British Virgin Islands: The Development and Unique Selling Propositions of the British Virgin Islands as a Financial Service Centre

Regulatory & Marketing Regime

The Financial Services Commission (FSC) is charged with regulatory issues whilst the BVI International Finance Centre handles promotional initiatives, and media relations. There is a positive and active working partnership with the private sector and it is this symbiotic relationship which has fostered the growth and success of the BVI as one of the world’s premiere offshore financial centres.

Around 400,000 international business companies (IBCs)

Over 300 insurance companies

Over 2000 mutual funds

According to The Economist (June 21^st) the offshore financial services sector was worth around $100m a year to the BVI.

The success of the financial services industry in the British Virgin Islands is due largely to the worldwide popularity of the International Business Company. Since the passing of the International Business Companies Act in 1984, more than 500,000 IBCs have been registered in the BVI and the number of new registrations has averaged more than 53,000 companies in each of the last three years. The BVI IBC is an extremely flexible and versatile vehicle which makes it easy to use in a variety of structures, from the relatively simplistic to the more complex

Since the enactment of the Trustee (Amendment) Act in 1993, the BVI has seen a huge increase in trust business. This has had the result of the territory being regarded as one of the premier jurisdictions for the establishment of international trusts. BVI trusts can be used for a variety of purposes, including estate planning, tax mitigation and protection of assets, therefore adding to their popularity.

The Territory was one of the first in the world of offshore finance to regulate and supervise trust and company service providers and has been doing so since 1990. The Banks and Trust Companies Act of 1990 has since been amended to allow the jurisdiction to continue to meet changing prudential standards and requirements and to allow the regulator to properly supervise licensed institutions through, among other things, effective gateways to assist fellow regulators.

Mutual funds legislation was introduced in 1996 in order to regulate and develop an existing and thriving mutual funds industry. Currently, there are more than 2000 mutual funds domiciled in the BVI, estimated to be managing assets of over $60 billion. In addition, a further 400 or so mutual fund managers and administrators are regulated there.

The Mutual Funds Act 1996 provides for three main categories of Mutual Funds:

• Public Funds
• Private Funds
• Professional Funds

A BVI Mutual Fund must be designated to fall into one of these three broad categories, the requirements for each category being somewhat different.

The niche for the British Virgin Islands ("BVI") in this field has been in the registration of private and professional investor funds, particularly for the hedge and alternative investment fund industry and for family office fund of funds. Family office, hedge and alternative investment funds are not customarily available for retail investors and are usually only available to professional or accredited investors, who must establish minimum net asset worth and such funds can be restricted or even be closed to third party investors.

In summary, the BVI may be considered as an attractive jurisdiction for an offshore mutual fund because - although well regulated through the offices of the BVI Registrar of Mutual Funds - it is inexpensive and very flexible. The BVI provides the usual tax exemption and confidentiality practices that one would expect and it is possible to set up a Mutual Fund structure in a very secure manner supported by substantive and quality service providers. There is also considerable flexibility as to where management, administration, paying bank and custodianship services for a BVI mutual fund can be located (i.e.: these can be onshore or offshore). Mutual fund services can be mandated using BVI service providers, who offer a fairly comprehensive range of services, external service providers, or a mixture of the two.

The BVI approach has been to target rather cleverly, the middle-market companies rather than the household name publicly quoted corporations that have historically looked to Bermuda to form offshore insurance companies. Whilst global captive growth was static in 2002, the formation of new, smaller, privately held insurance companies offset the sluggishness in the fortune sector.

The emergence of smaller closely held insurers represents an underdeveloped segment of the captive market. While most fortune companies have over the past few decades formed captives, the segment has reached a maturity point in the product life cycle, whereas it is estimated that there are some 80,000 middle market businesses of less than 1,000 employees, and under private ownership within the US alone. Set this in the context of just 4,500 captives worldwide today and the potential becomes clear.

The British Virgin Islands is now firmly established as a leading jurisdiction for the registration and licensing of Captive (or closely held) Insurance Companies. With a competitive pricing structure and an approach of minimal bureaucracy, the jurisdiction has structured an offering which unlike many other jurisdictions, enables captive owners to eliminate the expense of retained local law firms, local directors, local meetings, local bank accounts and so translates into comparative cost savings to bring captive ownership within the reach of the middle market.

The Insurance Act 1994 was carefully designed to allow the greatest degree of flexibility in a Captive Business Plan whilst allowing the regulator to exercise prudential supervision to International standards. The Insurance (Amendment) Act, 2002 introduced in 2002 enabled the licensing of Segregated Portfolio Companies.

The BVI is now regarded as one of the top five jurisdictions for captive insurance in the world. The jurisdiction currently supervises more than 300 Insurance Structures and 12 Insurance Managers.

The BVI have traditionally taken a cautious approach to granting banking licenses. It has been the government’s policy not to follow other jurisdictions, who had been attracting hundreds of banking institutions. The BVI does not grant banking licences to individuals or unproven entities. Only reputable institutions with a good track record are eligible for a license. Consequently, the banking sector offers a limited, but high-quality choice of banking institutions to the discerning clientele, be it on the corporate or on the private side.

The enactment of anti-money laundering legislation in the form of the Proceeds of Criminal Conduct Act, 1996 and the BVI's Anti Money Laundering Code of Practice and Guidance Notes in 1999, are aimed at keeping the banking sector free from contamination by criminal elements.

The BVI also facilitates simple yet secure registration of ships, mortgages, discharge of mortgages, change/transfer of ownership and other proprietary interests and services. There are several advantages and benefits to registering a ship in the BVI. The Registry is as a member of the Red Ensign Group. As such ships flying the flag are entitled to British Diplomatic/Consular support and Royal Navy Protection. The BVI has access to the range of technical expertise of the UK Maritime and Coast Guard Agency. Registered ownership is permitted to citizens of and, companies registered in the BVI, UK and all British Overseas Territories.