Business Insight: Beyond Globalisation

1

2

4

EDITORIAL TEAM

NOTE FROM THE CEO

BEYOND GLOBALISATION: SHAPING THE FUTURE

Welcome to the latest edition of BVI Business Insight. One of Barack Obama’s most famous quotes includes the line “We have a choice. We can shape our future, or let events shape it for us.” This has been a dominant theme this year as we look to the future and the BVI’s role as a leading global finance and business centre. This was also the driver for our research report: ‘Beyond globalisation: The British Virgin Islands contribution to global prosperity in an uncertain world’ commissioned by BVI Finance.

With this research we wanted to look at the possible scenarios for the future of globalisation and the opportunities for the BVI. In the first scenario – ‘Weaker internationalism’ - pre-pandemic globalisation trends continue, albeit more slowly and with plenty of political obstacles to navigate. In ‘the bloc economy,’ economic and regulatory integration between countries continues within geopolitical blocs, but these different groups diverge. Lastly, ‘new economic nationalism’ is a partial reversal of globalisation with increased protectionism, less porous borders and more erratic politics.

The report has been well received by our stakeholders and has been the centre of debate and discussion at several events, conferences and engagements. I am greatly encouraged that the report demonstrates that whatever form the next evolution of globalisation takes, international financial centres like the BVI will remain vital cogs in boosting the global economy by facilitating investment and enabling a more efficient global marketplace. You will see the perspectives around this theme from some of our key stakeholders in the following articles, encompassing emerging issues like the impact of Web3, AI and digital finance and the potential for the BVI to be at the forefront of this change.

The BVI’s Deputy Premier and first Minister for Financial Services, Labour, and Trade, the Honourable Mrs Lorna Smith, in a feature interview shares more on her key role to the success of BVI over the past three decades and her vision and ambitions for the jurisdiction in the future.

In this issue, we feature BVI stories detailing the great work of the various BVI financial services related associations. From Compliance to Law, Investment Funds to Insolvency and Restructuring, a collection of these articles features in this edition. Thank you to all those interviewed for providing their valuable insights.

In our second feature interview, Matthew Cowman, Managing Partner of law firm Walkers BVI takes a look at the firm’s 20-years in the BVI as well as insights into his own personal journey, starting with the job advert he applied to in 2007.

Elsewhere in this issue, Anson Li and colleagues in the Restructuring team at risk and advisory firm Kroll take an in depth look at the role of cryptocurrency in insolvencies and the actions regulators are considering to address the growth of cryptocurrencies.

We convened another series of Taxing Times roundtables with Oliver Cooper, Policy Lead at Charles Russell Speechlys LLP and Counsel to the IFC Forum, and an expert panel to discuss what’s next for the Organisation for Economic Co-operation and Development (OECD) proposed global tax reforms.

Continuing the crypto theme, Kayla Laidlaw from Deloitte examines the implications of a new OECD Crypto-Asset Reporting Framework (CARF) which was developed as a response to the rapid growth of the digital assets market. While implementation timelines are yet to be agreed, the article notes how the BVI can get a step ahead by assessing the potential applicability and the impact of these new requirements.

Looking ahead, legal expert, Adenike Sicard outlines why the BVI is leading the way on providing clear regulatory frameworks for digital assets through the Virtual Asset Service Providers Act (VASPA), making it a jurisdiction of choice for crypto hedge funds to domicile.

We also share the highlights from the second Beyond Globalisation Roundtable ‘Opportunities and Challenges for the BVI’ which delves deeper into the impacts of technological innovation, examines the emergence of green finance, and how best to future-proof the BVI Business Company.

Rounding out the issue, Jeffrey Kirk, Managing Partner at the law firm Appleby, discusses the rise of ESG considerations in boardrooms across the world. He highlights the potential for the BVI to be a fertile setting in which ESG investment fund structures can thrive, harnessing the jurisdictions credible regulatory regime.

As globalisation evolves and themes such as technological innovation and green finance continue to transform how we operate across borders and within financial markets, the potential that comes from adapting to these changes has never been clearer. Whatever the future holds, the agile and resilient nature of the BVI ensures it will be well-placed to remain at the forefront of innovation and change, shaping a future for success.

ELISE DONOVAN Chief Executive Officer

BEYOND GLOBALISATION: THE BRITISH VIRGIN ISLANDS’ CONTRIBUTION TO GLOBAL PROSPERITY IN AN UNCERTAIN WORLD

According to the Greek philosopher Heraclitus, “There is nothing permanent except change.” Some two thousand five hundred years later the veracity of that observation remains unshaken. This year bears witness to change on a worldwide scale; a transformation that is poised to reshape global trade and much of the infrastructure that underpins its operation.

All around us, geopolitical tensions, the rise of crypto and digital currencies, revised global allegiances, a growing awareness of the need for sustainability and the aftershock of the pandemic are at work, reshaping old certainties and fashioning new routes for international commerce. What will emerge at the end of this process is unclear, although what is certain is the post-cold war order that has dominated global trade for 30 years has ended and we are entering a new chapter for the world economy.

In 2023, BVI Finance and Pragmatix Consultancy released a new report ‘Beyond Globalisation: The British Virgin Islands contribution to global prosperity in an uncertain world’ exploring what this next chapter for globalisation will entail and the continued role of the BVI business and finance centre in facilitating global growth and prosperity in this fast-changing landscape.

The report spells out in detail three likely scenarios that may emerge over the coming years. The first scenario sees a weakening in internationalism and a slowdown of globalisation but no overall change in direction. The second, the rise of the bloc economy, sees the continued economic and regulatory integration of nations within predominately geographical blocs, but with the blocs becoming more divergent from each other. The final scenario sees the development of a new economic nationalism, which will see larger nations become increasingly protectionist and anti-internationalist.

All three options present opportunities and challenges for the global economy, with the latter two scenarios re-shaping supply chains, trade, and international investment.

AN ESTABLISHED INTERMEDIARY

Over the last 30 years, the BVI’s international business and finance centre has acted as a vital cog in the global economy, banking a wide range of experience that will help it aid the continuity of cross-border investments and transactions during this new chapter.

The BVI’s contribution to global prosperity was highlighted in the Beyond Globalisation report, which found that investment mediated through BVI Business Companies has been hugely beneficial for the global economy, facilitating $1.4 trillion in cross-border trade and investment, equivalent to 1.5 per cent of global GDP, and supporting around 2.3 million jobs, globally.

Whichever scenario eventually comes to fruition, the need for neutral investment intermediaries will continue. As cross-border transactions become more complex and fraught with political tensions, the offshore expertise and neutrality of IFCs - in particular the wide range of financial and professional services available in the BVI - will remain an important offshore intermediary at the heart of international trade due to their neutrality, agility, and ability to adapt.

...investment mediated through BVI Business Companies has been hugely beneficial for the global economy, facilitating $1.4 trillion in cross-border trade and investment, equivalent to 1.5 per cent of global GDP, and supporting around 2.3 million jobs, globally.

SUSTAINABLE INVESTMENTS

There are new agents of change at work, too; forces that are changing global business in unexpected and exciting ways. For example, sustainable investments and related ESG funds are an area of encouraging growth. The value of the global sustainable fund market is predicted to grow to be nearly 50 fold by the end of the decade and the BVI is perfectly positioned to optimise this potential, already having the right frameworks in place to facilitate investment.

The digital revolution has also transformed the global landscape. For example, the Beyond Globalisation report found that the addressable market of digital assets is expected to be worth between US$8 trillion and US$13 trillion by 2030, and the BVI is fast becoming a renowned leader in the space.

