FINTECH MARKET
The Development of FinTech Products and Services
The British Virgin Islands (BVI) is a British overseas territory and is recognised across the globe as the premier jurisdiction for the registration of asset-holding companies. BVI corporate legislation is generally regarded as non-prescriptive, in that companies are able to devise the corporate structure and procedures applicable to their business, subject to certain limited statutory requirements. The corporate structure and procedures applicable to a BVI company are set out in the company’s constitutional documents (ie, its memorandum and articles of association), which govern the relationship between the company, its members and its directors. The flexibilities inherent in such a system make BVI companies extremely attractive as part of asset-holding structures. The BVI has a robust IP protection regime, with the potential to become an important offshore hub for the development and commercial exploitation of IP rights. Based on the strength of BVI IP laws and the attractiveness of BVI corporate vehicles for international businesses, asset holding and investments, there has been a steady increase in the use of BVI companies as holding and operating companies across the FinTech industry.
The BVI is recognised globally as a leading funds jurisdiction. Hedge funds domiciled in the BVI make up approximately one quarter of all offshore hedge funds established worldwide. Over the past 12 months there have been a number of fund launches focused on investments in the FinTech industry. As the industry continues to develop and mature, a steady increase in FinTech-related funds activity is expected.
The Market for FinTech Products and Services
See 1.1 The Development of FinTech Products and Services and 1.4 FinTech Technologies/Companies.
The Key Market Participants in the Specified Activities
The BVI has proved to be a popular jurisdiction for the establishment of crypto-currency exchanges and payment processors, with key market participants given below.
- ALFAcoins was incorporated in the BVI in 2013 as a Bitcoin payment processor and has become a trusted provider of payment services supporting Bitcoin and other major crypto-currencies.
- Bter is a Chinese crypto-currency exchange operated by Maxcloud, which is registered in the British Virgin Islands.
- Bitfinex is a crypto-currency trading platform owned and operated by iFinex. It is one of the largest Bitcoin exchange platforms and is registered in the British Virgin Islands under the name iFinex, with subsidiaries Bitfinex in Hong Kong and BFXNA in the USA.
- Coinsilium Group is incorporated and registered in the BVI as the holding company for a group of companies whose principal activity is investing in blockchain technology companies and projects. Headquartered in London with offices in Hong Kong, the company makes investments in innovative blockchain/FinTech companies, with the intent of supporting the further development and commercialisation of these technologies.
- FundYourselfNow, a crypto-currency-based crowdfunding platform that connects innovative ideas with investors, will go live in early 2018. FundYourselfNow will soon start operating under Caxton Worldwide Success, a BVI company that was recently acquired by Pinnacle Digital, a technology services firm in Singapore providing web application services.
FinTech Technologies/Companies
There has been no significant displacement of traditional financial service providers in the BVI. As one of the largest international financial centres, it is expected that this will be an area of significant growth in the coming year to two years. The BVI financial services industry has seen a significant amount of consolidation over the past few months, which is expected to continue in the near future. In order to stay competitive, it is anticipated that traditional service providers will look at new innovations driven by technology-focused new entrants to the market. Similar to other offshore jurisdictions, one area of focus is on technology solutions that deliver performance improvements to existing paper-based checks and balances in areas such as customer due diligence, fraud detection and beyond. Customer due diligence procedures in the BVI continue to follow paper-based standards where the customer is required to supply copy identification. For larger financial institutions with substantial compliance overheads, the promise of FinTech to replace manual processes with technologies that are cheaper and more cost effective at achieving compliance and managing risk has yet to be realised but the possibilities are certainly being explored.
Partnerships Between Traditional Institutions and FinTech Companies
The BVI is home to a number of local branches of large international financial institutions (for example, Scotiabank and CIBC) and private banks (for example, VP Bank). Although there have been a number of partnerships between FinTech companies and traditional financial institutions with branches in the BVI, such partnerships tend to be structured outside the BVI. For example, as part of a larger global group, VP Bank’s BVI branch has adopted a client onboarding solution from a Swiss software supplier, Appway, and an investment advisory and risk tool called FINFOX from a Swiss software supplier, ECOFIN.
