Businesses and individuals (professionals (management or expert service providers, not ministerial employees)) operating in traditionally-regulated industries in Próspera ZEDE are deemed “Regulated Industry Persons.” Like all full-time Residents, all Regulated Industry Persons must obtain regulatory insurance covering their Regulated Industry operations within Próspera ZEDE, with specific exceptions for the Food, Construction, and Agriculture industries.

Although deemed insurance, these policies combine (1) fidelity bonding concepts, providing coverage over injuries caused by intentional conduct, bad acts and moral hazards, and (2) traditional liability insurance concepts, providing coverage for injuries caused by unintentional, negligent, or reckless conduct. In general, for the insurer of last resort, the standard (or baseline) regulatory insurance policy (with which full-time Residents will be familiar) will have a supplemental endorsement that also contains operational restrictions and requirements in your Regulated Industry. The supplemental endorsement for Regulated Industry policies will typically either be an “interim” endorsement or a “final” endorsement. Both types of endorsements authorize the regulatory insurer to engage in compliance enforcement during the policy term to ensure your operations in a Regulated Industry meet applicable standards of care or elective regulatory standards (discussed below). The insurer of last resort (Próspera Insurance Company LLC) is structured as a captive insurance company; this means that when you sign onto your policy, you are agreeing to become a member of the insurance company's parent insurance association (Próspera Insurance Association LLC) which qualifies you for such coverage. This structure is necessary to mitigate external regulatory conflicts with other jurisdictions.
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If you would like to see examples of baseline regulatory insurance policies with supplemental endorsements for Regulated Industries, you're in luck. To "make the market" to enable competitive entry by third party "Qualified Insurers," the insurer of last resort is required by law to post official "administrative actions" publicly here which contain standard policy terms and conditions. Those posted policy terms will often be tailored to different risk assessments, industries, and operations. You can find examples of approved standard interim endorsements here; and you can also find an approved regulatory insurance policy with an approved final endorsement here.

To obtain a regulatory policy from the insurer of last resort (Próspera Insurance Company LLC), an (e)Resident must first apply in a manner that provides sufficient information to assess the nature of the operations to be covered. This involves a fairly standard set of requests. For example, a statement should be provided to gsp@prospera.hn including:

In addition to this statement, the applicant should complete:

Once these informational requests are completed, the insurer of last resort may be able to generate an appropriate policy and endorsement for your operations without further inquiry; but in many cases, you should expect an intake meeting from a representative of the regulatory insurer to clarify your intended operations.

Essentially, the information provided in the foregoing intake process allows for scientific screening to ensure that your proposed operations in a Regulated Industry are insurable. A proposed application can be rejected by a regulatory insurer due to a variety of factors, including unreasonably high risks, lack of apparent qualifications or competencies, unavailability of necessary regulatory experts, and likely violation of Honduran national criminal law (Prospera ZEDE is generally subject to Honduran national criminal laws). If the regulatory insurer rejecting your application on these grounds is the insurer of last resort, which is a quasi-governmental service provider, you may wish to consider challenging the decision as a violation of the Resident Bill of Rights in the default Arbitration Service Provider, as such a decision may effectively preclude you from operating in a desired Regulated Industry. However, all such litigation is subject to the rule of "loser-pays" with respect to litigation expenses and attorney's fees.

Keep in mind that, in a competitive market of Qualified Insurers, each such Qualified Insurer can be expected to have its own application process, which may differ significantly from that of the insurer of last resort.

Regulatory insurance policies typically include three components (in English and Spanish): (1) a declaration page that states your insurance risk score (on a scale from D-- to A++), summarizes coverage terms, including limits and deductibles; (2) the base policy terms and conditions; and (3) an endorsement (interim or final). The base policy typically makes it clear that it is a claims-made and excess policy only; this means you must make a claim during the policy term to obtain coverage and if you have other insurance available to cover the incident in question, the regulatory policy is last in line for coverage. For quality control in the provision of justice, the base policy only covers losses arising from proceedings before the default Arbitration Service Provider. Finally, like the typical terms of fidelity bonding, if the liability being covered is the result of your own intentionally wrongful conduct, the policy terms empower the regulatory insurer to seek indemnification from you to reimburse any such payout. Beyond the declaration page and base policy, you will typically also receive an endorsement of some type. Significantly, you are permitted 60 days to renegotiate or shop any policy offer from the insurer of last resort to see if any Qualified Insurer is willing to meet or beat its terms and conditions. But you must have an active policy in place before operating in your Regulated Industry.