The BVI is well-placed to take this leading role as it has the required financial and professional services expertise to cater for the entire life cycle of a company, making it well suited to serve new and developing markets. Additionally, digital assets are increasingly non-geographical, which makes sense for a taxneutral jurisdiction like the BVI to serve as a neutral and secure location for companies to operate in.

The increasing focus on ESG finance and digital assets demonstrate how the BVI is able to be proactive, as well as reactive, in the shifting global financial landscape, and is ready to embrace the opportunities that are arising.

A GLOBALLY RESPECTED CENTRE FOR BUSINESS AND FINANCE

Change may always be with us but the BVI is well-positioned to respond to the risks and uncertainties. As a globally respected international business and finance centre with a proven track record of successfully facilitating global trade, finance and investment, the BVI will remain a reliable and trusted partner that helps its clients manage their cross-border activities, contributing to jobs, trade and global prosperity.

BEYOND GLOBALISATION: THE FUTURE FOR IFC s IN AN UNCERTAIN WORLD

In March 2022, Larry Fink, Chairman and CEO of Blackrock, wrote a letter to his shareholders, asserting that “The Russian invasion of Ukraine has put an end to the globalisation we have experienced over the last three decades.”

A lot has happened since Fink made this claim and this disruption has been ongoing. The Russia-Ukraine conflict has continued, geopolitical tensions have intensified, and major economies have teetered on the brink of a recession. The combination of these events has led many political and economic commentators to heed his words, predicting that Ukraine will provide future historians with a significant end point to what was already a faltering postcold war world order.

To explore the implications of these events, BVI Finance gathered leading BVI professionals at the Beyond Globalisation Conference. The panel shared their views on the future of globalisation, the emergence of a bloc economy, the role of International Finance Centres (IFCs) in this new world order, and how the BVI can remain resilient and competitive.

MODERATOR

Simon Gray

BVI Finance

Mr. Gray is a senior financial services’ professional with strong GCC and international background and major experience in both public and in private sectors with an established track record of success in both regulator and regulated.

PANELISTS

Clarence Faulkner

PMI Group, Inc.

Mr. Faulkner is the Founder and Managing Director of the PMI Group of Companies. He specializes in developing governance structures relating to investment and portfolio development, investment management, financial advisory services, private wealth, and social protection systems.

Julia Shamini Chase Gold Leaf Consulting

Ms. Chase is a well-known and highly respected regulatory lawyer and compliance specialist in the BVI. She is a qualified attorney-at-law holding a Master of Laws (LL.M.) in International Banking and Finance Law from the University of London, Shamini specializes in financial regulatory law.

Matthew Cowman Walkers

Mr. Cowman is the Managing Partner of Walkers’ BVI office and is a member of the firm’s Corporate, Finance & Funds Group. He has over 20 years’ experience as an international commercial lawyer, having worked in the British Virgin Islands, London and Australia.

Robert Briant Conyers

Mr. Briant is considered one of the most senior corporate lawyers in the BVI and focuses on mergers and acquisitions, joint venture companies and investment vehicles. He provides specialist advice to hedge funds and private equity funds, as well as advising on a broad range of financing transactions.

Rosa Restrepo

Arias, Fabrega and Fabrega Trust Co BVI

Ms. Restrepo specializes in advising institutional and private clients in the areas of offshore services, fiscal residency, estate planning, trusts and foundations. She also offers a broad expertise in assisting international clients with the implementation of FATCA, CRS and other pieces of foreign legislation that may affect their structures and activities.

Vanessa King

O’Neal Webster

Ms. King’s practice covers the major financial centers of the world, where her clients include international and domestic financial institutions, law firms, family offices, trust companies, and high net worth individuals. She is frequently instructed to establish or amend BVI trusts and various forms of corporate finance, such as bilateral and syndicated loans, project finance, property finance, and restructuring.

Is this the end of globalisation? And is there a role for IFCs in the new world order?

Vanessa: Globalisation has been fragmented for some time, not just because of the conflict in Europe. The growth of popularist and nationalist governments in Europe and Latin America, protectionist policies, and the threat of trade wars between large economies have fragmented globalisation as we know it. However, I do not see this as the end of globalisation – it’s simply evolving. Whatever this new world order will look like, there will be a role for IFCs.

Rosa: All the changes we have seen have triggered the need for something that is certain and secure. The way that IFCs have been working internationally shows that they can remain neutral. The BVI is a trusted advisor and people look to the jurisdiction for direction and advice in uncertain times, as one would a financial advisor and lawyer.

Julia: I have a very positive outlook. It is too early to jump on the grave of globalisation because it is not dead. I do not think it will ever die. We will see evolutions of it. The BVI Business Company as its core has been a great product to facilitate cross border transactions and the need for this will always be present. I do not think we will ever have a bloc economy on its own – persons will put their interests first at some point. The role of the BVI will continue as long as we adapt our business products and services and provide better opportunities to those seeking –and will always seek - cross-border transactions.

Robert: For the first time I am concerned. The reason for that is the weaponization of the rule of law by the West. Sanctions against Russia are extensive and these may intensify further. Other countries are watching this, notably China, and my fear is that China will diversify away from BVI to proof itself against a bloc scenario or nationalism scenario.

Matthew: We have all enjoyed the benefits of globalisation and the world isn’t going to give that up easily. It will change and look different. There may be players that are excluded from it from time to time but generally I think we will continue to pursue it.

Clarence: The whole matter of the role of globalisation will remain, and the role of IFCs will be focused on what role do they wish to provide. The question becomes, how do we leverage on what we established before to strengthen our role? We can pivot and say exactly what we can offer the global community in terms of continued global cross-border transactions. There is some resemblance of the bloc economy already established and I think we need to recognise what has taking place and where are we positioning ourselves to continue being a force to be reckoned with in the global community.

The Beyond Globalisation Report has hypothesised three scenarios as responses to the shifts in globalisation trends. The three scenarios help illustrate the potential range of implications for the cross-border finance, investment, corporate services and advisory markets.

i. Weaker internationalism - sees no change in the direction or nature of globalisation – but these trends continue at a slower pace

ii. The bloc economy - envisions continued economic, regulatory and, in some cases, political integration between countries within predominantly regional geopolitical blocs, but with these different groupings diverging from each other

iii. New economic nationalism - sees many of the larger individual nations increasingly go their own way and become more protectionist and anti-internationalist

markets, and most notably, move away from a reliance on China.

We are in the western bloc, there is no way around that and we are subject to UK sanction law. But does this mean going to Europe, which will require greater transparency, or will we tap into opportunities in South America, which will be partially in our bloc, where security is a greater priority?

The weaker internationalist scenario is the continuing of the status quo and in the new economic nationalism scenario, there will be a lot of new opportunities for IFCs, but as a result of the chaos of the new world order.

Julia: There is an additional frustrating factor for the BVI in the bloc economy in that as a British Overseas Territory (BOT), we do not have much say to which alliance we follow. Whatever the UK decides passes through the orders and council and we have to find some way to pivot away from it slightly.

Robert: The bloc economy will cut off markets and we do not get a choice in that. Our chips are in one particular region and if that was cut off from us, I do not know if we are prepared for that.

Vanessa: I predict a bloc economy will emerge, but I do not foresee the situation becoming as polarised as some fear it might. China, for example, will be the major player in its bloc but the country relies significantly on globalisation for their trade. Since covid, we have also seen a huge increase in the trade of specialised services, and this will also continue.

Clarence: I agree the bloc economy will be a challenge, but it provides some opportunities. The whole matter of us being a part of the Western bloc is of concern for us, in that we are an BOT and it might change our ability to provide services outside of the western world. The opportunities are there but the reality still boils down to the geopolitical issues as they relate to the stance of the Western bloc.

