How do you assess the importance of the crypto/digital asset class as a future growth driver for the jurisdiction?
We see crypto assets as a huge potential driver for the British Virgin Islands (BVI). Estimates suggest that while the asset class has fallen globally from its peak early last year, the market is still valued at over USD200 billion. What’s more, with the likes of Goldman Sachs noting this summer that it plans to go “further than ever” into its research and development of crypto, it is clear that this asset class has gone beyond a niche corner of the financial services market and is increasingly becoming a trusted method of money management.
What initiatives are BVI Finance pursuing to attract fintech entrepreneurs and crypto managers to the BVI?
We are working with the BVI Government and the Financial Services Commission (FSC) to ensure that our ‘wait and see’ approach to regulation of this new asset class continues to be the best approach. The BVI has a long history of not responding rashly when a new product or asset is introduced on-island. Instead, our great advantage is that we work alongside the private sector and financial services professionals to develop rules that work for them, not against them.
A good example of this is the regulatory sandbox that has been developed by the FSC for digital and tech-savvy businesses to come to us and test innovative products and services in a safe environment. The FSC’s approach is to align regulation with innovation and lighten some regulatory obligations to help attract business as they test new products in the sandbox. It does so by providing a defined test environment using a tailored and focused supervisory framework whilst protecting market participants.
Where other global jurisdictions have chosen to lump crypto assets under existing regulation for other complex financial instruments, we have decided to take a little more time to assess exactly what is the right way of regulating them, to the advantage of these businesses.
Some industry figures suggest the BVI is now the second largest cryptocurrency market, after the US. What makes the BVI so attractive, from a regulatory perspective, and in terms of the quality of the infrastructure and service providers it is home to?
There are a number of reasons for this. For example, the BVI’s international business and finance centre adheres to the highest global standards which is reflected in the quality of service and products that it provides.
The BVI was an early adopter of the OECD’s Common Reporting Standard (CRS) which requires the exchange of information on an automatic basis with a number of jurisdictions for tax purposes. We are also a member of the Inclusive Framework on BEPS led by the OECD’s Global Forum on Transparency and the Exchange of Information for Tax Purposes bringing together over 100 countries and jurisdictions to collaborate on the implementation of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Package. In addition, the BVI is rated as largely compliant by the OECD Global Forum and meets the standards set by the Financial Action Task Force (FATF) – the global standard setter in this area.
Another attractive aspect of the BVI is the fact that its legal framework is based on English common law, widely regarded as one of the most user friendly and acceptable legal systems for doing international business across borders.
With regards to the quality of our wider infrastructure and services, the BVI is home to a cluster of associated specialists across financial, legal and accounting firms with clients around the globe. As such, we were ranked the top offshore jurisdiction in the world for the eighth consecutive year, with Vistra 2020 stating that the BVI’s popularity reflected a growing preference for “tried-and-tested service at a time of economic uncertainty”.
Do you get a sense that the BVI’s fund industry practitioners are well positioned to capitalise on the crypto revolution?
We have seen many on-island firms spending a lot of time talking about crypto assets. They clearly see the potential in the asset class and know that while other jurisdictions around the world have set up onerous rules around them, the BVI has been a lot more accommodating.
Mark Harbison, an associate with BVI based offshore law firm Carey Olsen, told us that his team are receiving a lot of inbound enquires about setting up funds containing crypto assets. After it was revealed that the BVI was the second-largest cryptocurrency market in the world, they had a lot of interested people calling asking them to explain how it would work to set crypto-based funds in the BVI.
Blockchain technology has huge potential to improve the way investment funds are managed operationally (regulatory reporting, investor onboarding, AML/KYC). How important is it for the BVI to assess the opportunity set for this technology, in order to continue standing out as a leading offshore jurisdiction?
The BVI’s anti-money laundering and anti-terrorist financing legislative regime meets or exceeds international standards, as well as the jurisdiction operating a leading regulatory framework across the sector. That said, if new technologies such as blockchain can help us further exceed expectations and lead the charge in this area, that is an opportunity we will always look to explore.
Recent amendments to the BVI’s anti-money laundering rules now permit digital ID verification and the receipt of electronic copies of documents, so businesses are able to use a blockchain provider to double check identities. We have already seen a number of businesses and individuals using digital Know Your Customer service providers as a result of this change, illustrating the overall improvement of due diligence via crypto technology.
As an aside, it is interesting to note that the BVI Government is pressing ahead with the implementation of blockchain technologies to help better prepare for future weather emergencies. Earlier this year, the BVI Government announced a partnership with blockchain company, LIFElabs.io, to provide a ‘Rapid Cash Response’ enabling people on-island to purchase goods and services with digital currencies.
This is a great example of the spirit of the BVI demonstrating that we are always ready to embrace new technology if it can be shown to offer us improved solutions.
What will BVI Finance be focusing on over the next 12 months in light of the fast-paced nature of the crypto asset class?
For us, the focus is on developing and implementing a regulatory sandbox with the BVI regulator, the Financial Services Commission (FSC), making it clear that the jurisdiction has a long-term commitment to helping financial services firms innovate through regulatory and financial technology.
Only innovative products where the applicant has considered the appropriate safeguards to manage risk will gain entry into the sandbox. This should stimulate growth in areas where there previously was none as a result of heavy licensing and onerous regulatory obligations not allowing products to test boundaries and be more innovative.
In addition to the sandbox approach, the BVI regulator recently expanded the BVI Financing and Money Services Act 2009 to allow for Peer-to-Peer (P2P), Peer-to-Business (P2B) and Business-to-Business (B2B) lending platforms to operate within the BVI.
This may further stimulate the creation of a new generation of decentralised crypto exchanges going forward.
Head of Business Development & Marketing, BVI Finance
Simon Gray is a senior financial services’ professional with strong international experience gained in the Caribbean, Middle East and Asia as well as major experience in both public and in private sectors. Combining an investigative background with 25+ years of first-hand experience of international financial services and product innovation and design, Simon has spent much of his working life in the private sector with senior roles including Baring Asset Management and Barclays Wealth. He has previously worked well established organisations including as Director, Supervision (DFSA) within the Dubai International Financial Centre.