## cr04373 - Preface ## Source details **Canonical URL:** [cr04373 - Preface](https://www.imf.org/-/media/files/publications/ofca/english/cr04373.pdf) ## Other formats - [Markdown version](/-/media/files/publications/ofca/english/cr04373.pdf.md) - [Structured JSON version](/-/media/files/publications/ofca/english/cr04373.pdf.json) --- ### IMF mission, scope, and assessment timing - IMF mission conducted a Module 2 Offshore Financial Center Assessment of Belize during August 4–15, 2003. - The mission assessed observance by Belize of: - the Financial Action Task Force 40 Recommendations for Anti-Money Laundering plus 8 Special Recommendations on Combating the Financing of Terrorism, based on the Methodology for Assessing Compliance with Anti-Money Laundering and Combating the Financing of Terrorism Standards (AML/CFT) October 2002 version; - the Basel Core Principles for Effective Banking Supervision (BCP); - the Insurance Core Principles of the International Association of Insurance Supervisors (IAIS). - The analysis and recommendations reflect the situation as of the time of the on-site visit in August 2003; the AML/CFT assessment was completed on August 14, 2003. ### Financial system size, structure, and key statistics (end-2002 and related) - Banking and insurance sector aggregate figures: - Assets of the domestic banking system totaled approximately US$628 million. - International banks held additional assets of US$148 million. - Banking sector assets (end-2002) amounted to approximately US$776 million, of which 81 percent was attributable to domestic banks and 19 percent to international banks. - Insurance companies’ total assets amounted to US$51 million. - Macroeconomic and fiscal context: - Financial services account for approximately 6 percent of GDP. - GDP in 2002 was approximately US$850 million; population approximately 264,000; per capita GDP estimated to be US$3,250. - Belize dollar fixed at an exchange rate of 2:1 against the U.S. dollar since 1976. - Tax and contribution rates: - Business tax ranges from 1.25–1.75 percent of turnover. - Stamp duty of 15 percent on transfer of real property. - Standard sales tax rate is 8.0 percent. - Payroll tax of up to 25 percent for BZ$20,000 and above. - Standard social security contribution is 8.0 percent. - Additional banking system statistics (year-end 2002, BZ$ basis): - Total assets of the domestic banks were BZ$1.25 billion with the largest bank, Belize Bank, accounting for nearly half. - Banking system profitability: return on assets of 4.7 percent and return on equity of 37 percent. - Net interest income accounts for 75 percent of banking system revenues. - Reserve and liquidity requirements: banks must keep 6 percent of deposits in reserves at the CBB and a further 18 percent of deposits in liquid assets. - No deposit insurance scheme in Belize. - Belize has four domestic commercial banks and seven international banks. ### Offshore sector and company/trust services - IBC and trust activity: - Formation of international business corporations (IBCs) and trusts are the main lines of international business. - Cumulative total of 30,835 IBCs registered (1990–Aug 2003); Registered IBCs active, Aug. 2003: 18,351. Elsewhere: cumulative total of about 30,000 IBCs registered; after strike offs and dissolutions, 18,000 remain active. - IFSC-regulated activities include offshore insurance, trusts, mutual funds, protected cell companies, partnerships, and limited life companies. - Company formation agents and trust service providers: - As of mid-August 2003: 42 licensed company formation agents; 21 licensed providers for trustee services. - Registered agents are responsible for vetting IBCs and maintaining beneficial ownership information; bearer shares custody is required of registered agents. - Trusts and protections: - Trust Act provides flexibility; Law of Property Act, Bankruptcy Act, and certain provisions of Reciprocal Enforcement of Judgments Act have been disapplied for trusts; oral trusts are permitted; trusts are not registered. - International insurance: - International insurance first authorized in 1999. - During first half of 2003 five firms were licensed to provide international insurance services. ### Regulatory and supervisory framework, institutions, and resourcing - Supervisory structure and responsibilities: - Central Bank of Belize (CBB) supervises banks, domestic and international (separate legislation but similar supervision in practice). - Supervisor of Insurance (domestic) is an official of the Ministry of Finance and Home Affairs. - Supervisor of International Insurance operates under the IFSC; Director General of the IFSC is the appointed Supervisor of International Insurance. - IFSC is a mixed private/public body: eight directors (five private sector, three public sector); Chairman is the Deputy Governor of the Central Bank; decision-making resides with the full Commission. - Credit unions and building societies are registered but are not subject to systematic prudential regulation. - Development Finance Corporation (DFC) had not been subject to third-party prudential regulation; CBB informed DFC that effective January 2004 CBB will begin to supervise them and an on-site examination is to be conducted during 2004. - Staffing and supervisory resources: - Banking supervision department of the Central Bank has eleven professionals; five of these staff members added within the past year due to turnover. - IFSC Director General’s regulatory responsibilities are part-time; assisted by one professional and one clerical staff who work part-time on IFSC matters. - Insurance supervision: domestic Insurance Act in effect since 1976; Supervisor’s office small (Acting Supervisor, insurance assistant, registration officer, secretary); international insurance supervisor and assistant not full time on insurance matters and lack specialist insurance expertise. ### AML/CFT legal framework, institutions, vulnerabilities, and FIU - Legal instruments in place by assessment: - Money Laundering (Prevention) Act, 2000; Money Laundering (Prevention) (Amendment), Act No. 5, 2002; Financial Intelligence Unit Act, 2002; Money Laundering Prevention Guidance Notes; Ratification of the Vienna Convention and signing of the UN International Convention for the Suppression of the Financing of Terrorism. - Financial Intelligence Unit (FIU): - FIU established under the Financial Intelligence Unit Act of September 14, 2002 and became operational in December 2002. - FIU responsibilities include investigating and prosecuting financial crimes; functioning as Supervisory Authority for the Money Laundering Prevention Act; coordinating government entities; receiving suspicious transaction reports; issuing guidelines; promoting AML/CFT awareness. - FIU staffing at assessment: four professional staff members including the Director, a financial examiner, and two police officers. - FIU powers include authority to require information, search authority, temporary asset restraint and requests to court to freeze assets, and coordinating among law enforcement, regulatory bodies, government agencies, and private institutions. - FIU mandated to receive STRs but not explicitly mandated to analyze them in its authorizing legislation; recommendation to introduce specific language mandating the FIU to analyze as well as receive STRs. - Identified vulnerabilities and risk points: - Belize is a transshipment point for cocaine and marijuana; CFZs generate significant cash transactions (Mexican pesos and U.S. dollars); cambios licensed turnover on the order of US$2.0 million per month. - Unsupervised money transmitters, two private casinos, internet gambling in EPZs, trusts and company service providers relying on overseas introductions complicate verification of beneficial owners. - Asset protection trusts, international mutual funds, and IBCs where business purpose and ultimate beneficial owner may not be known to the local administrator are susceptible to abuse. - Previous reviews and assessments: - CFATF mutual evaluation in 2000: Belize “has in place the general legislative requirements advanced by the Financial Action Task Force (FATF) and CFATF to effectively combat money laundering” but regime “still in its infancy” with low STRs and lack of arrests/charges to date. - Financial Stability Forum (FSF) in May 2000 categorized Belize as a Group III jurisdiction based on perceived quality of supervision and cooperation. ### Mission findings: banking supervision, insurance supervision, and AML/CFT - Banking supervision: - Complies with or is largely compliant with most Basel Core Principles. - CBB follows CAMEL approach with off-site monitoring and on-site examination; examinations detailed and credit-focused but give less emphasis to control environment and various risk factors. - Minister retains discretionary authority over licensing and approvals which could intrude on operational independence of the CBB; draft bills under discussion likely to modify this. - Staff retention is a continuous problem; intensity of supervision varies; need for consolidated supervision due to increasing corporate complexity and international banks. - Specific banking facts: two banking laws (BFIA for domestic banks and IBA for international banks; IBA amended in 2002); directive issued April 1, 2004 deleted residential mortgages from list of approved liquid assets. - Insurance supervision: - Domestic insurance legislation outdated and being revised; new Insurance Act enacted in March 2004 subsequent to report drafting. - Domestic market small, traditional, exposed to catastrophe losses; statutory deposits held by the Supervisor: BZ$7.6 million (end-2001). - International insurance supervision embryonic; IFSC lacks technical insurance resources and supervisory capacity for ongoing monitoring or on-site inspections. - AML/CFT regime: - Establishment of the FIU considerably strengthened the regime; many elements of a robust AML/CFT regime are in place but teething problems and coordination challenges exist. - Money laundering criminalized consistent with the Vienna Convention but predicate offences list excludes some key financial crimes; terrorist financing criminalization recommended (FT was not criminalized at assessment time). - Confiscation and freezing gaps: MLPA allows freezing and seizure on ML conviction but does not allow confiscation of proceeds of crime from predicate offences or FT; freezing of terrorist funds possible but confiscation of funds used to finance terrorism is not possible. - STRs up to assessment had not resulted in prosecution and conviction. ### Key mission recommendations (grouped by theme) - Banking — operational independence and capacity: - Consider amending legislation to remove the Minister of Finance’s power to approve or withdraw licenses, to approve significant enforcement actions, and to approve selection of most CBB employees to safeguard operational independence of the CBB. - Increase the number and breadth of expertise of banking supervision staff. - Introduce a comprehensive examination manual and a more formalized system of working papers for on-site examinations. - Develop procedures for