The Future of Wealth and Asset Protection, Confidentiality and Transparency

Rosa: First of all, there is a huge misconception around wealth and asset protection, which we need to address. When we talk about providing these services, people assume it must involve some illicit activity, but we are talking about legally acquired assets that our clients trust us with. Our clients are required to provide us with all their information around this, but is it necessary for the public to also have access to this sensitive information?

Which of these three do you think would be the most challenging scenario for IFCs?

Robert: The biggest challenge is the bloc economy and I think this is the most likely scenario. To deal with this, the BVI will need to diversify its products and its

Rosa: The bloc economy would present the most challenges – but it does also present opportunities as well. We will have to diversify, invest more time to accommodate each client needs, and appeal to new clients. The BVI is prepared but our clients are mobile, and we must be open to that. The only downside is that it will require more time and it will be more expensive for clients to find a finance structure that complies with new legislation.

I do not think so. We cannot allow the assets of our clients to become vulnerable. This is particularly important for clients in South American countries such as Colombia where high-net worth individuals have been known to be targeted for their wealth. We need to strike a balance and maintain the confidence of our clients that confidential information will be kept that way.

Matthew: Transparency will have an impact on the shape of IFCs, especially in the private market and family offices side of our business offerings. They are seeing the amendments to the Companies Act

and want to know what lies ahead for them and the BVI.

Vanessa: In this uncertain climate, we have also experienced more individuals looking for products to provide wealth planning and asset protection. It is important for us to future-proof this area but also to think outside the box and about what the next client will want. The client we have now is not the client we are going to have in 10 years. The younger generation will have different desires, needs and priorities, and we need to do more research to better understand how we can accommodate and appeal to these groups.

BVI: Perception vs Reality

Julia: In my experience, clients have differing opinions of BVI companies depending on geographical location. However, misconception around IFCs is rife. We need to go further to educate people around the BVI and emphasise our excellent regulatory landscape to reduce the misconception.

Rosa: It is up to us within the industry to promote the BVI and highlight all the good work we do here; the deals, the law firms, and our regulatory frameworks. There are other basic things we can do to help protect our image too – for example, do not cut corners and do not accept clients who seem reluctant to comply. Clients need to have due-process and we need to be out there helping potential clients with any concerns or challenges they face.

Shifting Markets

Clarence: When it comes to our core markets, we need to preserve what we have and be pro-active in our approach. China is traditionally a very important market for us, but we need to pay closer attention to what has happened in emerging markets such as Vietnam and African economies whilst China was in lockdown.

We must acknowledge what has worked for us over the past decades and leverage off those relationships to build our presence in these new markets where we can capitalise. It also requires us to look beyond what we have consistently offered over the years and broaden the offering, creating a one-stop shop facility where we can encourage cross-border transactions.

Digital Assets

Julia: The BVI has emerged as an industry leader in digital assets and finance. However, the crypto and digital assets sector is still experiencing the fallout from the FTX collapse last November and regulation is now a top priority for many jurisdictions to help reduce risk to investors and consumers. A lot of these crypto firms might not want it, but the reality is they do need it – they cannot work in silo and require banks and financial services providers to trust them. My firm has been involved in the first sandbox and crypto currency exchange, thanks to the progress we have seen with regulation, and we need to keep updating our framework.

Matthew: We need to diversify on the product front. In addition, we need to ensure our VASP regulation is appropriately resourced to provide maximum efficiency.

Clarence: I would take a more cautious approach and assert we need to tread carefully in this area and resist the rush to be first to market. There is a huge knowledge gap between practitioners and the regulators in terms of effectively keeping pace with what the companies are doing. We do not want to bring reputational risk to the jurisdiction by rushing the process.

Final Thoughts

Vanessa: The key takeaway from this panel is the importance of diversification. The BVI needs to diversify its products to remain relevant in this new era, including tapping into digital assets and finance. We also need to diversify our markets. In my opinion Latin America and Ghana are hugely untapped and have huge potential for the BVI, so we need to find our space here and look at how we can support local movements and development across LatAm and Africa.

We have been speaking about diversification for years – but now is the time to act, supported by the proper data and research.

BEYOND COVID: HOW HAS THE PANDEMIC AFFECTED INTERNATIONAL BUSINESS? WHAT HAS CHANGED?

By JEFFREY KIRK and TESCA MATHURIN

On the 11th of March 2020 the world was greeted with the news that the novel coronavirus (COVID-19) outbreak had been declared a global pandemic by the World Health Organization (WHO). What would happen next was anyone’s guess as business came to a halt, international travel shut down, mobility became restricted and international financial centers (IFCs) and their service providers began searching for alternative ways of doing business during a period of unparalleled uncertainty.

Some professionals had experience in weathering more limited pandemics, such as SARS, and/or recessions that had occurred in the past. Amongst them were the experienced strategic and financial investors who navigated through the 1987 stock market crash and the 2008 global financial crisis. When COVID-19 (the Pandemic) hit, those with long tenures in the industry may have had the advantage of experience but only to a limited extent. This Pandemic was unique, created a real sense of panic, and there was certainly no playbook for it.

Crises generally create volatility, market interruption or a lack of supply and demand of transactional capacity. The Pandemic caused volatility and market disruption but didn’t drastically diminish a supply of capital or demand for transactional activity in international business. This article will explore how the Pandemic affected international business through the lens of financing, M&A and technology in the wake of the Pandemic.

FINANCING IN THE WAKE OF THE PANDEMIC

Due to the abnormal impact on gross incomes and profits, the Pandemic significantly impaired the visibility that lenders once had into a borrower’s capacity and willingness to repay a loan. Pre-Pandemic finance providers were better able to determine a borrower’s likely ability to repay and the probability of default, by considering credit and payment histories, income, assets or nonfinancial information such as length of banking relationship and the purpose of the loan. In addition, it limited lenders’ options for recourse in the increasingly likely event of a default.

This is potentially a long-term development. The protracted effects of the Pandemic on the economy and the financial services sector may materially and negatively impact the appetite of lenders to provide ongoing facilities. This is more pronounced in the age of banks continued de-risking.

Notably, mergers and acquisitions activity carried on through the Pandemic relatively unscathed as opportunistic buyers with extra cash on hand met head to head with eager sellers. Other buyers embraced the opportunities to consider joint ventures or partnerships to expand their business and generate new streams of revenue. Examples include Anglo-Swedish drug maker AstraZeneca’s (AZN.L) $39 billion acquisition of U.S.-based Alexion (ALXN.O) in July 2021 which allowed AstraZeneca to enhance its scientific presence and S&P Global Inc.’s (SPGI) $44

billion purchase of IHS Markit Ltd (INFO) in early 2022 combining two of the largest financial data providers.

TECHNOLOGY

Technology had already changed pre-Pandemic, but the Pandemic further accelerated and solidified the shift toward an almost total reliance on technology with a McKinsey & Company report estimating the acceleration of technology by a measure of three to four years.

The British Virgin Islands (BVI) has seen legislation to technologize both its governmental and international finance sectors with the introduction of the Electronic Filing Act 2021, Electronic Transactions Act 2021 and the Electronic Transfer of Funds Act 2021 bringing with them the provision of e-government services, electronic filing, creation and retention of official documents, acceptance of electronic signatures and electronic transactions and dealing with virtual assets and data protection.

The Electronic Transfer of Funds Act 2021 regulates the transfer of money through electronic means and creates offenses for criminal activity orchestrated through transfer of money by electronic means e.g. fraudulent use of bank cards. One would understand why this was necessary as criminals exploited the Pandemic with a rise in scams and attacks against online victims.

The Electronic Transactions Act, 2021 (ETA) states that information shall not be denied legal effect, validity or enforceability on the sole ground that:

(a) it is in the form of an electronic record; or

(b) it is not contained in the electronic record purporting to give rise to such legal effect, but it is merely referred to in that electronic record.”