As the name suggests, the interim endorsement is a preliminary set of operational requirements and restrictions conditioning your coverage under the regulatory insurance policy, which are intended to create a regulatory “sandbox” environment in which you can operate. It is intended to enable the rapid issuance of a regulatory insurance policy to get your operations underway as soon as possible; but, as is typically the case in a sandbox environment, in exchange for the opportunity to rapidly commence operations, you will be under a spotlight. You will be subject to extensive compliance certification requirements, oversight, inspections, information requests, and susceptibility to wide-ranging remedial actions, in the broad discretion of the regulatory insurer; enforced directly by the regulatory insurer through its “compliance auditor” as a contractual remedy under the authority of your contractual obligations; or, at its discretion, also in partnership with the General Service Provider, under its general regulatory authorities.

The interim endorsement is not intended to govern your operations forever, however. During your operations under the interim endorsement, the intake compliance auditor assigned to you will seek to learn more about your business model as well as specific plans and projects, focusing on the risks that it may entail of violating the legal rights of others. The mission of the intake compliance auditor is to make recommendations to the regulatory insurer’s Standing Actuary Committee Subcommittee for your Regulated Industry within a target deadline of three months, but no later than six months, on the provision of the eventual final endorsement to your regulatory insurance policy, which will replace your interim endorsement.

The final endorsement to your regulatory insurance policy of the insurer of last resort will replace the extensive discretionary oversight and intervention authorities contemplated in the interim endorsement, with permanent objective standards which may only be enforced reasonably. Additionally, the final endorsement will create a compliance verification structure consisting of two elements: (a) periodic compliance certifications; and (b) periodic random compliance audits.

The first element of the verification structure consists of an obligation that you periodically furnish certifications of compliance with the standards required by your final endorsement through an attorney or expert in the relevant field of your Regulated Industry of your own choice, and at your own cost. Typically, these certifications will be required by the final endorsement quarterly, and sometimes more often. Your compliance certifier will need to agree to be held personally liable for 3x consequential damages if he is found to have committed fraud in certifying your compliance.

The second element of the verification structure involves periodic random compliance audits by the regulatory insurer’s compliance auditor, with the cost of the same also charged back to you. Typically, these random compliance audits will be performed semi-annually (but they must be performed at least annually and no more frequently than monthly). The inspecting compliance auditor may be the same person as your intake compliance auditor.

The objective of the compliance auditor in the verification stage is to assess the truth and accuracy of the various previously provided compliance certifications. The compliance auditor will begin his or her investigation by requesting a time and date (typically with no more than 7 days prior notice) to interview your compliance certifier and to inspect books, records, projects, and facilities, as needed, as well as potentially interview other knowledgeable personnel. For the most efficient use of time, your compliance certifier should maintain excellent records of the basis of past compliance certifications.

Based on his inspection, the compliance auditor will make a recommendation to the regulatory insurer’s Standing Actuary Committee Subcommittee for your Regulated Industry as to whether (1) to issue a certificate of compliance for the preceding period between compliance audits if you are found to be in compliance, (2) to deem you in breach of your regulatory insurance policy (including the endorsement) and recommend the exercise of contractual remedies by the regulatory insurer, such as terminating your policy (which would result in an inability to operate legally within Próspera ZEDE), and/or (3) to request assistance from the General Service Provider (or its relevant department, such as the Roatán Financial Services Authority) to enforce applicable Próspera ZEDE Rules by issuing red flag warnings, cease and desist orders, or civil penalties; or terminating your (e)Resident agreement of coexistence; or seeking mandatory or prohibitory injunctive relief in the default Arbitration Service Provider; or filing an action for consequential damages and remediation. Assuming you receive a certificate of compliance, you may publicly post it at your place of business or freely utilize it in connection with your marketing as a recognized signal of quality.