consolidated supervision and apply large exposure and related party limits (selected actions listed in BCP action plan). - Insurance — supervisory strengthening: - International Supervisor of Insurance should acquire resources urgently to assess complex insurance operations and to develop capacity for on-site inspections; consider outsourcing short-term and ensure an “intelligent customer” in IFSC. - Issue guidance notes to domestic insurance industry on corporate governance, internal controls, underwriting risk monitoring, claims management, compliance with law, fair treatment of customers, and AML requirements. - Develop a fully structured on-site inspection program and hire at least two experienced staff; expand staff training in reinsurance and actuarial valuation. - Undertake feasibility study to consider merger of domestic and international insurance functions. - AML/CFT — legal framework, skills, coordination, and supervisory reach: - Sign and ratify the Palermo Convention; ratify the 1999 International Convention on the Suppression of Financing of Terrorism. - Criminalize terrorist financing and adopt an “all serious crimes” approach to predicate offences or broaden list of predicate offences. - Amend legislation to allow freezing of proceeds of crime generally and to broaden asset forfeiture mechanisms; consider a proceeds of crime law and a mutual assistance law. - Clarify FIU role and mandate an explicit analytical function; provide more continuous training and enhance analytic capabilities of the FIU. - FIU should coordinate processes and policies with CBB, DPP’s office, and BPD; consider amending introduced business framework to ensure verification documents are not retained solely offshore. - Extend gateways for information flow so banking, insurance, mutual funds, managers, administrators and other information can be transmitted to other regulatory bodies pursuant to international standards. - Develop capacity to monitor and ensure compliance by credit unions, casas de cambio, IFSC-licensed entities, lawyers and accountants with preventive measures in line with FATF Forty Recommendations (June 2003 revised). - FIU and supervisory agencies should issue updated AML/CFT guidance notes for the entire financial system and sector-specific guidance as necessary. ### Basel Core Principles and IAIS assessment highlights and action plans - Basel Core Principles (BCP): - Banking supervision largely compliant with most BCPs but institutional independence, legal protection for supervisors, staff capacity, consolidated supervision, and some prudential limits require strengthening. - Selected BCP recommended actions include amendments to BFIA and IBA to reduce Ministerial role, clarifying legal protections, applying aggregate large exposure limits (apply 6X capital limit to aggregate of exposures over 10 percent of capital), addressing related-party lending, country and market risk, liquidity and reporting, internal control guidance, AML cooperation with FIU, more frequent examinations, consolidated reporting, and remedial measures. - Authorities agreed with most IMF findings; IMF Advisor joined the Financial Sector Supervision Department as of December 10, 2003. Inter-American Development Bank funding obtained to strengthen supervision; Belize Action Plan included drafting amendments, training, and reporting changes with specific timing (examples: first draft of BFIA/IBA revisited expected by end of 2004; CBB to commence gathering information on exposures of 10% or greater as of June 2004; guidance notes/regulations for Corporate Governance and Internal Controls to be issued early 2005). - IAIS Insurance Core Principles: - Domestic insurance supervision generally “fit for purpose” given market size but legislation, powers, resources and technical capacity were deficient; new Insurance Act enacted in March 2004 addressed many legal shortcomings (legal protection, fit & proper criteria, triennial actuarial review, powers for enforcement and sanctions). - International insurance supervision severely under-resourced; IFSC should obtain technical expertise or outsource; licensing procedures and ongoing supervision need strengthening. - Recommended actions include hiring experienced staff, issuing guidance on corporate governance and internal controls, shortening actuarial valuation intervals (changed from quinquennial to triennial in new Act), requiring additional reinsurance disclosures, developing comprehensive on-site inspection manuals (including AML procedures), and enhancing cross-border cooperation and confidentiality protections. - Authorities’ response: enactment of new Insurance Act (March 2004) with provisions for legal protection of Supervisor, fit & proper criteria, triennial actuarial evaluation, administrative sanctions, and enhanced guidance and resourcing commitments; OSI engaged CARTAC for technical assistance and training. ### Follow-up actions and post-assessment developments noted by the mission - Subsequent steps taken to strengthen supervision and AML/CFT (as cited by mission): - Enactment of a new Insurance Act for domestic insurance (March 2004). - Adoption of various new banking and insurance regulations. - Additional technical assistance and training to upgrade supervisors’ capacity for off-site monitoring and on-site examination of banks and insurance companies. - Measures to consolidate one bank as a subsidiary of a foreign bank and entry into an MOU with a home country supervisor for another commonly-owned bank. - Formalization of CBB policy that international banks must have a bank parent. - CBB conducted its first Risk Focused Supervision in June 2004 with IMF Advisor assistance; CBB requested consolidated data from banks as of March 2004; directives and reporting changes implemented (e.g., reporting requirements expanded effective March 31, 2004; CBB requested quarterly maturity information commencing June 2004). *Source: IMF publication cr04373 - Preface.* ### Preface................................................................................................................. ### cr04373 - Preface ### Contents overview - Preface — 5 - Executive Summary — 6 ### Major sections (I and II) - I. Introduction and Financial System Overview — 10 - A. Background — 10 - B. Financial Institutions and Markets — 11 - C. Anti–Money Laundering and Combating the Financing of Terrorism (AML/CFT) Background — 16 - D. Regulatory Framework, Oversight, and Market Integrity Arrangements — 16 - E. Strengths and Vulnerabilities in the Financial Regulatory and Supervisory Arrangements — 21 - F. Cross-Border Cooperation and Information-Sharing — 23 - G. Key Observations and Recommendations — 24 - II. Observance of Financial System Standards and Codes: Reports on Observance of Standards And Codes (ROSCs) — 25 - A. Summary of the Basel Core Principles Assessment — 25 - B. Summary of the IAIS Insurance Core Principles Assessment — 34 - C. Summary of the Anti-Money Laundering and Combating the Finance of Terrorism (AML/CFT) Assessment — 45 ### Tables (listed) - Table 1. Financial Structure — 12 - Table 2. Recommended Action Plan to Improve Compliance of the Basel Core Principles — 30 - Table 3. Recommended Action Plan to Improve Observance of IAIS Insurance Core Principles—Domestic Insurance — 40 - Table 4. Recommended Action Plan to Improve Observance of IAIS Insurance Core Principles—International Insurance — 42 - Table 5. Recommended Action Plan to Improve Compliance with the FATF Recommendations — 50 - Table 6. Other Recommended Actions — 55 ### Other elements - Boxes (listed without itemization in the table of contents) *Source: IMF publication cr04373 - Preface.* ### 1. Recent Legislative and Regulatory Initiatives .................................................................20 ### 1. Recent Legislative and Regulatory Initiatives ### IMF mission and assessment scope - The IMF mission conducted a Module 2 Offshore Financial Center Assessment of Belize during August 4–15, 2003. - The mission assessed observance by Belize of: - the Financial Action Task Force 40 Recommendations for Anti-Money Laundering plus 8 Special Recommendations on Combating the Financing of Terrorism, based on the Methodology for Assessing Compliance with Anti-Money Laundering and Combating the Financing of Terrorism Standards (AML/CFT) October 2002 version; - the Basel Core Principles for Effective Banking Supervision (BCP); - the Insurance Core Principles of the International Association of Insurance Supervisors (IAIS). - The analysis and recommendations reflect the situation as of the time of the on-site visit in August 2003. ### Financial system size and structure — key statistics and features - At the end of 2002: - Assets of the domestic banking system totaled approximately US$628 million. - International banks held additional assets of US$148 million. - Banking sector assets (end-2002) amounted to approximately US$776 million, of which 81 percent was attributable to domestic banks and 19 percent to international banks. - Insurance companies’ total assets amounted to US$51 million. - Financial services account for approximately 6 percent of GDP. - GDP in 2002 was approximately US$850 million; population approximately 264,000; per capita GDP estimated to be US$3,250. - Belize dollar fixed at an exchange rate of 2:1 against the U.S. dollar since 1976. - Tax and contribution rates: - Business tax ranges from 1.25–1.75 percent of turnover. - Stamp duty of 15 percent on transfer of real property. - Standard sales tax rate is 8.0 percent. - Payroll tax of up to 25 percent for BZ$20,000 and above. - Standard social security contribution is 8.0 percent. ### Offshore sector and company/trust services - Formation of international business corporations (IBCs) and trusts are the main lines of international business. - IBC statistics: - Cumulative total of 30,835 IBCs registered (1990–Aug 2003) (Table entry). - Registered IBC, active, Aug. 2003: 18,351 (Table entry). - Elsewhere in the text: cumulative total of about 30,000 IBCs registered; after strike offs and dissolutions, 18,000 remain active. - Offshore activities authorized/regulated by the International Financial Services Commission (IFSC) include offshore insurance, trusts, mutual funds, protected cell companies, partnerships, and limited life companies. - Company formation agents, trust and company service providers: - As of mid-August 2003: 42 licensed company formation agents; 21 licensed providers for trustee services. - Registered agents are responsible for vetting IBCs and maintaining beneficial ownership information; bearer shares custody is required of registered agents. - Trusts in Belize: - Trust Act provides flexibility and is useful for asset protection and estate planning. - Law of Property Act, Bankruptcy Act, and certain provisions of Reciprocal Enforcement of Judgments Act have been disapplied for trusts, providing heightened protection from claims. - Oral trusts are permitted; trusts are not registered. - International insurance: - International insurance first authorized in 1999. - During first half of 2003 five firms were licensed to provide international insurance services. ### Regulatory