Welcome to our guide on British Virgin Islands (BVI) fintech regulations.
1. Legislation Recognising Electronic Means
Electronic Transactions Act 2021
Purpose: To legally recognize the filing, creation, or retention of official documents electronically with a government body.
Previous Act: It replaces the Electronic Transactions Act 2001, which initially provided legal recognition for electronic signatures.
Electronic Transfer of Funds Act 2021 & Electronic Filing Act 2021
Purpose: To support a digital environment and e-government services in the BVI.
AML/CFT Compliance
Year: In 2018, the BVI permitted the use of appropriate digital and electronic means for identification and verification in compliance with Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) regulations.
2. Expansion of Money Services Business
Financing and Money Services Act 2009 (Amended in 2019)
Definition: The definition of "money services business" now includes electronic money, mobile money, and alternative methods of money and payment transmission.
New License: The introduction of a new license class (Class F) allows international financing and lending in the P2P fintech market, including P2B and B2B markets.
Note: This amendment has yet to be in force.
3. Data Protection Obligations
Data Protection Act 2021
Data Controller: A person or entity that has control over or authorizes the processing of personal data.
Conditions: Processing is allowed only if it satisfies one of the conditions specified in the Data Protection Act (DPA).
Rights: The data subject has certain rights, including access rights.
Sensitive Data: Stricter rules apply to sensitive personal data.
4. The Virtual Asset Service Providers Act (VASP Act)
Effective Date: Came into force on 1 February 2023.
FATF Recommendations: The Act is in accordance with the Financial Action Task Force (FATF) recommendations.
Additional Guides: Accompanied by the VASP AML Guide and FSC Guidance on Application for Registration of a VASP.
5. Predominant Business Models in BVI's Fintech Space
In BVI, there are primarily four types of Fintech-related business models:
Digital Asset Funds: These are funds investing in digital assets or blockchain-based businesses.
Token Issuers: Firms that offer and promote various types of crypto-coins or aim to raise capital for blockchain ventures.
Digital Asset Exchanges: These can be centralized or decentralized (DEX) platforms for trading digital assets.
NFT Platforms: These are platforms specifically designed for dealing in Non-Fungible Tokens (NFTs).
6. Regulatory Authorities
The Financial Services Commission (FSC) is the competent authority overseeing financial services activities in BVI. Entities must be licensed or registered with the FSC to conduct regulated activities.
7. Key Legislation
Principal Financial Services Legislation
The principal legislation governing financial services in the BVI includes:
Securities and Investment Business Act (2020 Revision) - SIBA
Banks and Trust Companies Act (2020 Revision) - BTCA
Financing and Money Services Act (2020 Revision) - FMSA
VASP Act
Anti-Money Laundering and Countering Financing of Terrorism Legislation
BVI has adopted AML/CFT and CPF legislation based on the Financial Action Task Force (FATF) recommendations, effective 1 December 2022.
8. Definitions
Virtual Assets
Defined as a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes.
Virtual Asset Service (VASP)
The business of engaging, on behalf of another person, in any VASP activity or operation (as outlined in the definition of VASP), including but not limited to:
Hosting wallets
Providing financial services for issuing virtual assets
Virtual asset kiosks
Transfer of virtual assets
Virtual Assets Exchange
Generally expained as a trading platform that is operated for the purpose of allowing an offer or invitation to be made in order to buy or sell any virtual asset in exchange for money or any virtual asset and which comes into custody, control, power or possession of – or over – any money or any virtual asset at any point in time during its course of business.
9. Regulatory Sandbox
Introduced in 2020, the regulatory sandbox allows fintech companies to test their business models under a focused and tailored supervisory framework.
Eligibility Criteria
Must be an institutional applicant.
Should intend to offer an "innovative fintech" business model.
Benefits and Requirements
Exemption from specific regulatory legislation.
AML/CFT/CPF rules will still apply.
10. Additional Compliance Requirements
Firms must also comply with beneficial ownership disclosure, tax information exchange, and economic substance requirements.
11. Regulating Authorities in the BVI
Financial Services Commission (FSC)
Jurisdiction and Functions:
Regulation, supervision, and monitoring of regulated entities
Enforcement of financial laws
Issuance of guidance and advisories
Facilitation of regulator-to-regulator assistance
FSC's Objectives:
Protect the public from financial loss
Enhance BVI's reputation as a financial services jurisdiction
Reduce crime related to financial services
International Tax Authority (ITA)
Responsibilities:
Negotiating tax information exchange agreements
Supervising legal entities subject to BVI's beneficial ownership and economic substance regimes
Financial Investigation Agency (FIA)
Functions:
Investigating financial offences like money laundering
Receiving and analyzing information related to proceeds of crime
Information Commissioner under DPA
Powers:
Investigating data protection-related complaints
Issuing notices and carrying out assessments
Note: As of the last update, the Information Commissioner has not yet been established.