Understanding the role of your regulatory insurance is only part of your education about the Próspera approach to Regulated Industry regulation. An even more fundamental concept awaits, which is the touchstone for the standards that are enforced in your regulatory insurance endorsements. That concept is the “regulatory election.” All Regulated Industry Persons can elect the regulations against which their compliance will be measured by their regulatory insurer, the General Service Provider, and (e)Residents in general. The choices range from declaring to your regulatory insurer, the General Service Provider, and in all of your contracts performed within Próspera ZEDE that your operations in the Regulated Industry are governed, either generally and/or with respect to designated projects, by one of four regulatory frameworks: (1) the industry-specific regulations of any of thirty Best Practices Countries, including the United States, Honduras and more, including subnational jurisdictions, if any, as if you were operating in the designated jurisdiction; (2) your own customized Optimal Regulation in the relevant Regulated Industry, provided that you have filed a corresponding Petition for Optimal Regulation before the Council of Trustees and Technical Secretary and it is approved and adopted in a Regulation promulgated by Próspera ZEDE; (3) existing Optimal Regulation in the relevant Regulated Industry, previously adopted after approval of past Petitions for Optimal Regulation; or (4) exclusively the Roatán Common Law Code’s codified schema of traditional common law legal duties, liabilities and remedies (which is the default election if no other election is made).

In making this election, it is important to underscore that you can make a general regulatory election for all of your operations, as a sort of default regulatory election for you whenever you operate in Próspera ZEDE; and you can also make project-based regulatory elections, which may deviate from your default regulatory election in the case of specific identifiable projects. In this respect, you could have one or more regulatory elections governing your operations in a Regulated Industry.

When contracting for work in your Regulated Industry or applying for your regulatory insurance, it is up to you to think carefully about your regulatory election(s). In certain Regulated Industries, such as the Construction Industry, it will be common to have numerous project-based regulatory elections that are driven by the demands of the hiring counterparty. In other industries, such as the Health Care Industry or in the Finance and Insurance Industry, it will be more common to rely on your default general regulatory election to govern all operations anywhere. In either case, you must be diligent in ensuring that these elections are declared and disclosed in all related contracts, including your regulatory insurance contract. The failure to declare and disclose your regulatory election can result in exposure to civil penalties equal to 3x consequential damages from any injury you may cause (including contractual breaches).

Moreover, although Próspera ZEDE Rules do not prohibit you from changing your regulatory election(s) once chosen, you might be bound by governing contracts into maintaining the originally selected regulatory election. This friction in changing your regulatory election will almost certainly be experienced in regard to what your regulatory insurance will cover. Generally speaking, the insurer of last resort will not permit you to freely change your disclosed regulatory election, upon which your interim and final endorsements have been premised. It is incumbent upon you to renegotiate your regulatory insurance coverage if you wish to subsequently change your previously disclosed regulatory election(s). Otherwise, you must have the foresight when originally applying for regulatory insurance or contracting with third parties to specify the full range of regulatory elections you might select in the future both generally and in regard to future projects. Correspondingly, for your compliance certifier and the compliance auditor, it will be important that they know and understand what regulatory election applies generally and to designated projects. Obviously, only choose the regulatory election that you think is best for your operations, and with which you are able to comply.

The first kind of regulatory election—electing to being governed by the industry-specific regulations of a designated Best Practices Country—also requires careful thought. It is critical to understand that you are electing to being governed by all of the industry-specific regulations of the designated Best Practices Country that govern your intended operations, both at the national level down to a specific subnational jurisdiction, if any, as if you were operating there.

For example, if you were to elect to being governed by the regulations specific to your type of Regulated Industry operations in the United States as if you were operating there, you would need to also identify and comply with the governing regulations not only of the federal government, but also of any state, county and city regulatory authority that would apply to your operations in the United States, if any. That means your election must specify a specific location in the country. Your measure of compliance will be tested by your compliance certifier and the regulatory insurer’s compliance auditor against the regulations that would specifically apply to your regulated operations at each such jurisdictional level, if any existed. You don’t want to throw a dart at a map when making a regulatory election.

o Reciprocity as a Form of Compliance with Your Regulatory Election.