and supervisory framework — structure and staffing - Multiple supervisory agencies with divided responsibilities: - Central Bank of Belize (CBB) supervises banks, domestic and international (separate legislation but similar supervision in practice). - Supervisor of Insurance (domestic insurance) is an official of the Ministry of Finance and Home Affairs. - Supervisor of International Insurance operates under the IFSC; Director General of the IFSC is the appointed Supervisor of International Insurance. - IFSC is a mixed private/public body: eight directors (five private sector, three public sector); Chairman is the Deputy Governor of the Central Bank; decision-making resides with the full Commission. - Credit unions and building societies are registered (Registrar of Credit Unions and Attorney General) but are not subject to systematic prudential regulation. - Development Finance Corporation (DFC) had not been subject to third-party prudential regulation; the CBB informed DFC that effective January 2004 CBB will begin to supervise them and an on-site examination is to be conducted during 2004. - Banking supervision: - Follows CAMEL approach with off-site monitoring and on-site examination. - Banking supervision department of the Central Bank has eleven professionals; five of these staff members added within the past year due to turnover. - Insurance supervision: - Domestic insurance regulated under the Insurance Act (in effect since 1976) and supervised by the Acting Supervisor of Insurance. - International insurance supervised by Supervisor of International Insurance under the IFSC; supervision emphasizes licensing and promulgation of regulation; compliance checking and on-going supervision are little emphasized. - IFSC administrative resourcing: - Director General’s IFSC regulatory responsibilities are a part-time activity; assisted by one professional and one clerical staff who work part-time on IFSC matters. ### AML/CFT legislative and institutional developments - Legal framework includes: - Money Laundering (Prevention) Act, 2000; - Money Laundering (Prevention) (Amendment), Act No. 5, 2002; - Financial Intelligence Unit Act, 2002; - Money Laundering Prevention Guidance Notes; - Ratification of the Vienna Convention and signing of the UN International Convention for the Suppression of the Financing of Terrorism. - Financial Intelligence Unit (FIU): - Established in December 2002. - FIU responsibilities include investigating and prosecuting financial crimes; functioning as Supervisory Authority for the Money Laundering Prevention Act; coordinating government entities; receiving suspicious transaction reports; issuing guidelines; and promoting AML/CFT awareness. - FIU staffing as of report: four professional staff members including the Director, a financial examiner, and two police officers. - Vulnerabilities and risk points identified: - Belize is a transshipment point for cocaine and marijuana, although authorities believed limited domestic financial activity tied to drug movement. - Commercial free zones (CFZs) generate significant cash transactions (Mexican pesos and U.S. dollars); Free Zone Management Agency introduced a compliance agency to promote use of Belize banking channels. - Newly authorized cambios (Casa de Cambios) and CFZs open avenues for illicit cash to enter the formal system; cambios licensed turnover on the order of US$2.0 million per month. - Unsupervised money transmitters, two private casinos, and internet gambling in EPZs are potential vulnerabilities. - Trusts and company service providers’ reliance on overseas introductions complicates verification of beneficial owners. - Previous international reviews: - CFATF mutual evaluation in 2000: Belize “has in place the general legislative requirements advanced by the Financial Action Task Force (FATF) and CFATF to effectively combat money laundering” but regime “still in its infancy” with low suspicious transaction reports and lack of arrests/charges to date. - Financial Stability Forum (FSF) in May 2000 categorized Belize as a Group III jurisdiction based on perceived quality of supervision and cooperation. ### Mission findings on supervision and AML/CFT - Banking supervision: - Complies with or is largely compliant with most of the Basel Core Principles. - Minister retains discretionary authority over licensing and approvals which could intrude on operational independence of the CBB; draft bills under discussion likely to modify this. - Retention of qualified staff is a continuous problem; intensity of supervision varies. - Corporate structures of banks becoming more complex; need greater attention to cross-border and consolidated supervision. - Insurance supervision: - Domestic insurance legislation outdated and being revised; supervision focuses on off-site monitoring and regular contact but falls short of many international standards. - International insurance licensing has been cautious; ongoing prudential supervision arrangements had been deferred at the time of the visit. - AML/CFT regime: - Establishment of the FIU has considerably strengthened the regime; FIU Act places the FIU at the center of government efforts. - Many elements of a robust AML/CFT regime are in place but teething problems and coordination challenges exist. - AML/CFT awareness is generally high in government and private sector. - Special vulnerabilities remain in trusts, company service providers, CFZs, and cambios; authorities have taken steps to mitigate some risks. ### Key recommendations (summarized by theme from the mission) - Banking — operational independence and capacity - Consider amending legislation to remove the Minister of Finance’s power to approve or withdraw licenses, to approve significant enforcement actions, and to approve selection of most CBB employees to safeguard operational independence of the CBB. - Increase the number and breadth of expertise of banking supervision staff. - Introduce a comprehensive examination manual and a more formalized system of working papers for on-site examinations. - Develop procedures for consolidated supervision to ensure common ownership structures do not undermine effective supervision. - Insurance — supervisory strengthening - International Supervisor of Insurance should acquire resources urgently to understand and assess complex insurance operations, business plans, and to develop capacity for on-site inspections. - Issue guidance notes to domestic insurance industry on corporate governance, internal controls, underwriting risk monitoring, claims management, compliance with law, fair treatment of customers, and AML requirements. - Develop a fully structured on-site inspection program including a comprehensive inspection manual. - Hire at least two experienced staff to allow more intensive supervision; expand staff training particularly in reinsurance and insurance risk analysis. - Undertake a feasibility study to consider merger of separate domestic and international insurance functions into a single body. - AML/CFT — legal framework, skills, coordination, and supervisory reach - Fill in details of AML/CFT legislation: sign and ratify the Palermo convention; introduce authority for a broader range of sanctions; broaden asset freezing and forfeiture authority; provide explicitly for an analytical function for the FIU; consider adoption of a proceeds of crime law; consider a mutual assistance law; adopt an “all serious crimes” approach to predicate offences. - Provide more and continuous training to supervisory, administrative, investigative, prosecutorial and judicial authorities; enhance analytic capabilities of the FIU. - FIU should step up coordinating efforts to establish clearer processes and policies between entities (CBB and FIU, FIU and DPP’s office, FIU and BPD). - Consider amending framework for introduced business to remove the option where verification documents can be retained solely by an eligible introducer. - Extend gateways for information flow so banking, insurance, mutual funds, managers, administrators and other information can be transmitted to other regulatory bodies pursuant to international standards for investigation and prosecution of economic crime. - Develop capacity to monitor and ensure compliance with preventive measures required of credit unions, casas de cambio, and entities/service providers licensed by the IFSC; capacity should also extend to preventive measures required of lawyers and accountants to comply with the June 2003 revised FATF Forty Recommendations. - FIU, in conjunction with supervisory agencies, should issue updated AML/CFT guidance notes for the entire financial system and sector-specific guidance as necessary. ### Post-assessment actions noted by the mission - Subsequent to the assessment, numerous steps were taken to strengthen supervision of banking and domestic insurance, including enactment of proposed insurance legislation. - Key actions cited by the mission (subsequent to the on-site visit) that appear to address recommendations include: - Enactment of a new Insurance Act for domestic insurance. - Adoption of various new banking and insurance regulations. - Additional technical assistance and training to upgrade supervisors’ capacity for off-site monitoring and on-site examination of banks and insurance companies. - Specific supervisory consolidations/measures taken subsequently mentioned by the mission: - Measures to consolidate one bank as a subsidiary of a foreign bank. - Entry into an MOU with the home country supervisor of another commonly-owned bank. - Formalization of CBB policy that international banks must have a bank parent. *Source: IMF mission Module 2 Offshore Financial Center Assessment of Belize, August 4–15, 2003.