FINTECH REGULATION
Regulatory Regimes for Specified Activities or FinTech Companies
At the time of writing there are no licensing requirements or special approval processes applicable to BVI companies. BVI Finance, together with the BVI Financial Services Commission (FSC) and the BVI government, is in the process of reviewing potential legislative/regulatory regimes. There are no changes in the law expected over the next 12 months.
Regulatory or Governmental Agencies for Specified Activities or FinTech Companies
The FSC, which has responsibility for licensing and regulating banking and trust business in the Islands, will be the main regulator for the FinTech sector as it develops. One of the FSC’s obligations is to promote and maintain a sound financial system in the BVI.
The FSC regulates banking and trust business in accordance with the:
- laws and regulations specifically governing banking and trust services, as well as with the legislation that applies to all licensees;
- relevant rules, guidance, policies and procedures issued by the FSC; and
- international supervisory standards.
Capital and Liquidity Requirements
FinTech companies at present are not subject to any specific regulatory requirements, nor any capital, liquidity or transaction limitations, other than those required for any normal BVI-registered company/partnership.
“Sandbox” or Other Regulatory “Neutral Zones”
No such zones or initiatives have been established or proposed in the BVI at the time of writing.
Change of Control Approval Requirements
No governmental consents are required from a BVI law perspective; however, subject to limited exceptions for publicly listed companies, regulated entities and the like, all registered BVI companies are required to maintain due diligence on certain beneficial owners within the company.
Recent Developments or Notable Proposed/ Forthcoming Regulatory Changes
See 1.1 The Development of FinTech Products and Services.
Burden of Regulatory Framework and Protection of Customers
The regulatory framework applicable to the FinTech sector is still at an early stage of development in the BVI. Further legal and regulatory developments (adopting internationally recognised standards) are expected in the coming months/ years to help to harness the growth of the FinTech industry in the BVI and globally.
Regulatory Impediments to FinTech Innovation at Traditional Financial Institutions
At present, there are no additional specific FinTech requirements.
Outreach by Regulators or Government Authorities to Engage with FinTech Innovators
BVI Finance, along with the BVI Government, is in the process of consulting industry experts from various sectors, including financial services and technology. The BVI’s goal is to be at the forefront of legal and technological innovation, and it takes a proactive approach to consulting experts in relevant fields, including FinTech.
Unregulated Specified Activities
Please see 1.1 The Development of FinTech Products and Services.
Foreign FinTech Companies
FinTech companies seeking to carry on business within the local market must apply for a local trade licence issued by the BVI Department of Trade. The BVI government is in the process of reviewing new trade licensing and work permit legislation to help to increase foreign direct investment and assist foreign companies (including technology and FinTech companies) in establishing a base in the BVI.
Regulatory Enforcement Actions Against FinTech Companies
There have been no regulatory enforcement actions against FinTech companies in the BVI to date.
“Shadow Banking”
There is a general prohibition against undertaking banking business within the BVI without a licence and penalties for a breach are serious. Robust money transfer business regulations are in place.
Form of Legal entity
Potential Forms of Charter
The most popular types of BVI entities include limited partnerships and business companies.
A limited partnership is regarded in most jurisdictions as fiscally transparent and will consist of limited partners, who will not be liable for the debts of the partnership beyond the amounts they have agreed to contribute to the partnership, and at least one general partner, who will manage the business of the partnership and have unlimited liability for the debts of the partnership.
A business company is a corporate structure managed by its director(s) whereby the members of the company cannot be held personally liable for the company’s debts or liabilities.
The above entities can be used for FinTech specified activities and the regulations mentioned in 2 Regulation may be applicable.
Key Differences in Form
All the entities described above can be used for the specified activities. The best choice, however, will depend on various organisational, structural and tax considerations.
recent legal changes
The BVI is in the process of adopting a new Limited Partnership Act, which should be enacted in the coming months. The new Limited Partnership Act is anticipated as a significant step forward in improving the efficiency and utility of BVI limited partnerships.
