Puerto Rico’s International Banking Reforms: Strengthening the Financial Hub in 2024 and 2025

Puerto Rico has long positioned itself as a premier destination for international banking, leveraging its status as a U.S. territory to offer a unique blend of tax incentives, regulatory flexibility, and access to the U.S. financial system. The island’s international banking framework, initially established by Act No. 52 of 1989 (the International Banking Entity Act) and expanded by Act No. 273 of 2012 (the International Financial Entity Act), has undergone significant reforms in 2024 and 2025. These amendments aim to modernize the sector, enhance regulatory oversight, and align Puerto Rico with global financial standards while maintaining its competitive edge. This article examines the key changes introduced in 2024 and 2025, their implications for International Banking Entities (IBEs) and International Financial Entities (IFEs), and the broader impact on Puerto Rico’s economy.

The 2024 Reforms: Bolstering Stability and Compliance

In February 2024, Puerto Rico’s government, under Governor Pedro Pierluisi, enacted House Bills No. 1699 and No. 1700, resulting in Acts No. 44-2024 and No. 45-2024. These laws amended the International Financial Center Regulatory Act (Act 273-2012) and the International Banking Center Regulatory Act (Act 52-1989), respectively. The reforms were driven by the need to strengthen the financial sector’s resilience, ensure compliance with international anti-money laundering (AML) and Know Your Customer (KYC) standards, and address concerns about undercapitalized institutions. The Office of the Commissioner of Financial Institutions (OCIF) played a pivotal role in shaping these changes, emphasizing the importance of a robust and competitive financial ecosystem.

Key Changes in 2024

• Increased Capital Requirements: One of the most significant changes was the increase in minimum paid-in capital for both IFEs and IBEs to $10 million, up from $5 million for IFEs and lower thresholds for IBEs. Existing entities were given a staggered timeline to meet this requirement, while new IFEs must have the full amount at licensing. Additionally, entities must maintain unencumbered assets in Puerto Rico, starting at $500,000 in 2024 and increasing to $1.5 million by 2027-2028. These measures ensure financial stability and deter undercapitalized operations.
• Enhanced AML/KYC Protocols: The amendments mandated stricter compliance with AML and KYC regulations, aligning with Financial Action Task Force (FATF) standards. IFEs and IBEs must now implement robust reporting systems for suspicious transactions and conduct enhanced due diligence for high-risk clients, reflecting global efforts to combat financial crime.
• Workforce and Governance Requirements: Both IFEs and IBEs are required to employ at least eight full-time staff in Puerto Rico, doubling the previous requirement. Additionally, entities must appoint an independent director with no financial or familial ties to the organization, ensuring impartial oversight. IFEs must also maintain a fully autonomous compliance department with a dedicated officer.
• Fee Adjustments: The application fee for new IFE licenses increased from $5,000 to $50,000, and annual license renewal fees rose to $25,000, with an additional $5,000 per branch. These changes aim to filter out less serious applicants and fund enhanced regulatory oversight.
• Support for Digital Innovation: Recognizing the growing role of fintech, the 2024 amendments allowed IFEs and IBEs to act as custodians for virtual assets, such as cryptocurrencies, with prior OCIF approval. This move positions Puerto Rico as a forward-thinking jurisdiction for digital finance.

Impact of the 2024 Reforms

The 2024 reforms marked a shift toward a more professionalized international banking sector. The increased capital requirements and stricter compliance protocols have raised the barrier to entry, ensuring that only well-capitalized and compliant entities operate in Puerto Rico. The focus on local employment and physical presence reinforces the sector’s contribution to the island’s economy, while the embrace of digital assets signals Puerto Rico’s ambition to remain a leader in financial innovation. However, the higher costs and regulatory burden have sparked concerns among smaller IFEs, some of which may struggle to meet the new standards, potentially leading to market consolidation.

The 2025 Reforms: Streamlining and Sustaining Growth

Building on the 2024 amendments, Puerto Rico introduced further refinements in 2025, with the release of Regulation No. 9680 on July 22, 2025, effective August 21, 2025. This regulation consolidated and updated the regulatory framework for IFEs and IBEs, streamlining processes and emphasizing sustainability. The 2025 reforms reflect Puerto Rico’s response to both domestic economic needs and global regulatory pressures, ensuring the island remains a competitive and reputable financial hub.