* ### Box 1. Recent Legislative and Regulatory Initiatives ### Box 1. Recent Legislative and Regulatory Initiatives ### Establishment and powers of the Financial Intelligence Unit (FIU) - The Financial Intelligence Unit Act of September 14, 2002 established an FIU to improve investigation and prosecution of money laundering and other financial crimes. - Under the Act the FIU functions as the Supervisory Authority under the Money Laundering (Prevention) Act, replacing the Central Bank in that role. - FIU powers include: - authority to require parties to provide information for investigations and prosecutions; - search authority; - authority for temporary asset restraint and requests to the court to freeze assets; - ensuring coordination among law enforcement, regulatory bodies, government agencies, and private institutions in the prevention and suppression of financial crimes. ### Terrorism-related and international enforcement measures - The United Nations Resolutions and Conventions (Enforcement) Act 2002 introduced arrangements allowing the use of summary procedures where urgent action is required to freeze funds or financial assets related to terrorism and money laundering. - The Money Laundering (Prevention) (Amendment) Act, 2002: - created the offence of terrorism; - gave wide-ranging powers to the Supervisory Authority (now the FIU) to temporarily freeze the funds and financial assets of any person to facilitate an investigation, prosecution or proceeding for a money laundering offence until a court order to freeze such funds can be applied for; - allowed the Supervisory Authority to freeze funds where necessary to give effect to a resolution of the Security Council, even without a court order; - eliminated the need for an MLAT as a condition for providing international legal assistance; - extended anti-money laundering law provisions to encompass international financial services, legal services and accounting services. ### International Financial Services due diligence requirements - On June 23, 2001 the International Financial Services (Code of Conduct) Regulations 2001 were issued, introducing mandatory regulations covering due diligence requirements for international financial services providers analogous to the Money Laundering (Prevention) Regulations 1998 issued by the Central Bank (the Supervisory Authority for Anti-Money Laundering at that time). ### Offshore banking regulatory tightening - The Offshore Banking (Amendment) Act, 2002 tightened regulation of offshore banks and aligned requirements more closely with domestic banks. - Key structural and numerical changes: - Minimum capital requirements were increased from US$500,000 to US$3 million. - The calculation of capital for capital adequacy purposes was tightened. - Reserve and liquidity requirements were increased. - The threshold for determining control was reduced from 25 percent shareholding to 10 percent. - Supervisory and enforcement authority changes: - The central bank was given authority to appoint examiners and to charge fees for exams. - Central bank enforcement powers were enhanced with new authority to impose fines. - The role of the minister in licensing and regulatory decisions was attenuated. - For new licensees, the central bank was given discretionary authority to vary the terms and conditions of an offshore bank’s license. - All secrecy limitations on the authorities’ access to bank information were eliminated and their authority to share such information with other authorities was expanded. ### Central Bank supervisory actions and transparency measures - In September 2002 the Central Bank for the first time exercised its authority under Part VII of the Banks and Financial Institutions Act to examine a building society. - In the second half of 2002 the Central Bank began publishing abbreviated quarterly financial accounts of domestic banks, along with a comparative table of key ratios. *Source: International Monetary Fund publication.* ### conclusions on cross-border cooperation and information sharing. ### conclusions on cross-border cooperation and information sharing. ### Banking: supervisory approach, strengths, and weaknesses - The Central Bank employs a CAMEL approach to on-site supervision, giving particular attention to credit quality. - In the last three or four years considerable attention has been paid to checking for compliance with AML/CFT requirements. - Examinations tend to be detailed, focusing on the condition of the bank, but giving less emphasis to various risk factors or the control environment. - Explicit enforcement actions are infrequent; when a contravention of laws or regulations is detected the Central Bank ensures that this is corrected immediately. - Domestic banks are primarily engaged in traditional areas of deposit taking, loans and foreign exchange of a non-complex nature and appear well managed, showing: - consistent profitability, - a relatively low level of non-performing loans and charge-offs. - International banks face more important cross-border cross-currency risks and, as of August 2003, a few banks had common ownership structures with other banks, introducing vulnerabilities requiring consolidated supervision. - Supervisory practices for international banks are still evolving; the longest established firm had been operating for approximately three years. - Recent amendments to the International Banking Act strengthen the Central Bank’s authority to apply supervisory arrangements to international banks equivalent to those for domestic banks. - Operational challenges: - Staff turnover and licensing of new banks have made it difficult for the Central Bank to maintain a steady examination cycle; frequency of examinations appears to have lagged in the last year or two. - Newly licensed banks are monitored closely. - Establishment of the FIU led to some staff uncertainty about the division of responsibility between the Central Bank and the FIU. - Specific weaknesses relative to Basel Core Principles identified: - Legal and institutional arrangements limit the independence of the Central Bank vis à vis the Minister, who retains legal authority on licensing and enforcement. - Supervisor of Banks would benefit from more autonomous decision making authority within the Central Bank. - Staff shortages and skills weaknesses hamper effective and consistent on-site and off-site supervision. - Arrangements for consolidated supervision need reinforcement as international banks and complex ownership structures increase. - A broader risk-based approach to supervision would be desirable as the financial system modernizes and internationalizes. - Key banking statistics and structural facts: - Belize has four domestic commercial banks and seven international banks. - Total assets of the domestic banks were BZ$1.25 billion at year-end 2002 with the largest bank, Belize Bank, accounting for nearly half. - Banking system profitability: return on assets of 4.7 percent and return on equity of 37 percent. - Net interest income accounts for 75 percent of banking system revenues. - Reserve and liquidity requirements: banks must keep 6 percent of deposits in reserves at the CBB and a further 18 percent of deposits in liquid assets (certain loans may be counted as liquid assets). - There is no deposit insurance scheme in Belize. - International banks: some raise deposits in U.S. dollars and lend substantially to firms in Export Processing Zones and Commercial Free Zones; four international banks are owned by or have substantially similar ownership as banking groups from Guatemala, Honduras, and Costa Rica. - Two banking laws: Banking and Financial Institutions Act (BFIA) for domestic banks and International Banking Act (IBA) for international banks (IBA amended in 2002). ### Insurance: domestic and international supervision findings and needs - Domestic insurance supervision: - Deals adequately with traditional, relatively simple products. - Domestic insurance industry is small, unsophisticated, risk averse and well disciplined, evidenced by sustained profitability despite recent high claims due to hurricanes. - Supervisor of Insurance is well versed and exercises close oversight; regulations and guidance exist for corporate governance, prudential controls, and market conduct, although several points should be updated. - Supervisor’s powers are inadequate in several respects: authority to take immediate action in urgent cases, to approve changes in control, to address fitness and propriety, and to share information with other supervisory authorities. - Staff weaknesses: single acting supervisor supported by an insurance assistant, a registration officer and a secretary; insufficient for systematic on-site examinations or offsite monitoring. - As an official in a department of the Finance and Home Affairs Ministry, the supervisor lacks full operational autonomy. - Legislative response: - The Insurance Bill pending before parliament (and subsequently enacted) addresses many legal deficiencies, including approval of changes in control, tests for fitness and propriety and exchange of information. - Recommended supervisory capacity improvements: - Update guidance on corporate governance, internal controls, and market conduct. - Upgrade supervisory skills in reinsurance analysis, actuarial valuation, and compliance monitoring. - Hire at least two experienced staff to design and implement an on-site inspection program. - International insurance: - Business and supervision of international insurance are embryonic. - International Insurance Act governs international insurance; Supervisor of International Insurance is also Director General of the IFSC. - Legislation authorizing international insurance approved in 1999; first licenses for international insurance management issued in first half of 2003 (five firms licensed). - Licensing arrangements have focused on fit and proper tests; a formal regulatory regime for ongoing supervision has not yet been brought forward. - Unclear whether the two licensed insurers are active or whether there have been problems securing appropriate reinsurance. - Supervision of international insurance falls well short of IAIS Core Principles: Supervisor lacks staff and specialized expertise to analyze business plans, financial projections, proposed reinsurance, and cannot undertake ongoing monitoring or on-site inspections. - IFSC has developed much of the legislative framework and subordinate legislation, guidance and codes of conduct, but supervisory capacity is insufficient. ### Anti-money laundering and combating the financing of terrorism (AML/CFT) - Establishment of the Financial Intelligence Unit (FIU) provides most essential legal and institutional arrangements called for in the Methodology. - Money laundering (ML) is criminalized on the basis of the Vienna Convention; the list of predicate offences excludes some key financial crimes. - Obligations under the MLPA, including reporting suspicious transactions, have recently been extended to lawyers and accountants in addition to previously covered financial community sectors. - FIU authority: - To receive suspicious transaction reports and carry out investigations into financial crime. - To coordinate the flow of information domestically and internationally under the FIU Act and amendments to the MILA. - Broad powers to require any party to provide any information required to support investigations of financial crime. - Obligations for financial sector constituents have been spelled out in regulations issued by the Central Bank and by the IFSC; awareness of ML risks and obligations is high. - Remaining weaknesses: - Specific gaps in laws and regulation exist. - Coordination gaps among agencies. - Incomplete implementation due to inadequate resources, compliance monitoring, and lack of training. ### Cross-border cooperation and information-sharing - Ability to share information and cooperate varies significantly across agencies. - FIU: - Under the FIUA, FIU is required to share information and cooperate with foreign financial intelligence units and to deal with requests for legal assistance from foreign countries, law enforcement agencies and other regulatory bodies relating to financial crimes. - FIU is active in responding to information requests from abroad. - Financial supervisors: - Circumscribed in ability to access and share information. - Central Bank (CBB) can access all bank records and share banking information with banking regulators or outside Belize; authority to share with other domestic financial supervisors is not spelled out in legislation and is presently done