The ETA also provides that

• unless otherwise agreed by the parties, an offer or the acceptance of an offer may, in relation to the formation of a contract, be recorded by electronic means.

• if the relevant documents meet the requirements of a binding contract under BVI law, the use of electronic records does not affect their legal effect, validity or enforceability as a contract.

• the requirement for a signature (or seal) on a document can be satisfied by means of an electronic signature, provided that the electronic signature.

Electronic record is defined under the ETA as information generated, sent, received or stored by electronic means including electronic data interchange, electronic mail, telegram, telex or telecopy.

Deeds however do not form part of the scope of the ETA and as such the (i) the creation, execution or revocation of a will or testamentary instruments (ii) the conveyance of real property or

the transfer of an interest in real property; and (iii) any other thing required to be done by deed still requires wet ink signature. The acceleration of technology also saw the introduction of the Financial Services (Regulatory Sandbox) Regulations, 2020 (FSR), the Data Protection Act 2021 and the Virtual Asset Service Providers Act 2022 (VASP). Under the FSR the BVI Financial Services Commission (FSC) announced that their regulatory sandbox was open and accepting applications. The aim of the regulatory sandbox is to ensure that regulation keeps up with the changes in technology and to test innovative financial services, while protecting market participants.

Innovative FinTech has aptly been defined in the FSR as the development or implementation of a new system, mechanism, idea, method, or other arrangement through the use of technology to create, enhance or promote a product or service with respect to the conduct or provision of a financial services business. The FSR will apply to BVI business companies, foreign companies, limited partnerships, micro business companies, existing licensees or any other person that the FSC has otherwise approved to participate in a regulatory sandbox. An important point is that the provisions of the other regulatory legislation will not apply to a sandbox participant in so far as the sandbox participant is using innovative FinTech to test a product or service within the regulatory sandbox.

VASP is the latest BVI legislative development designed to fulfil the BVI’s ambition to become a global technology hub. It aims to promote the use of new technology and innovative enterprise in the BVI whilst complying with international standards set by the Financial Action Task Force (FATF).

On a more global scale international business has also become more reliant on technology and less reliant on physical financial centers as places for doing business, this may be due to the fact that during the Pandemic most of these centers were forced to shut down but international business kept operating and finding innovative ways to conduct business.

On the client end of the spectrum the Pandemic has fast-tracked changes in client behavior with clients demanding digitalized systems in almost every aspect of business. Governments are following suit digitalizing their processes. Whilst most businesses historically sought temporary immediate short-term technology solutions pre-Pandemic, they are now focusing heavily and on a long-term basis on investing in technology and digital tools viewing it as indispensable to their growth and survival.

There had been widespread use of virtual data rooms, video conferencing technology and collaborative software prePandemic. However, the Pandemic made these types of resources an absolute necessity and they have now become a widely accepted alternative to traditional face-to-face meetings in the financial services industry. Zoom, Microsoft Teams and Google Meet have fundamentally altered how we communicate with one another.

Technology innovation also brings with it a push towards a hybrid, and in some cases a fully, remote working system. A majority of companies and firms are now creating new human-centric models for a hybrid working environment while promoting healthier, more collaborative work spaces with emphasis on staff wellbeing. This is not a ‘nice to have’, it is fundamental to the choice of employer or partner that prospective consultants, officers and employees will make.

This once in a multi-generational event, the Pandemic, has forever and indelibly changed our lives. We live, work, meet and interact, travel in a very different way to what we did three years ago. It has fast-tracked technology and coincided with the boom of digital assets and more generally transformed the way international business is conducted. Financial institutions appetite for risk and their lending models may forever be changed but more than that, the Pandemic has made us re-evaluate how we live and operate with greater emphasis on well-being, mental health and the environment. In that sense, the global Covid pandemic may turn out to be a blessing.

Jeffrey Kirk

Managing Partner, Appleby (BVI) Limited

Mr. Kirk is the managing partner of the Appleby British Virgin Islands office and he leads the BVI office Corporate Practice Group. He advises on public and private M&A, capital markets, banking & finance, FinTech including digital assets, investment funds & services, private equity, (re) insurance and other corporate matters. He is also the global head of the Appleby Islamic Finance Practice Group.

Tesca Mathurin

Former Associate, Appleby (BVI) Limited

Ms. Mathurin is the Head of Legal at ATU General Trust (BVI) Limited. Her practice focuses on private clients in the areas of wealth management and trust. In her role, she also handles corporate and commercial law matters, including debt restructuring, cross-border corporate financing, private equity transactions and mergers. Ms. Mathurin also works in the arena of citizenship by investment throughout the Caribbean.

A DRIVING FORCE FOR SUCCESS

INTERVIEW WITH HON. LORNA SMITH, OBE Minister for Financial Services, Labour and Trade Deputy Premier

From the first official marketing delegation to Hong Kong in 1990, to being awarded the Order of the British Empire (OBE) by Her Majesty Queen Elizabeth II, Honourable Lorna Smith has played a key role in the success story of the British Virgin Islands (BVI) and is now looking to reach greater heights as the BVI’s first ever Minister for Financial Services, Labour and Trade.

BVI Business Insight speaks to the Minister and Deputy Premier about her vision and ambitions for the BVI and what has driven her successful career in business and finance over the last three decades.

financial services sector to see where their priorities are, how we can help their businesses grow and what obstacles are in their way.

I want to explore how we, as a new ministry, can make the presentation of our financial services offer even better to attract more investment and create more job opportunities in the BVI.

I see the new ministry as the economic driver for the whole economy.

What is your vision and longer-term goals?

Why do you think it is important to have a dedicated Ministry for financial services now and what do you hope to achieve?

One of the key drivers for the creation of the new ministry is to bring a more coordinated approach to policy development and ensuring international planning and implementation across these vital economic sectors.

We believe that by combining these areas as a government we will be more able to comprehensively seek out new opportunities for investment; identify new products we can develop under the Financial Services umbrella; and ensure that we have the people we need to continue being a dynamic, well-regulated and integrated financial services and business centre.

What are your immediate priorities in the new role?

As you know, the BVI has always been a forward thinking and innovative centre and that’s why we have done so well over the years.

Today, there are undoubtedly both economic headwinds impacting the whole of the global economy as well as the particular challenges we face in the BVI.

Many of these are institutional or governmental in nature, and that is one of the reasons that the government recognised the importance of having a dedicated Ministry of Financial Services, Labour and Trade.

A key part of this is ensuring we have the right credibility with individuals representing these (global) organisations such as the Organisation for Economic Co-operation and Development (OECD) and Financial Action Task Force (FATF). In addition, I have already started talking to a variety of stakeholders in the

I have always believed that financial services can offer so much more to the BVI than just the excellent revenues that we receive. For example, I would like to see an improvement in our banking sector with more financial support to entrepreneurs and small and mid-sized enterprises (SMEs). I recently met with the Banking Association and plan to continue to meet on a quarterly basis to track progress in this regard. We also need to attract more investment to improve our infrastructure and broader services. I’ve already witnessed a lot of interest in private sector partnership with government to improve infrastructure and particularly in education which is so important to our continued success.

Within our financial services sector, we have clear opportunities in digital, green and blue finance and I am hopeful that we can explore the opportunities in these spaces and identify how they can help our economy.

I am particularly excited by the prospect of the Fintech on the Seas idea which we are planning for next year and will greatly increase our reputation as a leading fintech jurisdiction. In the case of Blue Finance, we will also look at the potential to help us restore and protect our natural assets and mitigate the impact of climate change.