You want to be familiar with all of the governing regulatory authorities in the Best Practices Country and subnational jurisdiction you select. For this reason, the safest and most compliant way to elect to being governed by a designated Best Practices Country is to already operate compliantly there. If you are maintaining your licenses (or exemption status), permits and standards in your elected Best Practices Country down to the lowest regulatory authority on the ground, then you will have won more than half the battle in being able to demonstrate compliance to your compliance certifier and the regulatory insurer’s compliance auditor. The only real question would be whether your operations inside of Próspera ZEDE match what would be compliant if they took place in your designated Best Practices Country; and that should not be too difficult to demonstrate because you would already know what such compliance means operationally. It would be a relatively simple reciprocal application of compliance with the regulations you already know, while maintaining your compliant status in your elected Best Practices Country.

o Emulation as a Form of Compliance with Your Regulatory Election.

Of course, not everybody wants to establish compliant operations in a Best Practices Country in order to support a reciprocal regulatory election in Próspera ZEDE. Fortunately, you don’t have to. You can elect to operate in your Regulated Industry in Próspera ZEDE as if you were in Houston, Texas, for instance, without actually already operating compliantly there. The challenge will be demonstrating compliance with the jurisdiction-specific elements of the regulatory framework in Houston, Texas, which might, for example, require the issuance of permits or certificates from or inspections by a designated body only located in Houston, Texas (one that probably has no interest or authority in issuing such permits or certificates to a Próspera ZEDE business). But even this challenge can be overcome because the legal standard for compliance with your regulatory election is “good faith;” and this standard is intended to invite reasonable, creative solutions to emulate jurisdiction-specific elements of your chosen regulatory framework.

For example, you might hire a retired inspector from the jurisdiction of your regulatory election to review your operations and issue a sworn statement that your operations would have warranted the issuance of the required permit or certification if it were located in Houston, Texas. Or you might even consider going directly to the standards that underpin such issuances, and simply having your compliance certifier base his certification on the opinion that your operations meet those standards.

o The Importance of Carefully Defining Your Regulated Industry Operations

It would be prudent to very carefully study, define, and specify in your regulatory insurance application and contracts the exact Regulated Industry operations your business actually conducts, so that you can reasonably limit the scope and classes of regulations to which you will be held responsible. For example, rather than characterizing your ATM business as a “bank,” you should characterize it as a “credit intermediation” business and elect very specifically only those regulations that apply to credit intermediation businesses. Likewise, rather than characterizing your clinic as a “hospital” if it only offers X-Ray services, you should characterize it as a “Radiology Lab” and elect very specifically only those regulations that apply to such a lab. Studying the regulations of your contemplated Best Practices Country election is prudent to ensure that your Regulated Industry operations are defined as narrowly as possible to keep regulatory compliance standards manageable and more certain.

o Engaging Uncertainty

You should still be prepared for unavoidable grey areas when choosing a Best Practices Country regulatory election, such as the sometimes-blurry lines between regulations in your elected Best Practices Country that specifically and directly govern your Regulated Industry operations (and set the standard of compliance), and regulations that are only generally applicable (and don’t set the standard of compliance). For example, workplace safety regulations can be very specifically targeted to specific Regulated Industries, and one should anticipate a reasonable debate over whether such workplace safety regulations should be regarded as implicit in your regulatory election, alongside those regulations that are uniquely targeted to your Regulated Industry. The judgment calls will not always be easy as to what the Best Practices Country regulatory election means in practice when you are not already operating compliantly in your chosen regulatory jurisdiction—not for you, and not for your compliance certifier, the compliance auditor, the General Service Provider, your fellow (e)Residents, or even the default Arbitration Service Provider.

In the final analysis, whether you choose to elect to operate under the regulations of a Best Practices Country as if you were operating there (without actually operating there and knowing what such compliance looks like) is really a question of your tolerance level for grey areas of interpretation when trying to emulate the jurisdiction-specific aspects of your regulatory election; the sometimes-blurry boundary lines between regulations that specifically govern your Regulated Industry and more general regulations; and your comfort level with an increased risk of disagreement with others, which could lead to an increased risk of liability exposure or business disruption from those disagreements. Fortunately, you do have at least two options for reducing such uncertainty while sticking with the plan.

o Overcoming Uncertainty

You can prepare and file a Petition for Enforcement Policy Statement with the General Service Provider, explain the issue, describe how you are proceeding with demonstrating compliance, and request a statement as to whether the General Service Provider would find such efforts to meet the requisite standards of good faith compliance under Próspera ZEDE Rules. The resulting statement will not be binding, but it will constitute strong evidence to support your position in the event of any subsequent dispute over the issue with the compliance auditor, General Service Provider, or other (e)Residents. You can also file a declaratory action with the default Arbitration Service Provider to secure a binding adjudication of the same issue. But those are not your only options. Remember: you don’t have to choose to elect to operate under the regulations of a Best Practices Country. You can actually propose something else, which brings us to the next regulatory election option.

