Island Administration, and the legislation passed by the Nevis Island Assembly for their financial services sector do not relate to St. Kitts. This unique situation is created by the Constitution of the St. Kitts and Nevis which gives Nevis the authority to have exclusive control over certain matters.

One may ask how two islands with totally different financial services legislation co-exist under one regulatory, namely the Financial Services Commission. Although this does present challenges with regard to both islands being competitors in the same industry, it does provide a sort of "in house" model for cross border cooperation and dealing with different legislative provisions that may govern the same or similar type of entity.

During the period from 2001 to 2002, St. Kitts and Nevis enacted anti-money laundering and counter financing of terrorism legislation and set up infrastructure to detect and prosecute these criminal offenses and to cooperate internationally in the event of requests for information on cross border investigations.

The Federation has been commended by the United States and other countries for its levels of international cooperation in investigating fraud and money laundering cases. Both islands are represented at the Caribbean Financial Action Task Force (CFATF). They work closely with this organization, which is a regional styled FATF body that works to prevent the financial sectors in the Caribbean from abuse by money launderers and persons wishing to finance terrorism. Both islands are subject to a voluntary mutual evaluation by their peer countries every three years to ensure that their laws and regulatory infrastructure are in compliance with FATF Recommendations and other international standards. St. Kitts and Nevis are also engaged in the Organization for Economic Cooperation and Development (OECD). Harmful Tax Practices work and are represented on the sub-group for Level Playing Field of the OECD.

Both islands also participate in working groups set up by various standard setting bodies to develop new regulatory guidelines. It is important for small countries like St. Kitts to remain engaged in dialogue and in the development of international standards requiring its compliance. This is because in many instances the perspective and circumstances of individual countries may not be accurately or effectively represented in these standard- setting forums.

St. Kitts is continuing to work towards developing new products to respond to both domestic and international client needs and continues to adopt a risk management approach in so doing. St. Kitts continues to research the needs of both the domestic and international markets in order to develop and update its existing products.

The island adopts a balanced approach to the development of new products as well as in maintaining its high and efficient regulatory standards. This is to prevent terrorist financiers, money launderers and tax evaders from abusing the services offered by the jurisdiction. St. Kitts is therefore continuing to develop its products and services with a sense of determination and vigor as it seeks to cement its position among the more responsible financial services centers in the world.

St. Kitts Creates New Niche for Small Captives
Since the official launch of the financial services sector in St. Kitts in 1996, St. Kitts has maintained its focus on developing and improving this sector. Constant market research determines the products and services that are in demand by our international clientele. Continuous monitoring of international initiatives against money laundering and terrorist financing ensures that no products are in conflict with international regulatory standards. Regulators and members of the private sector are invited to participate in discussions when the Marketing and Development Department is carrying out product development.

The latest initiative by the Department is the new Captive Insurance Act. St. Kitts is not the only jurisdiction to offer the facility to establish captives, but it focuses exclusively on the special needs of companies and people who require a small captive insurance company. Many professionals are sole practitioners who may not have the financial means to pay the large premiums charged by commercial insurance companies for professional indemnity or other required insurance. They may need to pool their resources to establish a captive insurance company to cover their liability.

The St. Kitts Captive Insurance Act was passed in August 2006. This legislation caters to both large and small captives, while streamlining the process for the establishment of small captives and making it more cost effective for persons wishing to establish these entities. With application fees as little as US$200 and registration fees of US$800 upon approval, small and medium size professionals or firms can self insure. Small captives are defined as captives that have premiums of less than US$1.5 million.
The opportunity to form a captive insurance company is available to both locals and foreign persons, with certain restrictions.

There are many advantages. The asset protection provisions protect the insured persons against the frivolous claims of creditors provided that the original premium payments to the captive were not fraudulent.

The capitalization and surplus requirements of small captives are very affordable. For example, a pure captive which has a premium of US$100,000 is required to have capitalization of US$20,000 in order to be licensed. The act makes it easy for the captive to apply to its surplus earned premium income accrued by the captive within 90 days of the date of its insurance license, with certain restrictions.
Finally, the regulatory requirements of the captive insurance companies, particularly the very small ones, are quite clear and uncomplicated. Clarity was a main focus in the development of the new legislation and is meant to ensure those who set up a captive insurance company in St. Kitts comprehend all the requirements. A thorough understanding of the provisions and guidelines of the St. Kitts Captive Insurance Act through simplified legislation and procedures will assist clients in feeling more in control of their business.

This is the ultimate goal of St. Kitts Financial Services – to provide a greater sense of confidence and security.

With special thanks to Shawna Lake