12. Enforcement Measures
VASP Act Provisions:
Ability to inspect regulated entities
Power to remove directors and make public statements
AML/CFT/CPF Regime: FSC and FIA can exercise powers under the AML/CFT/CPF framework related to virtual assets and VASPs.
13. Implications of Additional Regulations
AML Regulations
Effective from 1 December 2022, specific updates mandate compliance for transactions involving virtual assets valued at USD 1,000 or more.
New AML Regulations: Require robust customer due diligence procedures and proper recordkeeping measures.
Cybersecurity
Computer Misuse and Cybercrime Act 2014 outlines prohibitions against unauthorized computer data access and modification.
14. Non-Regulatory Parties
Entities like accountants and auditors must also comply with BVI law relevant to their businesses.
15. Online Lenders
Differences in Regulation
BTCA vs. FMSA: If a BVI entity provides loans and accepts deposits, it falls under the Banks and Trust Companies Act (BTCA). If it only provides loans and the borrowers are BVI-based, the Financial Management and Services Act (FMSA) applies.
Economic Substance: Regardless of regulatory status, entities in financing and leasing must comply with BVI's economic substance requirements unless they can prove their income is taxed elsewhere.
Underwriting
Regulatory Gap: BVI doesn't regulate underwriting activities. Such activities, generally conducted onshore, must comply with the laws of that particular jurisdiction.
Sources of Funds
Retail Lending: Mostly conducted by branches of major banks licensed under the BTCA.
P2P Fintech Market: A Class F license was introduced in 2019, although applications are pending due to the need for detailed regulations.
Syndication of Loans
Compliance Requirement: If a BVI entity is involved in loan syndication, it must adhere to the laws of the onshore jurisdiction where syndication is arranged.
16. Fund Administrators
Licensing: Must hold a license in accordance with SIBA.
Due Diligence: Administrators are required to satisfy various criteria regarding mutual funds before providing administration services.
AML/CFT/CPF Requirements: Administrators must provide necessary documents and report suspicions of money laundering, terrorist financing, or proliferation financing to the fund's Money Laundering Reporting Officer.
Data Protection: Provisions often require administrators to safeguard personal data according to certain standards.
17. Permissible Trading Platforms
SIBA vs VASP Act
SIBA: Under the Securities and Investment Business Act (SIBA), any person providing a facility for trading or listing "investments" must be licensed under SIBA.
VASP Act: Those operating virtual asset exchanges are required to be registered as a Virtual Asset Service Provider (VASP) under the Virtual Asset and Service Providers Act (VASP Act).
Defining Investments and Virtual Assets
The Financial Services Commission (FSC) has clarified that utility tokens are not "investments" under SIBA.
Stablecoins or altcoins might qualify as "investments," depending on their structure.
Important: Businesses need to identify whether they deal in "investments" under SIBA or "virtual assets" under VASP Act to determine the applicable regulatory regime.
18. Virtual Asset Service Providers (VASP)
The FSC mandates that VASPs must provide extensive information on:
Safekeeping facilities and potential risks.
Security measures.
Client asset segregation measures.
Higher level of paid-up capitalization is required for VASPs operating exchanges or providing custody services due to the higher level of risk involved.
VASPs cannot engage in deceptive trading or marketing activities.
Provision of fiat currency exchange services for users requires written FSC approval.
19. Market Makers and SIBA
Principal Capacity: Entities functioning in a principal capacity and performing a market-maker role must be licensed or registered under the Securities and Investment Business Act (SIBA).
Virtual Assets: If such market-making involves virtual assets for a third party like an exchange, the entity is likely to be governed by the Virtual Asset Service Providers Act (VASP Act) and must register with the Financial Services Commission (FSC).
20. Funds
Open-End Funds: Must be licensed by the FSC.
Closed-End Funds: Must be approved by the FSC.
21. Investment Managers and Dealers
Licensing Requirement: Must be licensed by the FSC if dealing with what qualifies as an "investment" under SIBA.
Virtual Assets: If dealing in virtual assets, dealers must likely register as a VASP with the FSC.
22. Blockchain Regulations
Classification: Blockchain assets likely fall under the "virtual assets" definition under the VASP Act.
NFTs: NFTs are generally not considered "virtual assets" unless used for payment or investment.
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Navigating the regulatory landscape of financial technologies can be intricate and requires a precise understanding of local laws and global compliance norms. It's crucial to get these aspects right to ensure your venture's seamless operation and success. If you need expert advice or guidance in understanding the legal frameworks detailed above, don't hesitate to reach out for professional assistance. We have global partnerships that make us adept at handling global regulatory compliance.
The information provided is not legal, tax, investment, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your own legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be automatically generated. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information.
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