Always choose the regulatory election that you think is best for your operations, and with which you are confident of your ability to comply. From that vantage point, designing and proposing operating under your own regulatory framework may be the way to go. Regulated Industry operators have the option to propose a new regulatory framework under which to operate as their regulatory election though filing a Petition for Optimal Regulation with the Council of Trustees and Technical Secretary. The petition needs to check a few legal boxes, but all of them are aimed at one public policy outcome: demonstrating that the regulation you are proposing is at least as effective in guarding against the violation of legal rights as the other regulatory election options that exist. And if you file your petition in good faith, checking all necessary legal boxes, and with a full copy of your proposed regulation, you are permitted under Próspera ZEDE Rules to elect to operate under it for your regulatory election while it is being considered by the Council of Trustees and Technical Secretary. It might be risky to lock yourself into contracts based on that regulatory election before you know that it is likely to be approved. But depending on what you propose, that risk might be manageable.

This is because your proposed regulatory framework doesn’t need to be spun out of whole cloth. You can take the regulatory framework of a Best Practices Country and simply eliminate all interpretive ambiguities. That could be a very easy sell to the Council of Trustees and Technical Secretary. More ambitiously, you could also propose regulations of countries other than Best Practices Countries, or stitch together bits and pieces of other recognized regulatory frameworks from a variety of sources. Either way, you will need solid expert testimony to back your proposals to succeed, but if you are able to persuade the Council of Trustees and Technical Secretary, your efforts could very well result in the promulgation of a new Regulation embracing your ideal regulatory framework, under which you could declare your regulatory election for all compliance purposes. Of course, you might not even need to do that.

It should never be forgotten that every path has been trodden by someone else. Other Regulated Industry Persons might have already succeeded in securing the approval of their Optimal Regulation Petition; and what works for them, might work for you because all such petitions have to propose a regulatory framework of general applicability. Perhaps the best regulatory election from a certainty and innovation perspective might be a regulatory election that opts into a Regulation for your Regulated Industry that was the brainchild of someone just like you.

Last, but not least, you can just elect to not make an election. That means you can simply elect not to be governed by any of the foregoing options and leave your regulatory election exclusively to the default regulatory framework of the Roatán Common Law Code. The benefit of this regulatory election is its front-end simplicity. You don’t have to think about all of the issues we have already discussed. But that benefit could be fleeting because you probably should think about all of those issues anyway. The concepts of due care, legal duties, liabilities, remedies, and causes of action that furnish common law regulation have been endlessly debated for hundreds of years. Electing to abide by those concepts is not the same as having no compliance standard; rather, it is a commitment essentially to a compliance standard of “reasonableness” in your operations, which is influenced by hundreds of thousands of legal precedents. The good news is that commonsense usually prevails in the great weight of those precedents. The bad news is that it often takes quite some time for commonsense to prevail in the run of cases.

o The “Eye of the Beholder” Risk

Whether you meet a pure common law compliance standard could very well present an “eye of the beholder” situation for you, your compliance certifier, compliance auditor, General Service Provider, and fellow (e)Residents. For example, if you choose to be held to a Roatán Common Law Code compliance standard, and are not eminently competent in your Regulated Industry, your compliance auditor may yet recommend you meet a lengthy list of prescriptive standards in your final endorsement to ensure you exercise due care in your operations. In contrast, while it is true that compliance with the Roatán Common Law Code is always a baseline requirement of any regulatory election (you always have to act with due care and without violating legal rights), your regulatory insurer is unlikely to impose significantly more prescriptive standards than what is already entailed by your regulatory election if you choose any of the previously discussed prescriptive regulatory election options. This is because, as a general rule, compliance with prescriptive regulations is solid proof of due care under the Roatán Common Law Code.