informally. - Insurance: similar situation to banking. - IFSC can request information from licensed service providers but its authority to share such information with others, at home or abroad, is in doubt. - Recommendation: - Gateways for information flow should be extended so that information on banking, insurance, mutual funds, managers, administrators and any other information can be transmitted to other regulatory bodies, whether in Belize or cross-border. ### Key observations and consolidated recommendations - Common themes across banking, insurance and AML/CFT assessments: - Considerable progress has been made or is in train to update the legal structure for banking and insurance supervision and to strengthen the AML/CFT regime. - Supervisory arrangements consist of a number of small, separate agencies responsible for specific subsectors of the financial system; coordination is not always effective. - FIU has been energetically launched but teething problems persist regarding overlapping or shared responsibilities with financial supervisors, law enforcement, and the courts. - Supervisory agencies are overstretched and inadequately resourced in personnel and skills. - No agency has the critical mass or autonomy needed to fully satisfy international standards, particularly for ongoing oversight. - Streamlining supervision: - Implementation of numerous specific recommendations could be more effective and less costly if supervisory structure were more streamlined. - AML/CFT requirements now apply broadly; compliance monitoring by individual supervisors is uneven. - Financial sector developments requiring supervisory adaptation include: - expansion of the credit union sector (largest association with new, broad bank-like powers), - sidelining of building societies, - proposed restructuring of DFC, - expanding activity of international banks, - anticipated launching of international insurance activities and international mutual funds, - proposed introduction of an exempt trust registry and more governmental oversight of the IBC Registry, - evolution of IFSC oversight activities. - Structural recommendations (short of single supervisor): - Central Bank should exercise current authority to conduct examinations of credit unions, at least the larger associations, as recently done for building societies, and be given similar examination authority over DFC as it is restructured. - Amendments to the BFIA under discussion should complete harmonization of regulatory requirements for domestic and international banks initiated by recent International Banking Act amendment. - Adopt arrangements for ongoing prudential regulation of international insurance and combine prudential regulation of all insurance, domestic and international, under a single supervisor. - Evolve regulatory responsibilities of the IFSC into a more statutory framework rather than current self-regulatory arrangements, with capacity for ongoing monitoring and enforcement and a clear separation of private parties’ advisory roles from regulatory decisions (model advisory relationship on Section 7 of the Mutual Funds Act). ### Basel Core Principles (BCP) assessment summary and recommended action plan - Assessment context: - Summary of assessment of compliance by Belize with the Basel Core Principles for Effective Supervision (BCP) carried out August 4-15, 2003 in the context of the IMF Offshore Financial Center (OFC) program. - Main findings: - Banking supervision complies with or is mostly compliant with most BCPs. - Minister retains discretionary authority on supervisory matters; likely to be modified if a draft bill under discussion becomes law. - Retention of qualified staff is a continuous problem; intensity of supervision varies. - Increased international banks and corporate complexity require greater attention to cross-border and consolidated supervision. - Selected recommended actions (principle and action as presented): - 1.2 Operational Independence and Adequate Resources: - Amend BFIA and IBA to reduce role of Minister in supervisory matters and have same provisions in each act. Engage further staff in BSSD and train staff through courses, visits, on-the-job and with an Advisor. - 1.4 Powers to address compliance with laws as well as safety and soundness concerns: - Amend BFIA and IBA to authorize sharing of information with domestic authorities; amend other Belize Acts to authorize other competent authorities to share with CBB. - 1.5 Legal protection for supervisors: - Amend BFIA to clarify CBB staff protection from legal action when carrying out duties. - 9 Large Exposure Limits: - Apply 6X capital limit to the aggregate of exposures over 10 percent of capital rather than exposures over 25 percent of capital. Reconsider absence of any aggregate limit on large exposures in IBA. - 10 Lending to parties related to the bank: - Amend both Acts to require connected lending be on arm’s length terms with Board approval and address limits on connected party exposure (secured and unsecured) for individual and aggregate exposures. - 11 Country Risk: - Address country risk for international banks. - 12 Market Risk: - Address market risk. - 13 Other Risks: - Separate liquidity requirements from measures designed to foster residential mortgage lending. (Directive issued April 1, 2004 deleted residential mortgages from list of approved liquid assets.) - Collect information from banks on maturities of assets and liabilities. - 14 Internal Control and Audit: - Issue circular on responsibilities of directors and internal control; foster contact with internal and external auditors. - 15 Money Laundering: - More frequent checks of banks; develop detailed questionnaire; work with FIU to strengthen guidance notes and regulations in line with Basle Committee paper on customer due diligence; periodic training for CBB staff on AML and CFT. - 16 On and Off-site Supervision: - Training and experience for examiners; review examination process for more frequent visits, possibly shorter; broaden focus beyond credit reviews. - 17 Bank Management Contact: - Contact bank management more frequently; train staff to understand banks from a banker’s point of view. - 18 Off-site Supervision: - Have banks report consolidated figures more frequently. (Reporting requirements expanded effective March 31, 2004.) - 20 Consolidated Supervision: - Develop understanding of groups that own banks, particularly international banks; understand intergroup transactions and identify risks. - 21 Accounting and Disclosure: - Publish international bank financial figures as done with local banks; amend Act if required. - 22 Remedial Measures: - Amend IBA to parallel BFIA and remove Minister from process of requiring remedial measures. - 24 Host Country Supervision: - Consider policy of no parallel banks and require banks be held by the bank within any group. (Licensing guidelines for international banks, including a requirement that banks be held by the bank within a group, were issued subsequent to the assessment.) - Authorities’ response and action plan highlights: - Authorities agree with the report and most assessments of the Basel Core Principles and will take necessary steps to implement IMF recommendations. - Central Bank strengthened Financial Sector Supervision Department; as of 10 December 2003 an IMF Technical Advisor joined the Department. - Funding obtained from the Inter-American Development Bank to strengthen banking and non-banking supervision: 1) revamping legislation and issuing regulations, 2) training bank examiners, and 3) upgrading information systems including an electronic database on all financial institutions. - Belize Action Plan (selected planned actions and timing): - 1.2: Both BFIA and IBA will be revisited; first draft expected by the end of 2004. New examiners attended courses; IMF Advisor joined FSSD. - 1.4/1.5/1.6: Proposed amendments will allow sharing of information among domestic authorities and address legal protection. - 3 Licensing: Proposed amendments will allow CBB to issue and revoke a license. - 9 Large Exposure Limits: As of June 2004, CBB will commence gathering information on exposures of 10% or greater. - 10 Lending to related parties: Addressed in proposed amendments and detailed regulations expected by end of 2004. - 11 Country Risk: To be addressed by 2005 for international banks. - 12 Market Risk: To be addressed by 2005. - 13 Other Risks: Directive issued April 1, 2004; CBB requested quarterly information on maturities of assets and liabilities commencing June 2004. - 14 Internal Control and Audit: Guidance notes/regulations for Corporate Governance and Internal Controls to be issued early 2005. - 15 Money Laundering: FIU conducted AML training in January 2004; IMF conducted a workshop in February 2004; CBB conducted AML examinations on three banks and expects to visit remaining banks by mid 2005; CBB will collaborate with FIU on guidance notes and regulations. - 16 On and Off-site Supervision: CBB continues to train FSSD staff. *Assessment prepared in the context of the IMF Offshore Financial Center (OFC) program; the banking assessment was carried out August 4-15, 2003.* ### 1.2 above and the IMF Advisor is assisting in implementing ### cr04373 - 1.2 above and the IMF Advisor is assisting in implementing ### Risk-Focused and Bank Supervision Activities - The CBB conducted its first Risk Focused Supervision in June 2004. - The IMF Advisor is assisting in implementing Risk Focused Supervision. - Bank management contact - The CBB is contacting bank management more frequently. - The IMF Advisor will train FSSD staff in understanding banks from a banker's point of view. - Off-site supervision - The CBB has requested consolidated data from the respective banks as of March 2004. - Consolidated supervision - The IMF Advisor will be conducting workshops regarding consolidated supervision. - Accounting and disclosure - The IBA does not allow the CBB to publish individual bank data. - In the interim, a letter will be sent to each bank requesting permission to place their balance sheet and income statements on CBB’s web site. - The IBA will be amended to allow the individual bank data can be published. - Remedial measures - See comment on 1.2 above. - Host country supervision - Once a bank is part of a group of investors applying for a banking license the CBB requires that the bank owns the proposed bank. ### IAIS Insurance Core Principles Assessment — Purpose and Scope - The assessment of the insurance sector was performed as part of an OFC assessment for Belize. - Main objectives: - Determine levels of observance with the International Association of Insurance Supervisors (IAIS) Principles. - Suggest areas where further development may be appropriate. - Assessment approach: - Separate assessments were necessary because domestic and international insurance are regulated and supervised under different legislation and by different authorities in Belize. - The review involved analysis of self-assessments prepared by the Belize Office of the Supervisor of Insurance and by staff of the Supervisor of International Insurance, review of insurance laws and other relevant official documents, meetings