1. FINTECH MARKET
1.1 Evolution of the Fintech Market
The government of the British Virgin Islands (BVI) and the BVI Financial Services Commission (FSC) – the principal financial services regulator – have progressed important initiatives in recent years that demonstrate the BVI's unequivocal commitment to digital transformation and fintech innovation.
Legislation Recognising Electronic Means
The BVI has passed recent legislation to support a digital environment in the BVI and provide the means for the operation of e-government services. This includes the Electronic Transactions Act, 2021, the Electronic Transfer of Funds Act, 2021, and the Electronic Filing Act, 2021. These Acts are designed to enhance the BVI legal system to legally recognise the filing, creation or retention of official documents with or by a government body by electronic means. They also legally recognise the provision, deliverance, retention, or access to information or documents by electronic means, where the law requires access be given to information or documents, or for the same to be retained, delivered or presented in original form.
Previously, the Electronic Transactions Act, 2001 had already recognised electronic signatures legally. Furthermore, in 2018, the BVI permitted the use of "appropriate digital and electronic means" to carry out identification and verification for purposes of compliance with anti-money laundering and combating the financing of terrorism rules and regulations.
Expansion of Money Services Business
A 2019 amendment to the Financing and Money Services Act, 2009, expanded the definition of "money services business" beyond money transmission to include "electronic money", "mobile money", "payments of money" and other alternative methods of money and payment transmission. That amendment also introduced a new licence class (Class F), which permits the holder to carry on the business of international financing and lending in the peer-to-peer (P2P) fintech market, including peer-to-business (P2B) and business-to-business (B2B) markets.
Data Protection Obligations
The BVI recently enacted the Data Protection Act, 2021, which imposes data protection obligations on "data users" who process, or have control over the processing of, personal data. In essence, the data user may not process personal data unless it satisfies one of the conditions specified in the Act, and it must protect the personal data when processing it. The data subject has certain access and other rights. Sensitive personal data is subject to stricter rules.
BVI Regulatory Sandbox
Importantly, the FSC introduced a "regulatory sandbox" in 2020 that has been open to applications since the beginning of October 2020. The objectives of the BVI's regulatory sandbox are to align regulation and innovation by providing a defined test environment and a tailored and focused supervisory framework, while protecting market participants. The goal is to permit the generation of new innovative fintech-related business models in the BVI.
The BVI has not, to date, adopted the Financial Action Task Force (FATF) recommendations on virtual asset services providers. However, it is expected that such recommendations will be adopted in the very near future.
2. FINTECH BUSINESS MODELS AND REGULATION IN GENERAL
2.1 Predominant Business Models
The fintech-related business models in the BVI are divided into four categories:
- funds that invest in digital assets or blockchain-based businesses;
- token issuers who may either seek to offer
- d promote crypto-coins (classic, stable, or altcoins) or raise capital to fund the development of a blockchain-based business;
- digital asset exchange providers, either in a centralised or decentralised (DEX) offering; and
- NFT platforms.
The business models are driven by new entrants rather than legacy players.
2.2 Regulatory Regime
The competent financial services regulator is the FSC. Entities and individuals conducting regulated financial services activities in or from within the BVI are required to obtain a licence or be registered with the FSC to conduct the regulated activities.
Principal Financial Services Legislation
The principal financial services legislation comprises the following: the Securities and Investment Business Act, (2020 Revision) (SIBA); the Banks and Trust Companies Act (2020 Revision) (BTCA); and the Financing and Money Services Act (2020 Revision) (FMSA), each as amended. The BVI has not, to date, implemented anti-money laundering and combating the financing of terrorism (AML/CFT) legislation that adopts the FATF recommendations on virtual asset services providers (however, this is expected to occur during the course of 2022). The supervisory powers of the FSC are based on the Financial Services Commission Act (2020 Revision).
Virtual Asset Guidance
To be in the scope of SIBA, the fintech business would need to constitute an "investment business", which in turn would hinge on whether the subject matter of the fintech services offered includes "investments". In the Guidance on Regulation of Virtual Assets in the Virgin Islands issued in July 2020 ("Virtual Asset Guidance"), the FSC observed in relation to SIBA's parameter that "virtual assets and virtual assets-related products used as a means of payment for goods and services (for example, tokens) which provide the purchaser with an ability to only purchase goods and services (utility tokens) would not be captured by financial services legislation". However, the FSC also noted that "where a virtual asset product or service provides a benefit or right beyond a medium of exchange, it may be captured under [SIBA]". The reason is that, depending on the manner in which a token is used and the rights attaching to it, the token could be characterised as equity or debt and could, therefore, be an "investment" within the meaning of SIBA. Similarly, the FSC confirmed in its Virtual Asset Guidance that certain derivatives, in particular futures and contracts for the differences that reference virtual assets, would be investments within the meaning of SIBA.
To be in the scope of the FMSA, the financing, money transmission, currency exchange, electronic money, or other money service in question would need to concern legal tender, that is, fiat money. The FSC confirmed in its Virtual Asset Guidance that "the transmission of virtual assets or virtual asset related products would not require a money services business licence". However, the FSC also cautions that the views and guidance of the FSC should first be secured before proceeding with the virtual money services activity in or from within the BVI.
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Originally Published by Chambers Global Practice Guide
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