Legal Infrastructure (Non-regulatory)
Desirable Changes to Facilitate Specified Activities
There are no changes necessary at this stage, save for the updated laws referred to in 1.1 The Development of FinTech Products and Services. The FinTech sector is still at an early stage in the BVI.
Access to Real Time Gross Settlement Systems
In the BVI, FinTech companies must access real-time gross settlement systems through regulated financial institutions
Special Insolvency Regimes
FinTech companies are subject to the same insolvency regimes as any type of company or partnership registered in the BVI.
Electronic Signatures
Under the BVI Electronic Transactions Act, 2001 (the “ETA”), the legal requirement for a ‘wet’ signature is satisfied by an electronic signature if:
- the electronic signature adequately identifies the signatory;
- the electronic record adequately indicates (i) the signatory’s approval of the information to which the signature relates, or (ii) for the witnessing of a signature or a seal, that the signature or seal has been witnessed;
- the electronic signature is as reliable as is appropriate given the purpose and circumstances in which the signature is required; and
- the recipient or counterpart of the electronic signature consents to receiving the electronic signature and the electronic signature of each witness (if any).
It is presumed that an electronic signature is valid and enforceable if:
- the means of creating the electronic signature is linked to the signatory and to no other person;
- the means of creating the electronic signature was under the control of the signatory and no other person;
- any alteration to the electronic signature made after the time of signing is detectable; and
- where the purpose of the legal requirement for a signature is to provide assurance as to the integrity of the information to which it relates, any alteration made to that signature after the time of signing is detectable.
Standards for Proving Identity in Electronic Transactions
The BVI does not have standards for proving identity in electronic transactions.
Data Privacy and Cybersecurity
Data Privacy and Cybersecurity Regulatory Regimes
There is no formal legislation regulating data protection in the BVI; however, the BVI government has pledged that comprehensive data protection legislation, based on internationally recognised standards, will be enacted in the near future.
BVI courts recognise and subscribe to the common law duties of confidentiality and privacy, and English common law is persuasive, although not binding, in the BVI. The duty of confidentiality has also been codified in various aspects of BVI legislation, in particular the Banks and Trust Companies Act, 1990 (as amended), which regulates all banking and trust/fiduciary-related activities in the BVI.
The courts of the BVI generally follow English common law duties of confidentiality and privacy. The Financial Services Commission regulates the fiduciary and trust business sectors under the Banks and Trust Companies Act, 1990.
Whilst most kinds of information are capable of being protected, to establish that there has been a breach of confidence, something more is needed: a situation or relationship that imposes on the recipient an obligation to keep the information confidential. Even where there is no such relationship, a non-disclosure agreement or confidentiality clause in a commercial contract can impose such an obligation.
While there is no overriding personal data protection legislation in the BVI, all entities that manage and maintain personal data will be subject to the common law duty of confidentiality described above.
From a fiduciary/trust perspective, licensees regulated by the Financial Services Commission are under a general obligation to maintain the confidentiality of a client’s personal data unless the individual has granted specific permission for its release or disclosure to third parties. This obligation may be limited where the licensee is required to deal with antimoney laundering and similar legislation.
For corporate entities, the Registrar of Corporate Affairs is permitted to release only limited information regarding the particulars of any registered company, which would include the name, type of company, date of registration/incorporation, registered office address and status of the company. Details of individual shareholders, directors and officers of the company are not available for public inspection.
Save to the extent required to comply with anti-money laundering or other international data-sharing obligations or where explicitly authorised by the individual, any disclosure of personal data by government officials, professional agents, attorneys and accountants and their employees is strictly prohibited.
The Telecommunications Act regulates the telecommunications industry in the BVI and provides sanctions protecting the confidentiality and disclosure of personal information without consent.
Presently, the Financial Services Commission and the BVI courts are tasked with the enforcement of data protection and confidentiality-related matters, in so far as applicable pending promulgation of appropriate data protection legislation.