with the Acting Supervisor of Insurance and the Supervisor of International Insurance, and interviews with a number of insurance companies. ### Domestic Insurance — Market Structure and Financials - Market structure - The domestic market is very small. - There are 17 insurance firms and one association of underwriters licensed to write insurance business in Belize. - Company types: six are life insurance companies, nine are general companies, and three are composites. - Of these, one life company and one composite are closed to new business. - There are no reinsurance companies operating within Belize; Belize insurers are wholly dependent on external reinsurers for cover. - Industry financials (end of 2001) - Total assets: BZ$89.3 million. - Statutory deposits held by the Office of the Supervisor of Insurance: BZ$7.6 million (mainly as cash, deposits, defense bonds, and treasury bills). - Liabilities: BZ$55 million. - Gross written premiums: BZ$60.9 million. - Product and risk profile - Domestic insurance is largely based on traditional and relatively simple products. - Significant exposure to catastrophe losses (hurricanes); most catastrophe risk is ceded offshore through reinsurance. - Hurricane “Keith” (October 1, 2000): - Total claims arising from Keith: BZ$59.5 million. - Amount retained in Belize: BZ$7.4 million. - By December 31, 2002, all claims had been settled with no reported reinsurance non-performance. ### International Insurance — Registration and Activity - Legislative framework allows the registration of life and non-life insurers and applies substantially the same regime to re-insurers as to other insurers. - At the time of the assessment only five companies had been registered in the field of international insurance: - Two international insurers (both non-life). - Two insurance managers. - One principal insurance representative. - It was not clear that any of these were yet active. ### Supervisory Authorities and Legislation - Domestic insurance industry is regulated by the Insurance Act (Revised 2000). - The IAIS core principles assessment was prepared by Mr. Martin Roberts (Consultant, Insurance, MFD). *Source: IMF OFC assessment for Belize.* ### Chapter 251 (Revised 2000) provides for administration of the Act by the Supervisor of ### Chapter 251 (Revised 2000) provides for administration of the Act by the Supervisor of Insurance ### Institutional framework and supervisory resources - Chapter 251 (Revised 2000) provides for administration of the Act by the Supervisor of Insurance under the direction of the Minister. - The Supervisor of Insurance is responsible for the registration and supervision of the domestic insurance industry. - The office was created by the 1976 Insurance Act; the post of Supervisor of Insurance became a full time post in 2000. - The present Acting Supervisor was appointed in 2000; she had worked full time on insurance matters since 1998, and part time since 1992. - The 1999 International Insurance Act governs offshore insurance business and allows appointment of a Supervisor of International Insurance who: - Operates under the aegis of the International Financial Services Commission (IFSC) and, as Director General, is a member of the IFSC. - Is supported by one assistant and both have secretarial support. - Neither the International Insurance Supervisor nor his assistant work full time on insurance matters; the Supervisor estimates insurance work accounts for about 25 percent of their time. - Neither has specialist insurance expertise; both are qualified lawyers. ### General preconditions for effective supervision - Belize is politically stable, with a two party Parliamentary system of Government on the Westminster model and a well established, independent, judiciary. - Traditions of public disclosure of corporate financial information are not yet well established—insurance accounts provided to the Office of Insurance Supervision are publicly obtainable on payment of a fee. - Insurance expertise in Belize is limited—the industry is not large enough to support specialist auditors and there are no actuaries practicing in Belize. - There are no guarantee fund arrangements to protect policyholders in the event of an insurance company failure; the Office of the Supervisor of Insurers holds statutory deposits which may be used to meet claims in the event of default. - Conclusion: against the background of a relatively small, highly traditional domestic industry and an as yet undeveloped international industry, the essential preconditions for effective supervision are met. ### Main findings — domestic market - Legislation: - The legislation governing licensing and on-going supervision is deficient in a number of respects; new legislation has been drafted and published and will be introduced into parliament shortly. (A new Insurance Act was enacted in March 2004, subsequent to the drafting of this report.) - Resourcing and supervisory practice: - The Office of the Supervisor of Insurance is not well resourced; reinforcement is desirable to allow a program of regular on-site inspections and additional analysis of companies’ gross and net exposures and reinsurance protections. - The Supervisor has regular informal contacts with the industry and undertakes systematic analysis of annual financial returns and more limited quarterly financial data. - New product particulars are considered by the Supervisor before market introduction. - A requirement that insurance intermediaries be registered has recently been introduced, allowing removal of intermediaries who do not meet appropriate standards. - Overall, supervision of the domestic market is generally “fit for purpose” given its size and stage of development, though improvements and increased resources would be desirable. - Principle-by-principle findings (IAIS Core Principles) — selected highlights: - Organization of insurance supervisor CP 1 (domestic): - Current powers are inadequate, particularly for immediate action in urgent cases. - No legal protection is provided to the Supervisor or the Staff of the Supervisor’s office. (Deficiencies are addressed in the Insurance Act passed in March 2004.) - The Office lacks resources for regular on-site inspections and comprehensive financial analysis. - Licensing and changes in control CPs 2–3 (domestic): - Current legislation: does not address fitness and propriety; does not prohibit licensing of composite insurers; does not give adequate powers for changes in control; does not provide for sharing information with other supervisory authorities. (Shortcomings are addressed in the new Insurance Act.) - Corporate governance and internal controls CPs 4–5 (domestic): - In absence of detailed corporate governance rules under general company law, the Supervisor should set standards and monitor compliance; more attention needed to internal controls. - Prudential rules CPs 6–10 (domestic): - Regulations limit admissibility of assets for solvency purposes; desirable to expand guidance and require insurers to submit investment policy details. - Requirement that companies writing long-term business conduct a quinquennial actuarial valuation is inadequate; should be an actuarial review at least every three years. (A requirement for a three year actuarial review has been included in the new Act.) - Market conduct CP 11 (domestic): - Comprehensive rules are in place but could be supplemented by guidance; consider more pro-active monitoring of intermediaries. - Monitoring, inspection, and sanctions CPs 12–14 (domestic): - Current resources do not allow regular on-site inspections or detailed analysis of reinsurance arrangements; sanctions are limited and there is no power for immediate action in urgent cases. (Addressed in new Insurance Act.) - Cross-border coordination CPs 15–17 (domestic): - The Acting Supervisor has established a good network of international contacts but current legislation does not facilitate international cooperation and information sharing. (Addressed in the new Insurance Act.) ### Main findings — international market (IFSC/International Insurance) - Development stage and legislative framework: - Both the industry and the supervisory regime are at a very early stage of development. - The IFSC has put in place most of the necessary legislative framework and made progress on subordinate legislation, guidance and codes of conduct; significant gaps remain. - Effective due diligence arrangements exist for registration applicants. - Resource and technical concerns: - Major concern: lack of technical insurance resources within the IFSC. - The Supervisor relies on outside consultants to analyze business plans, financial projections, and proposed reinsurance protections required for registration. - The Supervisor is not in a position to undertake ongoing financial monitoring or on-site inspections. - Recruitment of a specialist team would raise significant cost/benefit issues given current industry activity; the action plan suggests cost-effective approaches (including outsourcing) to address this. - Principle-by-principle findings (IAIS Core Principles) — selected highlights: - Organization CP 1 (international): serious problem in lack of technical insurance skills. - Licensing and changes in control CPs 2–3 (international): lack of technical skills hinders assessment of registration applications; changes of control do not require prior approval (only post-event notification); no procedures in place for changes in control. - Corporate governance and internal controls CPs 4–5 (international): legislation permits attaching conditions to registration (including internal controls) but no policy or procedures have been developed; licenses issued have not contained significant internal control conditions. - Prudential rules CPs 6–10 (international): regulations limit admissibility of assets for solvency purposes but not for liability determination (subject only to accepted accounting and actuarial practice); legislation provides for specified solvency margins; desirable to supplement rules on diversification, asset/liability matching, liquidity, and to consider more risk-sensitive solvency requirements. - Market conduct CP 11 (international): reasonably comprehensive rules in place; consider more pro-active monitoring of compliance. - Monitoring, inspection, and sanctions CPs 12–14 (international): lack of technical expertise prevents effective financial monitoring; supervisor relies on certification by auditors and independent actuaries; unclear whether adequate powers exist for routine on-site inspections; appropriate sanctions exist but no power for immediate action in urgent cases. - Cross-border CPs 15–17 (international): appropriate legislative provisions exist; supervisor should establish closer relations with other insurance supervisory authorities and participate more in international bodies and training. ### Recommended action plan — selected recommendations - Domestic insurance (high-level): - Organization (CP 1): - Need more effective powers, legal protection, and additional resources—primarily to allow more intensive supervision, on-site inspections, and systematic evaluation of gross