Puerto Rico gov proposes amendments to financial regulatory laws
Puerto Rico Gov. Pedro Pierluisi and Financial Institutions Commissioner Natalia Zequeira announced a proposal to amend the International Financial Center Regulatory Act (Act 273-2012) and the International Banking Center Regulatory Act (Act 52-1989), stating that the laws need to be updated to align with the current economic situation and regulatory framework.
At a roundtable with business reporters, Pierluisi said he would send two legislative bills Tuesday afternoon to amend the International Banking Center Regulatory Act (Act 52-1989 and the International Financial Center Regulatory Act (Act 273-2012 ). The goal is to modernize and strengthen both laws, making them more effective, resilient and better prepared to face market changes.
The bills, he said, aim to ensure that international banking and financial entities operating under these acts do so in a solvent, competitive and responsible manner, contributing to the island’s economic growth.
“In general terms, the operation of the International Banking Center and the International Financial Center of Puerto Rico and their international banks and financial entities have benefited Puerto Rico’s economic development,” Pierluisi said. “However, after decades of establishment, and to responsibly address the compliance of international banks and financial institutions with the laws and regulations that govern them, it is essential to strengthen the current regulatory and oversight framework in accordance with current needs.”
More specifically, the governor explained the necessity to amend acts 52-1989 and 273-2012 to increase compliance with anti-money laundering laws and empower the Office of the Commissioner of Financial Institutions (OCIF) to deny a permit or license when the outcome of an investigation leads to the conclusion “that the financial responsibility, experience, character, and general aptitude of the proponent do not provide confidence nor allow them to determine that the proponent will operate the international financial entity in an honest, fair, and efficient manner to achieve the purposes of the law.”
Among the provisions in the legislative bills are significant increases in minimum capital requirements and higher application fees for organizing or operating an international financial institution. The bills also clarify that proponents are responsible for research expenses and expand the research scope to include shareholders’ and owners’ economic capacity.
Additionally, the legislation mandates the hiring of independent directors, increases line of credit requirements, and doubles the minimum employee requirement. The bills also introduce higher fees for obtaining and renewing licenses, include insolvency as grounds for license renewal refusal, and grant the OCIF commissioner expanded authority to deny applications when any shareholder, director or proponent has been convicted of felony, fraud, money laundering, moral turpitude, tax evasion or other offenses.
“In the past few months, we have shown that we have not hesitated when having to fully comply with our duty as a regulator to enforce existing OCIF laws and regulations to protect international banks and financial institutions, their depositors and, ultimately, the soundness and reputation of Puerto Rico’s financial system,” Zequeira said. “Precisely for this reason, we welcome these changes that will facilitate and strengthen our oversight capacity in the investigation process for licensing and other instances, which is essential to ensure that the entities entering the market are financially and economically robust so they can carry out their business more solvently, solidly, competitively and responsibly.”
Zequeira said that these measures will strengthen OCIF by providing it with more robust oversight tools.
Zequeira explained that the minimum capital requirements for these institutions will increase from $250,000 to $10 million, with a five-year transition period. Application charges will significantly rise from $5,000 to $25,000, and investigation charges will also increase from $5,000 to $25,000. Licensing charges, applicable only to international financial entities (IFEs), will consist of a $1 million one-time fee and an annual $100,000 renewal fee. Additionally, the banking guarantee will increase from $300,000 to $2.5 million, with a five-year transition period, she said.
“These amendments are aimed at being able to carry out more robust investigations of the institution’s proponents, be able to look at their profiles, their business and financial profiles to ensure that they have the financial capacity to set up a bank,” the commissioner said. “And also, to determine the source of funds, where the bank’s capital comes from. In addition, the licensing charges are being increased to serve as a deterrent for those institutions that operate as shell banks, meaning institutions that have their license but have never operated.”
The International Financial Center Regulatory Act provides tax exemptions to businesses engaged in eligible activities in Puerto Rico. To benefit from these exemptions, a business needs to become an IFE by applying for a permit and license and obtaining a tax decree.