Key Changes in 2025

• Streamlined Licensing Process: The 2025 reforms introduced an online portal for IFE and IBE license applications and renewals, reducing bureaucratic delays. The timeline for obtaining a license remains 6-9 months, but the streamlined process aims to improve efficiency and transparency.
• Tax Incentive Adjustments: While the 4% fixed income tax rate for IFEs was retained, new caps were placed on certain tax exemptions to balance revenue generation with incentives. A tiered tax structure was proposed for highly profitable IFEs, ensuring that the most successful entities contribute more to Puerto Rico’s treasury.
• Sustainability Initiatives: The reforms encouraged IFEs to invest in sustainable finance, such as green bonds and environmental, social, and governance (ESG) projects. Incentives were introduced for entities financing local infrastructure and renewable energy, aligning with global trends toward responsible banking.
• Enhanced Reporting Requirements: IFEs and IBEs must now submit annual reports detailing their economic contributions, including job creation and local investments. These reports aim to quantify the sector’s impact on Puerto Rico’s economy and ensure accountability.
• Ownership and Control Restrictions: The 2025 reforms tightened rules on share transfers, requiring OCIF approval for any transfer of capital, regardless of the percentage. Transfers involving 10% or more of ownership incur a $50,000 fee, ensuring thorough vetting of new stakeholders.

Impact of the 2025 Reforms

The 2025 reforms have solidified Puerto Rico’s position as a professionalized international banking hub. The streamlined licensing process and focus on digital infrastructure have made the island more attractive to fintech startups and established institutions alike. The emphasis on sustainability aligns Puerto Rico with global financial trends, potentially attracting socially conscious investors. However, the increased reporting requirements and ownership restrictions may pose challenges for smaller entities, further driving consolidation. The U.S. Department of the Treasury’s decision to remove Puerto Rico’s IFEs and IBEs from its list of high-risk jurisdictions for AML/CFT in 2025 reflects the success of these reforms in enhancing the island’s reputation.

Broader Implications and Future Outlook

The 2024 and 2025 reforms have transformed Puerto Rico’s international banking sector into a more robust and competitive ecosystem. By raising capital requirements, strengthening compliance, and embracing digital and sustainable finance, Puerto Rico has addressed criticisms about transparency while maintaining its appeal as a low-tax jurisdiction. The 4% tax rate, exemption from U.S. federal income tax, and access to Fedwire continue to set Puerto Rico apart from competitors like the Cayman Islands and Bermuda.

Economic and Global Impact

The reforms have bolstered Puerto Rico’s economy by increasing local employment and investment. The requirement for eight full-time employees and a physical office ensures that IFEs and IBEs contribute to job creation, particularly in high-skill sectors like compliance and finance. The focus on digital assets and sustainability positions Puerto Rico as a forward-thinking hub, potentially attracting a new wave of fintech and ESG-focused firms. Globally, the enhanced AML/KYC protocols and alignment with FATF standards have improved Puerto Rico’s standing, reducing the risk of sanctions or blacklisting by international regulators.

Challenges and Opportunities

Despite these advancements, challenges remain. The higher capital and operational costs may deter smaller players, leading to a more concentrated market dominated by larger institutions. The ongoing economic recovery from Puerto Rico’s debt crisis and the oversight of PROMESA require careful balancing of incentives and revenue generation. On the opportunity side, the reforms open doors for Puerto Rico to capture a larger share of the global fintech market, particularly in cryptocurrency custody and cross-border payments.

Conclusion

The 2024 and 2025 reforms to Puerto Rico’s international banking laws represent a pivotal moment in the island’s financial history. By modernizing the regulatory framework, increasing capital requirements, and embracing digital and sustainable finance, Puerto Rico has strengthened its position as a leading international banking hub. These changes ensure that IFEs and IBEs operate responsibly while contributing to the island’s economic growth. As Puerto Rico navigates the challenges of global compliance and domestic recovery, its international banking sector remains a cornerstone of its economic strategy, offering a compelling model for other jurisdictions seeking to balance growth and regulation.