Regulation

British Virgin Islands: Meeting the Challenges of the Global Financial Environment


By Sherri Ortiz, Executive Director, British Virgin Islands International Finance Centre (12/01/2010)

There is no doubt that 2009 has been a year of transition for the global financial services industry. There has been an unprecedented shock to the financial system, moving governments and regulators to take action; and we began the year with an increasing amount of pressure being put on the doorstep of smaller financial centres like the British Virgin Islands (BVI).

As an international finance centre (IFC), our reputation and the way we do business has always been a key part of our strategy for keeping our competitive edge – meeting international expectations is a part of what we do. We welcome the scrutiny of the international community then, as the BVI has long been focussed on a robust regulatory standard.

G20 and OECD

The meeting of the G20 in London last year established the need for urgency in increasing transparency in tax matters, with the OECD introducing new standards for exchanging information. The BVI has already surpassed the requirements set by the OECD having signed 15 Tax Information Exchange Agreements (TIEAs) and we will continue to sign further agreements with significant partners over the course of this year. In addition, the BVI has been invited to join the Peer Review Group (PRG) which was formed at the OECD Global Forum on Taxation in Mexico in September 2009. The PRG will be responsible for assessing the implementation of OECD standards in finance centres of both member and non-member jurisdictions of the Global Forum, based on:

 

  • availability of information;
  • appropriate access to the information; and
  • the existence of exchange of information mechanisms.

The PRG will ensure that there is a monitoring and assessment process which is universally applied to all finance centres.

The Foot Review

At the end of 2008, the UK Treasury asked Mr Michael Foot to conduct a review of the UK’s nine Overseas Territories and Crown Dependencies’ finance centres, which includes the BVI. In his “Final Report of the Independent Review of British Offshore Financial Centres”, Mr Foot  recognises the BVI as a well-regulated jurisdiction and highlights some unique rules we have in place that have helped to maintain our good reputation, including the Know-Your-Customer standards and beneficial ownership rules. We have already met one of the report’s core recommendations by having signed TIEAs with our economically significant partners.

Regulation

In the BVI we place great importance on the standards of our regulation. As with all advanced financial centres, the BVI maintains an independent regulator, the Financial Services Commission (FSC), which became the first institution to be admitted to membership of the International Organisation of Securities Commission (IOSCO), on the basis of that organisation’s Multilateral Memorandum of Understanding on Consultation and Cooperation and the Exchange of Information.

In addition, the BVI received a very positive report from the Caribbean Financial Action Task Force on its efforts to combat money laundering and terrorist financing at the end of 2008. The BVI was widely praised for setting up the FSC as an autonomous regulatory authority responsible for the regulation, supervision and inspection of all financial services in the BVI.

2009 saw the establishment of the Eastern Caribbean Supreme Court (ECSC) which is a world class commercial court based in the BVI. The court is expected to become a key litigation centre for offshore lawyers, with commercial cases due to be heard there from the ECSC circuits of Anguilla, Antigua and Barbuda, Grenada, Dominica and the BVI.

A Well-Respected Centre for International Finance

The BVI strikes the right balance between meeting the business and financial needs of the international community and maintaining regulatory and corporate governance policies that meet, and in many cases exceed, international best practice standards. This approach continues to give the BVI a number of clear advantages for the international business community, including:

  • enduring political and economic stability;
  • a business-friendly operating environment;
  • efficient company formation and administration processes;
  • a pool of knowledgeable and qualified business and legal professionals;
  • a well developed infrastructure, including excellent telecommunication services;
  • no currency exchange controls and the use of the USD as the official currency;
  • a commitment to enact legislation that meets business needs and protects the integrity of the BVI; and
  • a strong partnership between the public and private sectors.

The Role of BVI IFC

The BVI IFC has played a pivotal role in the promotion and marketing of the BVI as a leading financial centre. Established in 2002 as part of the Government’s growing commitment to the financial services industry, the aim of the IFC is to give a voice to the BVI’s financial sector. The IFC is committed to ensuring that the BVI retains the unique balance it has created in having a sound regulatory framework, an entrepreneurial business community and a government that is committed to developing innovative legislation. The launch of the IFC marked the final stage in the government’s plans to separate the marketing/promotional and regulatory/supervisory functions. Regulation is now the sole responsibility of the BVI Financial Services Commission (FSC), which was also established in 2002.