And finally, I would like to see more leadership and mentoring from the industry to support our young people. We are already seeing enthusiasm for this across the industry, for example one firm has set up a training programme in financial services for 16-18 year olds which is an excellent example of this kind of initiative. I will be looking to encourage more of the same which is such an important ingredient in our recipe for continued success.

How are you working with the private sector to realise your vision?

I am going to do two things. I’m going to have a more formal working session with the financial services industry to discuss how we can help each other better - particularly looking at new opportunities, new markets and services in addition to the mentorship I talked about above.

Secondly, I am going to hold a similar session for small

I believe the future lies with our younger generations and we must do everything we can to help them realise their dreams and potential, whether it’s young entrepreneurs or artists or whatever field that they are in.

businesses and entrepreneurs, focused on the districts in the BVI. I want to understand what their needs are and discuss what the government can do better to help them.

How do you think the BVI is currently perceived as a financial centre?

The BVI has credit in the bank so to speak, with a positive global reputation that has been forged over the last four decades.

But we have many challenges that can adversely affect that, notably the recent actions of international government organisations such as the European Union (EU) and OECD. That is one of the reasons the new ministry was formed to make sure we have the right representation in the room when such decisions are taken.

We also need to ensure that we continue to live up to the reputation we have for being nimble and agile both in terms of developing new products and addressing these challenges. We have to be on the front foot in terms of our regulatory standards and in our ability to adapt quickly with the legislation the industry requires. I am hoping that the new ministry will be able to assist in this endeavour.

Where will the opportunities for growth be coming from?

In terms of geographies, we continue to be very strong in Asia, with over 50 per cent of our business originating from the region.

However, we have also seen good growth in our Latin American markets. And these areas will be the focus for our marketing efforts moving forward. We have some plans for Latin America, which I hope we can activate by the end of the year.

In terms of sectors, we will be doing more in the digital space in addition to green and blue finance – which I mentioned earlier.

This will also fit in with the government’s ambitions, as well as hopefully enable us to build more resilience and build a more sustainable future for the BVI.

What about your plans for Labour and Trade?

My overriding ambition is to reduce the bureaucracy and red tape and make it easier for people to work and to do business in the BVI.

We must have a system which enables our entrepreneurs to thrive and prosper and create businesses that can provide jobs and services in the BVI and across the world. This requires easy access to the system and quick decision making.

We are in the process of reviewing the work permit structure and have also announced that there’s a new chair for the Labour arbitration tribunal.

In terms of trade itself, attracting inward investment and creating public private partnerships to improve the quality of life in the BVI and enhance our economic development are critical. I will be looking at how we can begin this process quickly.

We are also taking an integrated approach which is not just about financial services. An early example of this is our trade mission to Guyana which took place in early August with similar missions following for example in Asia.

Getting out on the road has been important to promoting the BVI globally. What other plans do you have?

Delegations are a hugely important part of building relationships in our key markets and this will continue to be a priority for the new ministry.

I was part of the first official BVI Government delegation to China in 1990 and established the first BVI office in Hong Kong. As China still accounts for nearly half (44%) of Financial

Services business and 13% from the rest of Asia which means China and the region is very important and will continue to be a priority. We need to ensure that both our clients and prospects are updated on the BVI advantage.

As such, we are looking at taking a delegation to the region by mid-year. I will be working with BVI Finance and the Industry to make sure there is maximum participation and we put our combined best foot forward to protect and enhance the BVI’s foothold there.

So you have a busy year ahead how will you manage the workload?

Yes very busy, but I am surrounded by a great team, including BVI Finance, the FSC and my Permanent Secretary – so this is a shared responsibility and together we can bring the vision to reality and make a real impact.

Can you touch on some of the highlights of your career?

There are many, but a key moment was being part of our first venture into China and Hong Kong, which opened the door to so many opportunities. The establishment of the Hong Kong Office was also an important step and a highlight, helping expand our footprint into Asia and putting the BVI on the map.

Our industry has brought an excellent fan-base in Asia to the BVI and I am happy to have played a role in that.

I also started the BVI’s London Office, which was important in building relationships with UK Government and wider stakeholders. I hope I will be able to re-establish many of those connections to the benefit of the BVI moving forward.

What has been a driver in taking up office now at this stage in your career?

I’ve always been passionate about making an impact and improving peoples’ lives and most importantly creating more opportunities for young people. I want to see more things done over the next four years to make these things happen. As a businesswoman at heart, I believe that public and private partnerships can do much to address these issues collaboratively and that is what I am going to focus on.

It’s a win-win situation for everybody and so for all those reasons I decided to run and I was successful.

Is there a book, speech or individual that has inspired you?

The person who has inspired me, of course, was the BVI’s first Chief Minister, the late Honourable H. Lavity Stoutt. He was an exceptional leader and architect of some of the Territory’s most significant projects and guided the BVI in its development

as an international financial centre. He always used one of the proverbs from the Bible “where there is no vision, the people perish” and that has been a mantra for me.

Under his leadership, I was able to benefit from a good education which was a focus for him. I got my first degree when he was Chief Minister. Like him, I believe the future lies with our younger generations and we must do everything we can to help them realise their dreams and potential, whether it’s young entrepreneurs or artists or whatever field that they are in. I also want to see more young people develop careers in the financial services sector.

In terms of a book, I have to say that a couple of years ago I read Barrack Obama’s book “A Promised Land” which particularly inspired me during my election campaign. It helped me get a real insight into what campaigning is about and that was to listen to the advice from those around you and stay the course, working hard to achieve your goals.

What piece of advice would you give those younger generations?

I would urge them to believe in themselves. They also need to go out and seek opportunities to learn and develop. Mentorship is a brilliant part of that.

If they’re interested in politics, they should get involved with the student council and talk to the industry representatives. And again, see if they can volunteer for civil society where they can make a contribution and meet some of our community leaders. My final piece of advice is network, network, network!

What will be your legacy?

It might be a bit premature for that, but I hope that I can help the industry to continue to grow and develop and become even more resilient so that we are better shielded from the various challenges international institutions try to throw at us.

I want to play my part in securing a sustainable future for the BVI through the continued development and evolution of a dynamic and innovative financial services centre.

I think that would be the beginning of a good legacy for me

Lorna Smith O.B.E., M.A. TEP Deputy Premier and Minister of Financial Services, Labour and Trade

Ms. Smith has several decades of experience at the highest levels of the public service in the British Virgin Islands and has spent the last decade supporting Caribbean Governments, corporations and individuals in various commercial ventures. She spent the last two and a half years establishing BVI Finance, a public private partnership devoted to business development and promotion of the financial services industry.

As 2022 was the 20th anniversary of the BVI Financial Services Commission (FSC), Business Insight talked to Kenneth Baker MD & CEO of BVI Financial Services Commission of the BVI about the evolution of the Financial Services Commission over the last two decasdes.

In your opinion, what have been the three most significant milestones in the financial services industry (and/or FSC) over the last 20 years?

In my opinion, the three most significant milestones in the financial services industry over the last 20 years are as follows:

a. The enactment of the BVI Business Companies Act, 2004 which was designed to modernise the corporate regime, continue the attractiveness of the international business companies’ regime and eliminate the ring-fencing structure of the local companies and the international business companies. The jurisdiction was under pressure from the European Union to eliminate the perceived ring-fencing.

b. The introduction of the VIRRGIN system which modernised the registry function of administering the Business Companies Act. The VIRRGIN system has almost eliminated the need to file paper transactions and has improved productivity significantly.

c. Positive assessment of the regulatory regimes in the jurisdiction. These assessments against numerous international standards have demonstrated that the jurisdiction has conducted international business in accordance with the various international standards promulgated by standard setters.