o The Enhanced Liability Risk

Moreover, there is a uniquely significant downside to electing to operate exclusively under common law standards in your Regulated Industry; if your operations in a Regulated Industry wrongfully cause legally cognizable injury, you could be held liable for 3x the consequential damages that are caused; and such liability will pierce the corporate veil to the extent of the amount of your last year’s salary or equity investment, whichever is greater. Unsurprisingly, many realize that being exclusively governed by the Roatán Common Law Code is a prudent choice only for those who operate in especially safe Regulated Industries, or who possess special expertise and prescience as to the requisites of avoiding the violation of legal rights of others and what is likely to be deemed reasonable care in their operations.

Returning to the original discussion of your obligations under your regulatory insurance, your choice of regulatory election will furnish the core standard against which the intake compliance auditor will examine your operations in a Regulated Industry; and it will also provide the touchstone that will guide the compliance auditor in recommending what objective standards will be embedded into your final endorsement, compliance with which will determine your freedom to operate in your Regulated Industry within Próspera ZEDE. Where your regulatory election involves a commitment to comply with determinable prescriptive standards, your final endorsement could impose operational requirements that are as simple as requiring you to comply with your regulatory election. Where your regulatory election is common law in nature, your final endorsement ironically might specify a significant array of prescriptive standards to give the regulatory insurer comfort if and to the extent that the intake compliance auditor is not confident in your expertise in operating in the Regulated Industry.

Postscript: So, You Want to Start a Bank… Introducing the Roatán Financial Services Authority

Things get even more interesting in the Finance and Insurance Industry. A Regulated Industry Person in the Finance and Insurance Industry needs to consider all of the preceding guidance. But it is also important to understand the special regulation that can apply to you in that industry. Unlike in any other Regulated Industry, the Finance and Insurance Industry has a specialized public regulator known as the Roatán Financial Services Authority (“RFSA”). The RFSA, however, only has jurisdiction over your Regulated Industry operations where you have either adopted an Optimal Regulation regulatory election that empowers it, such as the Próspera Financial Regulation A, or where your regulatory insurance policy’s interim or final endorsement requires you to submit to its jurisdiction in some fashion as a condition of obtaining or maintaining your policy.

In this sense, being regulated by the RFSA can be totally optional. It is possible that your operations in the Finance and Insurance Industry will be entirely regulated only by your regulatory insurer and the General Service Provider. But accessing and interfacing with the international financial and regulatory networks in the Finance and Insurance Industry, and credibly complying with AML and tax information sharing agreements, may require you to be regulated by an incontestably public regulatory authority, not merely by your regulatory insurer and General Service Provider. The RFSA fulfills that requirement because it is directly overseen by an indisputably public authority, namely the RFSA Oversight Committee of the Council of Trustees of Próspera ZEDE (the “RFSA Oversight Committee”), which is also empowered to confirm and remove appointments to the RFSA, as well as override its regulatory actions.

To the extent that its regulatory authority applies to you, the RFSA may directly impose licensure, permitting, reporting requirements, inspections, fees, penalties, mandates, enforcement proceedings, and other forms of regulation on your regulated operations. This could be in addition to what is imposed by the interplay between your regulatory election and regulatory insurance endorsement. In other words, if you have chosen to operate under a regulatory election that empowers the RFSA to regulate you, you should anticipate the possibility of being held accountable to the RFSA, your regulatory insurer, the General Service Provider, and your fellow (e)Residents for complying with your regulatory election. But regulatory streamlining is also possible. Where the RFSA is robustly asserting its own regulatory authority in a manner that minimizes claims risks to the regulatory insurer’s satisfaction, a regulatory insurer might elect to enlist RFSA contractually in the enforcement of your regulatory election; and this could result in a decision to minimize or eliminate its own independent compliance certifier and compliance auditor requirements in your interim or final endorsement. Correspondingly, if the RFSA is satisfied with the quality of regulatory insurance practices, the RFSA can exercise its regulatory authority to create exemptions from its own direct regulatory authorities and defer to the regulatory practices of the regulatory insurer as duly adopted and officially sanctioned by the RFSA.