Mutual Fund Registration, Management & Administration

The BVI Mutual Funds Act 1996, allows for three categories of funds (professional, private and public) to be established, whilst providing for investor protection commensurate with their level of sophistication. There are currently no regulatory restrictions on investment policies in the BVI. The mutual funds legislation is not complex and, as a result, funds can be established in the BVI by using simple and cost-effective structures. Professional funds can receive fast-track approval from the BVI FSC from within three to five days of submission of an application for recognition. Most fund entities are structured as limited liability companies although partnership structures are also being formed, especially where the client has a limited partnership onshore and is seeking to mirror the structure offshore.

There is also no requirement in the BVI for service providers of a BVI fund such as the manager, administrator or custodian to be a resident in the BVI. However, several international service providers are present in the BVI to provide services locally.  

Trust Settlement

Due to the Virgin Islands Special Trust Act, 2003 (VISTA), the BVI has consolidated its position as the location of choice for international trust settlements and operations. The Virgin Islands Special Trusts Act (VISTA) has been acknowledged by trust and estate practitioners and other international experts as a pioneering piece of legislation that provides a world leading regime for the trusts and estates industry. Implementation of the Financial Services (Exemptions) Regulations in August 2007 clarified the circumstances under which a BVI private trust company must be licensed. The recent Private Trust Company legislation has further enhanced the BVI’s international reputation for trusts and estate planning products, with VISTA purpose or charitable trusts being ideally suited to holding shares in Private Trust Companies.

Business Companies

The BVI Business Companies Act, 2004 (the Act) has received positive reviews for its flexibility from legal practitioners around the world. Five different types of companies can be incorporated under the Act. The Act includes statutory merger and consolidation provisions, which make it possible for two entities (only one of which needs be a BVI entity, provided certain conditions exist), to merge with all the assets of both entities consolidated into the surviving entity. This has made the BVI more attractive for joint venture vehicles and for the restructuring of companies and funds. BVI companies can also list on worldwide stock exchanges including LSE, AIM, NYSE, NASDAQ, ISE, TSX, HSX and BOVESPA.

Captive Insurance Management

BVI has developed into a major international insurance centre in recent years. The growth in stature for the BVI as an international captive insurance jurisdiction has also been aided by the strong presence of complementary service providers such as internationally renowned law firms and accountancy practices.

Accounting and Legal Services

The largest offshore law firms all have a presence in the BVI and legal services are growing on the Islands with the recent influx of several prominent law firms, including Withers, which chose BVI as the location for its first foray into the offshore legal sphere. BVI lawyers are widely respected throughout the financial services sector and several BVI firms have opened offices in London and Hong Kong, all of which work closely with their BVI offices. In addition, many of the major independent trust companies and accountancy firms are also in the BVI and there are clear signs of a growing demand for their services, particularly in the areas of mutual funds audit and insolvency practice.

Shipping Register

Since 2008, BVI has been an acknowledged Category 1 Red Ensign register, which means that the jurisdiction is one of only ten centres around the world where mega and super yachts of up to 3000 gross tonnage and general cargo ships of unlimited tonnage can be registered. The BVI Shipping Registry offers the highest practical standards in technical expertise, safety management and quality assurance, compatible with the Red Ensign Group (REG), to assure first class services. The Island’s facilities include:

  • registration of ships;
  • mortgages;
  • discharge of mortgages;
  • change/transfer of ownership; and
  • full corporate, legal, telecommunications and courier services.

Ships flying the BVI Red Ensign flag are British ships and are entitled to British Diplomatic and Consular support and Royal Navy Protection.

Conclusion

The BVI International Finance Centre is committed to maintaining the Island’s position as a well regulated, pre-eminent, progressive jurisdiction for international business services. The BVI is a globally integrated and transparent jurisdiction: whether it is through tackling financial crime, through robust regulation and enforcement or the provision of fiscal transparency through adherence to internationally agreed standards, we continue to demonstrate our commitment to being a financial services centre with the highest of standards. By its example, BVI will continue to state the case that whatever the size or the location, reputable and well run international finance centres make a valid contribution to a stable and successful global financial services industry.