Recent and Significant Data Privacy Breaches
There have been no recent and significant data privacy breaches involving FinTech companies in 2017.
Companies Utilising Public Key Infrastructures or Other Encryption Systems
There are no laws relevant specifically to companies utilising public key infrastructures or other encryption systems at this stage.
biometric data
The BVI has not developed any regulatory regimes specifically applicable to biometric data at this stage, but to the extent that biometric data is also personal data, this may ultimately be covered by the new data protection legislation.
Intellectual Property
Intellectual Property Protection Regime
The BVI is a common law jurisdiction that has a robust IP protection regime
The main IP rights available to protect branding are registered trade and service marks. FinTech companies will generally own a combination of an established brand or trade name, which can include logos or icons, protected as registered trade marks in the British Virgin Islands.
On 1 September 2015 the British Virgin Islands’ new Trademarks Act 2013 and Trademarks Rules 2015 came into effect, which allow the direct registration of service marks without an existing UK registration. Another significant aspect of the legislation sees the BVI align its classification system with the Nice Classification.
Patents can be registered in the British Virgin Islands pursuant to the Patents Act (Chapter 155), which provides for local patent applications and applications to extend rights under a UK registration. A local patent registration is valid for 20 years. Once the registration has expired, it cannot be renewed. A UK-based patent registration is valid for the same period as specified on the underlying UK registration on which it is based.
Copyright protection in the BVI is based on the United Kingdom’s Copyright Act of 1956. The BVI does not have its own copyright registry.
Trade Secret Regime
Currently, rules on confidentiality fall back on English common law principles. A duty of confidentiality will be imposed in three primary circumstances:
- where there is an agreement between the parties that information should be kept confidential;
- where the relationship between the parties is one that the law imposes a duty of confidentiality with respect to; and
- where the nature and circumstances of the person obtaining the information make it such that the law will require that they keep the information confidential.
With the exception of expressly agreed confidentiality agreements, information will only be held to be confidential where it has a “necessary quality of confidence” about it. Only information that is not in the public domain or otherwise readily accessible by the general public will fall into this category.
Copyrights, Patents, Trade Marks
The UK’s Copyright Act, 1956 was extended by the UK to the BVI by the Copyright (Virgin Islands) Order 1962 (SI No 2185 of 1962). The BVI does not have its own copyright registry.
Although the Patents Act (Chapter 155) provides for local and United Kingdom re-registration patent applications, in practice the British Virgin Islands Trade Marks and Patent Registry only re-registers United Kingdom patents.
In the BVI, a trade mark is defined as any sign that is capable of being represented graphically and distinguishing the goods or services of one person from those of another person. So long as the technology of the FinTech company passes that test and provided it is not disqualified under the Trademarks Act 2013 and Trademarks Rules 2015 then it is capable of being trade-marked in the British Virgin Islands.
Protection of Intellectual Property or Trade Secrets
Save as described above, there is no knowledge of any other IP protection mechanism under BVI law.
Joint Development of Intellectual Property
The BVI does not have its own copyright registry and in practice the British Virgin Islands Trade Marks and Patent Registry only re-registers United Kingdom patents so there can be no comments from a copyright and patent perspective.
AAn application for registration of a trade mark in the BVI may be made by two or more persons if either or any of them are entitled to use the trade mark only on behalf of both or all of them, or in relation to goods or services with which both or all of them are connected in the course of trade.
Intellectual Property Litigation
IP for FinTech companies is not a significant source of litigation in the BVI at this stage but it could be as the sector grows.
Open Source Code
Open-source code is not separately regulated or protected in the BVI.
Tax Matters
Special Tax Issues, Benefits or Detriments
The BVI is a tax-neutral jurisdiction with zero income, corporate, withholding or capital gains taxes. Assuming the company does not hold real property in the BVI, no stamp duties or similar documentary taxes are imposed by or in the BVI.
Issues Specific to the Specified Activities
Additional Legal Issues
There is no usury or interest limitation legislation in the BVI. However, interest levels that are so high as to be considered penal in nature may not be upheld by the courts.