What main attributes do you believe have contributed to the success of the BVI’s financial services industry over the last 20 years?

The main attributes that I believe have contributed to the success of the BVI’s financial services industry over the last 20

BVI FINANCIAL SERVICES COMMISSION 20TH ANNIVERSARY

years are regulation, innovation, international cooperation and resilience in this order. The jurisdiction has over the years always taken the high road to maintain and protect its reputation advocating that “a flight to quality should be encouraged”. The BVI Business Companies Act, 2004 is the hallmark legislation which has generated the most revenue for the jurisdiction. The VIRRGIN system was a great innovation which modernised the registry function by eliminating paper filing of transactions and improving efficiency. The jurisdiction also has a stellar reputation for providing international cooperation to fellow regulators who request information when persons who are ethically challenged use BVI structures for illicit purposes. Finally, the VIRRGIN system had a significant real-world test of its resiliency following the devastating weather events of 2017. All together these attributes make the BVI a premier jurisdiction for conducting international financial services business.

In your view, what is the single most important factor in the success of the BVI’s FSC?

The single most important factor in the success of the BVI FSC has been the tripartite relationship between the industry, Government and the Commission. The relationship involves working with the industry to develop product legislation, taking consultation comments onboard that would result in the best outcome for the jurisdiction and responding appropriately to threats in order to safeguard the reputation of the jurisdiction.

Could you share any personal highlights from your time with the BVI FSC?

Take advantage of training and development opportunities including overseas attachments where available. The Commission has offered overseas attachments to a number of staff over the years and all of the participants have performed well during the attachments and have risen through the ranks of the Commission. Both Deputy Managing Directors have experience working overseas with fellow regulators.

WALKERS BVI AT 20: INTERVIEW WITH MATTHEW COWMAN Managing Partner

BVI Finance spoke to Matthew Cowman, Managing Partner of Walkers BVI about the firms’ two decades in the BVI and his own personal journey with the firm.

After answering a job advert in the Lawyer Magazine, Matthew joined Walkers and arrived in the BVI in 2007. He has seen Walkers BVI office grow from a commercial practice with three lawyers to a full service legal and professional services business with 20 lawyers and 46 staff in total.

What brought you to Walkers and to the BVI? I had been practicing as a lawyer in London for a few years after moving from my native Australia. It was at the end of another 16-hour day and the rain was pouring down. That was when I saw a Walkers full-page advert in the Lawyer Magazine complete with palm trees and a backdrop of one of BVI’s stunning beaches. I immediately applied for the role and then embarked on the first part of my journey with Walkers BVI.

At the time, I had been increasingly aware of the reputation of the BVI as an up-and-coming jurisdiction in offshore finance, particularly for structuring, and saw the opportunity to make my mark and have an influence. Having been established in 2002, Walkers was also in growth mode, and I saw this as the perfect opportunity for me to play a role in its continuing success.

What makes Walkers stand out as a firm?

The big attraction for me was the quality of the transactional work being done and the significant opportunities for development that represented.

Walkers’ BVI office regularly advises on significant and complex mandates internationally and locally. The Insolvency & Dispute Resolution team regularly appears before the Eastern Caribbean Court and the Privy Council for example.

On the transactional side, Walkers regularly acts on some of the most significant international instructions. For example, the corporate team acted for Pfizer on its US$11.7 billion acquisition of BioHaven, a BVI company listed on the New York Stock Exchange. This was the biggest ‘take private’ deal of a BVI company ever and a great testimonial for Walkers and the team. We also advised the award-winning Central America Bottling Corporation on its US$1.1 billion Sustainability-Linked Bond.

What are the ingredients to Walkers’ success?

Client service is king at Walkers. We strive to provide at least as good a service as the top international law firms we work alongside. This has been one of the foundations of Walkers success.

Another major factor is our commitment to our people and our culture of development and training. This ranges from our monthly birthday cakes – always a great hit - to nurturing and developing local BVI talent. We offer scholarships and a trainee programme that has been a real success. For example, in 2020, Walkers celebrated Omonike RobinsonPickering becoming its first BVI trainee to be promoted to partner. Omonike has been involved in some of our notable deals of last year including acting on Queen’s Gambit Growth Capital (the First Women-Led SPAC) in its Business Combination with Swvl Inc.

Lastly, we are committed to supporting the local community. In the aftermath of Hurricane Irma, Walkers worked with multiple agencies to assist the BVI relief efforts and we continue to play an active role.

The BVI is gathering a reputation as the place to be for digital assets which makes sense as the BVI has always appealed to early-stage and start-up businesses.

Where is growth coming from?

We have always had a strong pipeline of litigation business in the BVI, particularly around shareholder disputes. More recently, we have seen growth coming from the corporate advisory and M&A space and the firm has been involved in some significant work in the last 12-18 months as noted above.

In terms of geographies, we are seeing continued strong demand from Europe and Asia. As a firm, we are able to utilise our strong on-the-ground presence in the world’s major financial centres, for example in our offices in London, Hong Kong and Singapore. This allows us to provide clients with a truly global service and limit any time zone disruptions. In the BVI, due to the geographical proximity, we see increasing growth coming from the US, Canada and Latin America.

We’ve also seen increasing opportunities in the digital assets space. The BVI is gathering a reputation as the place to be for digital assets which makes sense as the BVI has always appealed to earlystage and start-up businesses. The VASP regulation is certainly adding to the attractiveness of the BVI as a hub and we will see more of this in 2024.

Where will Walkers BVI be in 10 years?

Much like the BVI itself, Walkers has been agile in adapting to the landscape over the last two decades. Looking ahead, I see more work coming from regulatory advice and I’m sure that will be an increasing important part of our offer in the years to come.

Will you still be in the BVI in 10 years?

I hope so. The team is one of the best I’ve ever worked with, and I’m invested in supporting their continued development and success.

How do you relax?

I like playing basketball and also enjoy boating – exploring and taking in the BVI’s beautiful islands.

One of the wonderful things about being in the BVI is that we work very hard in the week, then at the weekends it feels like you are on your holidays.

How do you see the future for BVI?

I see a positive future for the BVI. In the last two decades we have seen the benefits of globalisation and I don’t think we are ready to give up on that, despite recent challenges. The BVI (and BVI companies) has played a key role in that growth story, and I think it will continue to play an important part as we see a return to global economic growth. As a firm, Walkers plays an integral role in attracting top tier, international cross border business into the jurisdiction and we are committed to the ongoing success of the British Virgin Islands as an international financial centre.

Matthew Cowman Managing Partner, Walkers BVI

Mr. Cowman is a member of the firm’s Corporate, Finance & Funds Group. He has over 20 years’ experience as an international commercial lawyer, having worked in the British Virgin Islands, London and Australia. He advises clients in banking and finance transactions, acting for lenders and borrowers in a range of matters including acquisition finance, real estate finance and general corporate finance. He also acts for clients in a range of corporate transactions, such as joint ventures, mergers and acquisitions and corporate reorganisations.

In this section of Business Insight, we profile BVI Stories, taking a look at the great work done by the various BVI financial services-related associations. Stories by the BVI Bar Association, the BVI Association of Professional Accountants, the BVI Association of Compliance Officers & Practitioners, and the BVI Restructuring and Insolvency Association (RISA) outline the robustness of the BVI financial services industry, and the work being done to maintain the high quality of service provided by the jurisdiction.

BVI STORIES: BVI INVESTMENT FUND ASSOCIATION

The landscape of the global economy is changing rapidly. From the rise of cryptocurrencies and digital assets to the growing prominence of ESG and sustainable finance, International Financial Centres are at the forefront of this change, facilitating global growth and international collaboration.