exposures, retention levels and reinsurance protections. - Enactment of the Insurance Bill will address legal issues. - Hire at least two experienced staff to design and implement an on-site inspection program; involve the Acting Supervisor in staff selection. - Staff training on reinsurance issues; issue guidance to industry on supervisory expectations and standards (IFSC “Practitioners Code” a model). - Licensing and Changes in Control (CPs 2–3): - Include application forms in Insurance (Account and Form) Regulations; provide definition of “fit and proper” in law; require prior regulatory consent before changes of control. (The Insurance Act addresses changes in control.) - Corporate Governance and Internal Controls (CPs 4–5): - Issue guidance notes requiring Boards to address corporate governance principles and internal controls; consider requiring auditors to report annually on systems and controls. - Prudential Rules (CPs 6–10): - Consider reducing the six month period allowed for submission of returns (the new Act changed the six month period to four months). - Change actuarial valuation requirement for long-term business from quinquennial to triennial; allow the Supervisor to appoint an independent actuary at company expense. (The new Act changed the actuarial review period from five years to three years.) - Require insurers to submit additional details of reinsurance arrangements and reinsurers; perform full analysis of reinsurance programs and per risk maximum retention relative to capital and surplus. - Market Conduct (CP 11): - Review regulatory practices for intermediaries to determine how to monitor compliance effectively. - Monitoring, Inspection, and Sanctions (CPs 12–14): - Develop a fully documented on-site program and comprehensive inspection manual including anti-money laundering procedures, compliance and internal control issues, underwriting and claims practices, reinsurance, accounting, corporate governance, capital adequacy and investment management. - Develop guidance requiring companies to describe their investment policy when filing annual returns. - International insurance (selected): - Organization (CP 1): - Urgently acquire resources to understand and assess complex insurance operations, business plans, reinsurance programs, and to carry out on-site inspections. - In short term, consider outsourcing assessments to experienced insurance experts; IFSC should have at least one staff member with necessary financial skills to act as an “intelligent customer.” - Ensure any outsourced advisor is accountable solely to the IFSC and has no connection with the companies they advise. - Licensing and Changes in Control (CPs 2–3): - Review minimum paid up share capital requirements and align with domestic requirements in the new Insurance Act. - Subject reinsurers to same requirements as insurers. - Require prior consent by the Supervisor for changes in control and establish procedures for this. - Corporate Governance and Internal Controls (CPs 4–5): - Issue guidance on corporate governance standards and expectations for systems and controls (including controls over downside risks from derivatives); consider auditor reporting on adequacy of systems and controls. - Prudential Rules (CPs 6–10): - IFSC should complete legislative framework under Section 39 of the International Insurance Act, including regulations governing valuation of liabilities and the form and content of accounts and statements to be submitted. - Extend asset valuation regulations to cover diversification, asset/liability matching and liquidity; issue guidance on disallowing assets for solvency purposes and consider greater risk sensitivity in solvency regime. - Monitoring, Inspection, and Sanctions (CPs 12–14): - Provide powers allowing the Supervisor to take immediate action in urgent cases; review adequacy of powers to undertake or commission routine on-site inspections where appointing an inspector is not otherwise justified. - Cross-Border Operations and Confidentiality (CPs 15–17): - Take a more active part in relevant international bodies; consider extending confidentiality protection to all information provided by another supervisory authority without need for a specific request. ### Response by the Belize authorities - The Belize authorities appreciate the IMF assessment and have initiatives underway to respond. - An Insurance Act was enacted in March 2004 with key features: - Provisions for legal protection of the Supervisor of Insurance (SOI) in exercise of his/her duty and provision of adequate funds for OSI present operations and expanded functions. - Regulations provide for guidelines to be issued in respect of business plans; OSI implemented Biographical Affidavits (including Police Report) and issued Guidelines for Business Plans required for registration application. - Fit & proper criteria and changes in control are included in the Insurance Bill. - Provision for triennial actuarial evaluation and power for SOI to request evaluations at shorter intervals on a case by case basis. - Provisions for sanctions through administrative penalties and summary conviction; SOI will have power to take quick and effective enforcement actions. - Under existing legislation, OSI can issue guidelines on corporate governance and internal controls; OSI intends to issue standard operations guidelines using the IAIS model and will enforce them where appropriate. - OSI has engaged CARTAC for technical assistance and training for OSI staff, especially in reinsurance and on-site inspection; an onsite inspection of insurance agents is planned for the summer. *IMF assessment* ### 2004. In addition, examinations for intermediaries are contemplated and the ### cr04373 - 2004 ### Examinations for intermediaries - "In addition, examinations for intermediaries are contemplated and the administration/grading of the examination are being discussed by the industry and OSI." - Administration/grading of the examination is under discussion between the industry and OSI. - Timeline reference: 2004. ### FATF Recommendations—Anti-Money Laundering and Combating the Finance of Terrorism (AML/CFT) - Section heading: "C. FATF Recommendations--Anti-Money Laundering and Combating the Finance of Terrorism (AML/CFT)" - Page marker: "- 45 -" *cr04373 - 2004* ### Introduction ### cr04373 - Introduction ### Preparation, authorship, and methodology - The Report on the Observance of Standards and Codes for the FATF 40 Recommendations for Anti-Money Laundering and 8 Special Recommendations on Terrorist Financing of Terrorism was prepared by a team composed of staff of the International Monetary Fund experts under the supervision of Fund staff, and another expert not under the supervision of Fund and Bank staff selected from a roster of experts in the assessment of criminal law enforcement and non-prudentially regulated financial activities. - The assessment is based on the 2002 Methodology for Assessing Compliance with Anti-Money Laundering and Combating the Financing of Terrorism (Final Version, October 2002). - The assessment was completed on August 14, 2003. - The views expressed are those of the assessment team and do not necessarily reflect the views of the government of Belize or the Board of the IMF. - The assessment team included named experts responsible for banking supervision, BCPs, insurance, legal aspects, criminal justice elements, and supervisory/preventive measures. ### Information sources and scope - Fund staff and an expert under Fund supervision reviewed AML/CFT laws and regulations, supervisory and regulatory systems for prudentially regulated financial institutions, and the framework for Offshore Mutual Funds and International Financial Services; the domestic securities sector was not reviewed because it was not macro-relevant. - Regulatory systems for macro-relevant non-prudentially regulated sectors reviewed: trust and company service providers, credit unions and casa de cambios. - A separate expert not under Fund supervision reviewed criminal law enforcement capacity and implementation. ### Main findings: legislative and regulatory framework - Belize enacted the FIU Act in 2002, amended the Money Laundering Prevention Act (MLPA), and amended the International Banking Act in 2002, strengthening the AML/CFT regime. - The FIU has responsibility for collecting information from domestic financial institutions and sharing that information with overseas authorities; it intends to issue updated guidance notes. - The Central Bank of Belize has been undertaking AML onsite inspections. The acting Superintendent of Insurance (“SOI”) has commenced onsite visits utilizing insurance-specific criteria from the Bank/Fund Methodology. - Deficiencies identified: - Provisions regarding freezing of proceeds of predicate offences are not available and weaken the overall structure. - No mutual assistance legislation providing an additional gateway for assistance. - Limited provisions for regulatory authorities to share information for regulatory or criminal enquiries. - MLPR and the Notes need updating; guidance notes need strengthening in multiple areas including CFT standards, verification of true identity of customers and beneficial owners, standards for introduced business, record-keeping specifics (what, how long, where), staff training scope and level, employee screening, recognition and reporting of suspicious transactions, and group practice. - The IFSC will be required to update the IFSCR; the Central Bank and two insurance supervisory bodies have separate responsibilities to issue sector-specific AML guidance. ### Institutional coordination, resources, and vulnerabilities - The FIU is vested with broad powers of investigation and prosecution and is the Supervisory Authority under the MLPA and MLPR; it is responsible for issuing AML/CFT guidance and training requirements. Clear policy decisions on the role of the FIU are recommended due to confusion arising from its broad authority. - The FIU’s mandate to “ensure coordination and cooperation between law enforcement agencies, government departments, regulatory authorities, private institutions and members of relevant professions in evolving methods and policies to prevent and suppress financial crimes” and its authority to conduct prosecutions imply substantial coordination and resource needs. - The FIU became operational in December 2002; at the time of assessment it had four professional staff, but given its responsibilities more than four professional staff will be required. - Financial products susceptible to abuse identified: asset protection trusts, international mutual funds, and IBCs where business purpose and ultimate beneficial owner may not be known to the local Belizean administrator. Strengthened customer due diligence, on-site monitoring and staff training in local FIs are required. ### Criminal justice measures and international cooperation - Money laundering is criminalized as an indictable offence, extends to proceeds of criminal conduct for crimes that are listed offences, and is consistent with definitions in the Vienna Convention and the FATF 40 Recommendations. The list of predicate offences should be