Government to KPMG's Review of Financial Regulations, Royal Gazette Business reporter Sue Stuart files the third of a series of articles. Today she examines the fiduciary sector -- companies, trusts and partnerships. Tomorrow she looks at regulation, international cooperation and money laudering prevention.

Bermuda's long-standing policy of vetting beneficial owners of companies has helped the Island to retain its reputation as a clean jurisdiction over the years, unlike some other offshore jurisdictions which have been continuously in the media with scandal after scandal.

In spite of this, KPMG still found some areas of company business that appeared to need further attention.

KPMG felt that "all public and publicly quoted companies should be required to prepare and submit annual audited accounts to the Registrar.'' But Government sees no value in this, as there is no such international standard, and public companies are already required to prepare audited accounts.

Government rejects the suggestion corporate service providers should notify changes in beneficial ownership of shares registered as this would duplicate existing procedures, but said the system of identity checks for beneficial owners is under regular review.

"Provision should be made in legislation for the disqualification, by the courts, of directors who are not fit to be involved in the management of a company,'' is one of the recommendations. Government is looking at this as part of a review of due diligence under the Companies Act.

KPMG said, "We recommend there should be a requirement that, as with beneficial owners, there should (be a requirement) for a company to file details of its directors and they should be subject to a similar vetting process.'' Because of the strict controls existing for company incorporations Government feels there is no need for directors to be vetted. However the question of a code of conduct with legal force for directors is being reviewed with the business sector.

The suggestion that directors names should be available to the public at the registry has also been rejected by Government as they are already available for public scrutiny at a company's registered office.

The comment, "We consider that insolvency and winding up provisions in the Act are inadequate,'' has been met by the fact that the Law Reform Subcommittee is preparing a report on this for review during this Parliamentary session.

KPMG recommends greater scrutiny of Island's fiduciary sector KPMG had several recommendations regarding corporate service providers, often a weak link in regulation in other countries. The review asked for company formation and corporate service provider work to be covered by the `know your customer' rules, compliance with these regulations to be independently verified and a licensing regime for corporate service providers.

All these points are addressed in the consultative paper already issued by the finance ministry, about which comments are due back from the industry by the end of this month.

This same paper also deals with the recommendations that servicers of limited partnerships should be subject to `know your customer' and that service providers should be licenced or the service restricted to lawyers.

KPMG said it should be possible for the courts to appoint an inspector of a limited partnership, but Government points out there is already provision for this in the Limited Partnerships Act.

Government also rejects the proposal that all non-Bermudian partners should be vetted by the BMA, seeing negligible practical value in it as such a person is already subject to Immigration Act control.

The review said, "We consider that private trust companies should be subject to regulation under the Trust Company Act.'' A consultative paper has been prepared on this and will be followed by amendments to existing legislation.

Government does not see any need to license private companies that are not doing business with the public.

The recommendation that the BMA should be the licensing body for trust companies and have enforcement powers is also addressed in the consultative paper, as is the recommendation to clarify the criteria used in the application process.

The fact the BMA does not currently carry out on site inspections of trust companies means "ongoing supervision fails to accord with good practice,'' said KPMG. Government agrees regulators must have access to all information required for effective supervision and have covered this in the consultative paper.

The paper also addresses the recommendations of providing regulatory consent for changes to beneficial ownership, differentiated capital, reporting requirements, regulation making powers, enforcement powers and additional audit reports.

The introduction of code of practice guidelines for trust service providers has been agreed by Government and is in the currently circulating consultative paper. Government has also agreed, but is considering which method to use to ensure trust company regulations specify due diligence and documentation standards required.

KPMG would like to see the BMA issuing good practice guidelines and being given the power to require an applicant or a licensee, under the Trust Companies Act, to maintain a higher level of capital when circumstances justify it.

Both of these points are being considered in the context of the consultative paper, which will later on move to legislative amendments.