Keeping up with the pace of change requires agility and resilience, and in the British Virgin Islands, the Investment Funds Association (BVI IFA) is playing an important role in ensuring the jurisdiction remains competitive.

The association has a dual function; helping to shape the focus and implementation of new legislation, and advising the BVI Government, BVI Finance, and BVI regulator, the Financial Services Commissions (FSC), on new products and markets to pursue.

The combination of these two activities, and the close working relationship between the IFA and the FSC and Government, has led to an impressive period of growth for the BVI investment funds sector and has positioned the BVI as a world-leading innovative and forward-looking jurisdiction.

LEGISLATIVE COLLABORATION

As the global economic landscape continues to shift and new challenges arise - from climate change and increasingly sophisticated financial crime - it is vital that regulations stay on pace and ensure structures and processes remain fit for purpose. Navigating legislative changes requires close collaboration between the private and public sector and in the BVI. The IFA plays a crucial role in guiding the Government and FSC in guaranteeing that all structures remain compliant whilst mitigating disruption. In recent years legislation such as the Economic Substance Act and the new Private Investment Fund, have been fundamental game changers for the jurisdiction, and their successful implementation and compliance has been a result of this collaborative relationship.

This relationship has been particularly pertinent over the last year as key updates in financial services regulations have taken place, in particularly around anti-money laundering (AML) and know your customer (KYC). In addition, as the BVI Beneficial Ownership register develops in line with evolving global standards, the IFA will play an important role in analysing and explaining how it will affect their area of global financial services.

For the association, remaining engaged with the Government across all this new legislation is vital. Whilst it might not all apply directly to the funds industry, the interrelated nature of the BVI ecosystem means the IFA has an important voice and viewpoint on how new regulations could impact the overall landscape and competitiveness of the jurisdiction.

it lies within is complex and so understanding what exactly the asset class was, how custody solutions would need to look, and how AML and KYC would apply were all essential for taking the leap.

The subsequent success in the BVI in digital assets can be contributed to this regulatory work, and the receptive attitude of the FSC to embrace a different approach and not impose old infrastructures on the new asset class. The BVI is now a worldleading jurisdiction in the space, with institutional players coming to the BVI and bringing further credibility.

This puts the BVI ecosystem in good stead as it continues to strengthen its offering in the sector. For example, new VASP (Virtual Asset Service Provider) legislation came into force last year which will continue to prepare the sector for the future of digital asset management.

LAYING THE GROUNDWORK FOR PROGRESS

The legislative landscape in the BVI is crucial. It enables the government, BVI Finance, and the FSC to plan ahead and pursue the right opportunities, which has contributed significantly to its growth over the last decade.

One prime example of this is the progress being made on cryptocurrencies and digital assets. Back in 2015, when most jurisdictions were turning down digital assets funds, the BVI IFA was going against the grain and starting to explore and engage with these funds, taking on new clients from the United States, which since have grown immensely, showing the bold and forward-thinking ethos in the BVI.

Embracing digital assets and cryptocurrency asset funds requires strong collaboration and trust between the IFA and the FSC, involving extensive due diligence and research to explain why this was an opportunity worth embracing. The regulatory landscape

LOOKING AHEAD

The success and growth of the BVI Investment Fund sector has been a result of these combined factors; the collaborative approach to legislative process, the reciprocal relationship between the public and private sectors, and the willingness to be bold and embrace new markets and opportunities.

It is this combination that is allowing the IFA to remain agile in the face of change and adopt a future-looking perspective, building on the work that has been done to ensure the BVI remains a world-leading IFC for innovative and collaborative investment.

BVI STORIES: BVI BAR ASSOCIATION

The British Virgin Islands Bar Association plays a vital role in the jurisdiction, working diligently behind the scenes to ensure the functions of the judiciary operate smoothly at all times and the BVI remains at the forefront of global shifting regulations and developments.

The Bar Association was founded in 1976 with just eight members with the core objective to support the independence of the judiciary and maintain relations between the members of the legal professions, and then of the public. Now with over 200 members, the Bar Association plays a crucial role in maintaining these relationships, ensuring that the public can exercise their right to access the court, as well as ensuring that BVI’s regulatory landscape remains relevant and sensitive to international shifts.

STAYING AGILE IN A FAST-SHIFTING ENVIRONMENT

A robust legislative framework is a vitally important part of any jurisdiction, required to meet both the needs of the public, as well as the international standards. It is also paramount that as an international finance centre, the BVI remains sensitive to the shifting requirements of the international business community –from technological innovations to significant geopolitical events.

Therefore, developing up-to-date legislation that caters for a fastshifting global economic and regulatory landscape remains a top priority for the BVI.

One such regulatory amendment which was a major statutory achievement for the association was the common court remedy which was secured just prior to the pandemic. The remedy gives a court the jurisdictional power to give one party in a dispute the right to access an asset, usually a BVI registered company, who is owned by the opposing party even if that asset is not directly involved in the dispute. This crucial remedy for the public and individuals had been challenged by the Court of Appeal, leading the association to lobby for legislative change and preserve the remedy.

Looking ahead, the association will continue to lobby with the judiciary and the membership when it is necessary to ensure that legislative changes meet the needs of the public and the practice as a whole.

The events of Hurricane Irma and Covid-19 have also supercharged the goal of serving the public and the practice in the most effective way possible. The judiciary had previously worked closely with BVI Financial Services following Hurricane Irma, making good use of its advanced online offering to offer continuous support for the international market. Even in a time of crisis, the collaboration between the sectors allowed for continuous support for both the local community and overseas businesses.

This collaboration provided key insights for the BVI to become one of the first jurisdictions in the region to transition its courts to an electronic platform. The legislation also had to be passed for the courts to be able to accept electronic signatures. The Bar Association has seen how this has increased the pace of court decisions and was able to guide members through the process in order for the transition to be made smoothly and with minimal disruption to businesses.

INVESTING IN THE FUTURE

For the association, another important mission this year has been to promote the legal education of the public and the study of jurisprudence through increasing visibility of presence and impact.

The association is aiming to partner with local schools and organisations to provide a path for individuals to pursue an interest in law. The partnerships will show that the profession, so often hidden from the public eye, is an innovative and pivotal arm of the BVI’s core business offering.

The BVI has a long and proud history of upholding international legal standards. As we look to the future, the Bar Association hopes to inspire the next generation of legal minds who will continue to innovate and modernise the legal system, ensuring that the jurisdiction continues to pursue world-leading legislation.

BVI STORIES: BVI ASSOCIATION OF PROFESSIONAL ACCOUNTANTS

Remaining competitive as an International Financial Centre (IFC) requires a forward-looking and agile approach. In the British Virgin Islands (BVI), the industry associations are constantly working alongside the BVI regulators, Financial Services Commission (FSC), and BVI Finance to explore ways the jurisdiction can improve its offerings and create a seamless and efficient ecosystem for businesses.

For the Association for Professional Accountants (APA), this mission falls into two clear and important pillars: regulation and education. Both of these pillars contribute to laying the foundations for growth and building a resilient future for the profession in the BVI.

This year, the APA is seeing years of legislative work coming to fruition as well as engaging a new generation with successful education campaigns, generating a pipeline of talent and future-proofing the sector.

STRENGTHENING THE OFFERING

The past year has been a pivotal one for the accountancy profession in the BVI with the long-awaited regulation to standardise the accountancy sector set to be finalised. This development will have hugely positive effects for both the sector and the overall offerings of the BVI.

The APA has been focused on driving this change and building an environment based on accountability and regulation. With the draft regulations now going through the government, the APA is now focusing its efforts on the effective roll-out and implementation over the next year.

To ensure the success of the new regime, the groundwork must be laid to ensure compliance and help professionals certify in line with the new standards. This process will include licensing, creating disciplinary committees, and building a licensing regime and regulation frameworks.