broadened. - Terrorist financing (FT) is not criminalized, although terrorism is criminalized; the assessment recommends criminalizing FT and making FT a predicate offence for ML. - Recommendation to ratify the UN Convention against Transnational Organized Crime (Palermo Convention) and the 1999 International Convention on the Suppression of Financing of Terrorism. - Confiscation and freezing: - The MLPA allows freezing and seizure of proceeds of a ML conviction but does not allow confiscation of proceeds of crime from predicate offences or FT. - To confiscate proceeds from a predicate offence, sections 106 and 107 of the Summary Jurisdiction Procedure Act and Sections 182–186 of the Indictable Offences Act must be used. These provisions cannot be used for FT as FT is not criminalized. - Therefore, freezing of terrorist funds is possible but confiscation of funds used to finance terrorism is not possible; freezing funds from predicate offences is also not possible. Provisions should be enacted to permit such freezing/confiscation. - Training and awareness: - Some training and awareness on ML/FT issues has been provided to a limited section of law enforcement officials. - Ongoing training for administrative, investigative, prosecutorial, and judicial authorities is lacking; seminars on use and enforcement of ML/FT legislation are urgently needed for large sections of administrative and law enforcement agencies, the DPP’s office, Judges and magistrates. - Customs, Defense Force and Immigration need greater sensitization on ML/FT and cross border movements of cash and monetary instruments. ### The FIU: functions, statistics, and operational issues - The FIU was established in September 2002 and became operational in December 2002. - Mandate and powers: - The FIU is mandated to receive suspicious transaction reports (STRs) but not explicitly mandated to analyze them in its authorizing legislation; Section 12(2) of the FIUA allows the Director to impart information obtained under the MLPA or the FIUA to an agency in Belize or abroad “such information, as may appear to him to be necessary to assist an investigation or prosecution of a money laundering or other financial crime.” - The Director may request information from any financial institution in furtherance of an investigation being carried out either in Belize or elsewhere. - The broad scope of the FIU authority has led to confusion in the regulatory and financial communities; clear policy decisions on the role of the FIU are recommended. - Operational statistics and effectiveness: - The FIU maintains statistics of received, analyzed and disseminated STRs and is acquiring software to store data electronically. - STRs up to the time of assessment had not resulted in prosecution and conviction. - Prior to the FIU, STRs were received by the Central Bank and sent to Belize Defense Force for investigations; BPD and the FIU kept statistics on received and investigated STRs prior to the establishment of the FIU (November 2002). - The FIU maintains statistics on domestic and foreign requests for assistance. ### Law enforcement, prosecution, mutual assistance, and supervisory measures - Jurisdiction and coordination: - In practice ML/FT matters are now within FIU jurisdiction, causing confusion about which agency has jurisdiction over which matters. Law enforcement executing warrants under the Criminal Code relies in practice on the FIU to obtain records from FIs. - Planned arrangements to have the FIU investigate and prosecute ML (and later FT) matters while the DPP prosecutes the underlying predicate offence would risk confusion, inefficiency and overlapping jurisdiction; stronger permanent cooperation and information exchange among law enforcement entities is recommended. - Mutual legal assistance and extradition: - There is no specific mutual legal assistance act; enactment of such a law is recommended. - A 2002 amendment to the MLPA removed the requirement for a treaty for mutual legal assistance in ML matters, leaving the law silent on whether mutual assistance can be rendered generally. - Belize has executed a bilateral MLAT with the United States and continues to be party to Extradition Treaties signed by the United Kingdom on Belize’s behalf before independence on a successor basis. - Supervisory expectations and on-site work: - Authorities have implemented standards set out in the MLPA, MLPR, IFSC (Code of Conduct) Regulations and the Money Laundering (Prevention) Guidance Notes. - Central Bank of Belize and Office of the Supervisor of Insurance conduct onsite visits to supervised institutions; the IFS Commissioner should commence onsite visits to international financial services practitioners. - The framework needs strengthened standards on customer identification, ongoing monitoring of accounts and transactions, record keeping, suspicious transaction reporting, internal controls, compliance and audit. ### Summary assessment and recommended actions - Progress noted: - Belize has made significant progress towards compliance with many FATF Recommendations and the 8 Special Recommendations on Terrorist Financing. Recent additions include establishment of the FIU and amendments to the MLPA to include freezing provisions and provisions criminalizing both terrorism and the financing of terrorism. Belize has ratified the UN Convention for the Suppression of the Financing of Terrorism. - Further enhancements recommended (selected highlights preserved verbatim where applicable): - Introduce legislation to allow for the freezing of assets from economic crime and predicate offences. - Create exchange of information through regulatory gateways. - Require identification of customers of financial institutions by an official document. - Require filing of an STR for suspicious transactions involving FT. - Ratify the Palermo Convention and enact a mutual legal assistance act. - Ensure the FIU’s mechanisms and role are clearly defined so it can ensure coordination and cooperation among law enforcement agencies, government departments, regulatory authorities, private institutions and members of relevant professions. - Provide additional resources and training for the developing AML/CFT system and financial regulation. ### Recommended Action Plan highlights (selected FATF items and actions) - General framework (FATF 1-3): - Sign and ratify the Palermo Convention. - Ratify the 1999 International Convention on the Suppression of Financing of Terrorism. - Amend the definition of ML to include omissions as well as “acquires, converts or uses” property that is the proceeds of crime. - Criminalize FT. - Expand the list of predicate offences or take an all crimes approach to predicate offences. - Expand range of sanctions across regulatory legislation (detailed list provided in the Report). - Provisional measures and confiscation (FATF 7): - Amend legislation to allow freezing of proceeds of crime generally rather than merely proceeds from a ML or FT offence. - Consider allowing inference that assets acquired before commission of the offense are proceeds of crime where no other economic explanation exists. - Amend Section 7 of the MLPA to make disclosure of monitoring/production orders an offence. - Consider creating an asset forfeiture fund and consider asset sharing with other countries regarding ML/FT seizures. - Customer identification and record-keeping (FATF 10-13): - Amend MLPA and Notes to expressly prohibit anonymous accounts or accounts in fictitious names. - Require all customers to be identified on the basis of an official document; access to identification documentation should be available immediately. - Strengthen verification requirements for corporations; address numbered accounts; require verification of true identity of customers. - Require that relevant records be maintained in Belize and account files and correspondence be maintained for at least five years following termination of account or business relationship. - STRs, enhanced diligence, and reporting (FATF 14-19): - Amend MLPA to require STRs for suspicious transactions involving FT and to require STRs be made in writing. - Establish a test of “ought reasonably to have known” for liability to file STRs instead of the current test of willfulness. - Amend MLPR and the Notes to require written findings on complex, unusual large transactions or unusual patterns of transactions with no apparent lawful purpose. - Measures for foreign branches/insufficient jurisdictions (FATF 20-21): - Amend MLPR, IFSCR and Notes to require FIs to ensure foreign branches/subsidiaries observe appropriate AML/CFT measures consistent with home jurisdiction to the extent local laws permit and to inform home supervisors when local measures cannot be observed. - Require heightened attention to business relations and transactions with persons in jurisdictions without adequate AML/CFT systems. - Implementation and regulatory authorities (FATF 26-29, 32, 33-40): - FIU to issue guidelines on identification of complex or unusual transactions. - Widen fit and proper test for criminal records to include all significant crimes across controllers, directors and managers. - Conduct onsite inspections across the entire regulated industry. - Amend legislation to permit cooperation and exchange of AML/CFT information among Belizean competent authorities. - Enact a law providing for the widest possible range of mutual assistance for AML/CFT and predicate offences, with detailed procedures for requests. - Ensure law enforcement authorities can share information with counterparts beyond Interpol. ### Other recommended actions (selected) - FIU specific: - Introduce specific language in authorizing legislation mandating the FIU to analyze as well as receive STRs. - Consider whether police commissioner power to appoint police officers to the FIU conflicts with FIU independence. - Subject auditors and regulatory authorities to STR filing requirements when they discover suspicious transactions during inspections. - Issue guidelines regarding identification of complex or unusual transactions. - Authorities’ response summary: - The Belize government is strongly committed to implementing a robust AML/CFT regime; it welcomed the comprehensive IMF assessment and concurs with almost all recommendations in the suggested action plan and will take steps to implement them. - Since the assessment mission, further extensive training has been provided to the financial sector, including Fund-provided training for financial supervisors. The IMF will organize specialized training for insurance supervisors later in the year. - The authorities have requested IMF technical assistance in drafting legislative amendments in accordance with the revised FATF 40+8 Recommendations and other conventions and UN Resolution; the Fund has indicated willingness to support this work. - For some recommendations the authorities believe administrative measures may satisfy the objective without revised legislation (example: FIU analytical function and staffing secondments), and they intend bilateral discussions for staffing arrangements. --- _Source: https://www.imf.org/-/media/files/publications/ofca/english/cr04373.pdf_