These changes are set to supercharge the accountancy capabilities on the jurisdiction, creating a more seamless experience for business. The BVI’s important role in international business and wealth of financial services offerings means that the possibilities for growth in the sector are endless, and this standardisation will only boost these opportunities even further.

EDUCATION, EDUCATION, EDUCATION

The focus on education also contributes to the overall mission to nurture and grow the profession.

The APA’s partnership with the Robert Mathavious Institute for Financial Services has been a linchpin for this education campaign, delivering best-in-class accountancy education right here in the BVI for young people.

This partnership, along with the Londonheadquartered Association of Chartered Certified Accountants (ACCA), has been crucial in offering pathways for young people to gain the international-recognised qualifications in accountancy.

The educational campaigning work of the APA, however, goes one step further than simply providing courses. One key element has been to change the preconception of the profession amongst young people. Accountancy is not typically perceived amongst the younger demographic to be an exciting career path, meaning fewer pursue it within secondary or tertiary education.

The APA is determined to challenge this view. Part of this drive is to educate high schools on the basics on accountancy and

illustrate the genuinely exciting avenues that accountancy can lead to, such as forensic accountancy during criminal investigations.

The key message the APA wants to instill in the younger generation is that with accountancy, the world is your oyster, and by reaching out to students as they go through school, the APA will help them to make choices early on that can benefit them hugely - whatever career path they ultimately choose to take.

For example, accountants play a huge role in the legal sector, in arbitration and facilitated mediation, and with the strong court system and dispute resolution on the island, this is a huge opportunity for young people. Technology companies are now also keen to hire accountants, especially those with key data analytic skills.

Whether young people aspire to being a business owner, CEO, an analyst, or simply advancing their career, communicating the huge benefits of accountancy skills will continue to be a huge focus for the APA.

CONCLUSION

It is clear that the entire BVI landscape is focusing on increasing accountability and regulation, and the accountancy sector is making huge strides in achieving this.

The work of the APA is vital in ensuring that everyone is fully prepared for this increased regulation, and in inspiring young people to pursue a future career in this exciting and global industry.

BVI STORIES: BVI ASSOCIATION OF COMPLIANCE OFFICERS & PRACTITIONERS

Throughout the British Virgin Islands (BVI) and beyond, the British Virgin Islands Association of Compliance Officers & Practitioners (BVIACO) plays an integral role in contributing to the reputation of the jurisdiction as a highly attractive and regulated international financial centre.

The overall aim of the BVIACO is to foster a culture of awareness and compliance with the anti-money laundering, counter terrorist financing and proliferation financing (“AMLCFT”) laws and regulations of the BVI, to contribute to the development of the BVI as a reputable and well-regulated international financial centre by promoting professional standards within the industry, and to encourage the sharing of information and best practice within the industry, as well as with policy makers. Compliance in the BVI operates on two levels; compliance with the external rules that are imposed on an organisation as a whole, and compliance with internal systems of control that are imposed to achieve with the externally imposed rules. A compliance officer in the BVI is responsible for both levels mentioned above and is therefore critical to ensuring that companies fulfil all policies and procedures, and furthermore,

are adequately prepared for upcoming legislative amendments, and any onsite or thematic inspections conducted by the BVI’s regulator of their company.

THE ROLE OF THE COMPLIANCE OFFICER

The fast-shifting nature of the domestic and international regulatory landscape means that compliance is a constantly evolving and shifting target. There are several factors – local, regional, and international – that contribute to this ever-changing compliance regime.

Geopolitical events, macroeconomic changes, and the emergence of new technologies all continue to shift and alter the international financial and business landscape.

This includes global regulatory updates in the financial services industry - on AMLCFT issues - to new areas of focus such as cybersecurity, artificial intelligence, and digital assets. All these spark legislative changes and impact how businesses can operate. The role of the compliance officer is to be consistently up-to date with the newest changes in the AMLCFT laws and regulations; equipped with a deep understanding of how they will affect businesses, and how changes need to be implemented, for example, when onboarding a new client of business or reviewing existing clients and assessing and managing risks.

Compliance officers are also the main source of collaboration with the regulators to understand how all businesses and entities should comply with the requirements of each sector – from insurance, banking, and all corporate services, such as registered agent and trust company services.

In this way, the compliance officer acts as a middleman between the regulator and a business – a gatekeeper that protects their company from harm by ensuring that businesses understand the AMLCFT laws and regulations and any amendments and how to implement them effectively- as well as informing the regulators on the practical implications of such AMLCFT amendments, whether directly or through the BVIACO.

ROLE OF THE BVIACO

The main priority of the BVIACO is to support compliance officers by providing training and information, as well as to foster knowledge sharing within the industry and policy makers. One major way BVIACO does this is through its annual conference. Every year, the event brings together compliance officers, policy makers and industry leaders from across the jurisdiction and beyond to discuss and advise on the biggest challenges and changes facing compliance officers at that time, and any future or imminent AMLCFT changes and challenges for which they need to be prepared.

This training, however, takes place throughout the year, with the BVIACO hosting regular webinars, luncheons, and seminars on developments across the industry, with sessions addressing topical and pressing issues such as the recently enacted Virtual Assets Service Providers Act, 2022, fraud and corporate governance.

EDUCATION AND TRAINING

The international nature of the BVI business and financial centre, as well as the high volume of businesses in the jurisdiction, means the demand for compliance officers is extremely high. As a result, the BVIACO is highly dedicated to promoting education in compliance, educating the young generation on what a career in compliance entails and assisting working professional who have an interest in expanding their skills and experience to achieve the next step in their career.

BVIACO works with several important partners to provide this education, such as the H. Lavity Stoutt Community College Robert Mathavious Institute for Financial Services, which provides globally recognised qualifications in AML, governance, risk and compliance, among other professional programmes relevant to the financial services industry.

The BVIACO also runs a successful scholarship programme which seeks to provide industry professionals who are interested in compliance the opportunity to participate in training to advance their understanding, skills, and careers in the field.

CONCLUSION

Looking ahead, the BVIACO will continue its dedication to the education and training of aspiring and established compliance officers and practitioners. The BVIACO is committed to ensuring that the BVI remains at the forefront of regulatory developments across the globe, maintaining its role as a highly respected and regulated international financial business centre.

BVI RESTRUCTURING AND INSOLVENCY ASSOCIATION (RISA)

In recent years, the BVI Restructuring and Insolvency Association (RISA) has been at the forefront of a rapidly shifting landscape, spearheading innovations to ensure the jurisdiction remains competitive and driving forward legislative change.

Restructuring and Insolvency is a crucial part of global financial plumbing, supporting businesses around the world in their times of need. With over 375,000 active registered companies, the British Virgin Islands is a crucial authority in this work, with specialised skills in this industry in high demand.

NURTURING TALENT FOR TODAY AND TOMORROW

Historically, restructuring and insolvency work has been done outside the BVI so bringing it within the jurisdiction has been an important focus for RISA. This will not only bring in revenue to the BVI but also create jobs.   A core priority for us over the last year has been education and training - creating pathways for the next generation to learn and grow in the profession and to capitalise on the opportunities in the sector. Working with BVI Finance, BVI RISA launched a series of programmes and seminars to demystify the profession and attract the next generation of insolvency specialists. From entry level online seminars ‘Insolvency 101’ to junior training programmes and BVI Insolvency Law exams, BVI RISA programmes cater to all parts of the profession.

These educational tools have also been popular with professionals already working across the industry looking to expand their knowledge and better advise clients.

SPEARHEADING REGULATORY INNOVATION

Developing and modernising legislation continues to be a top priority for RISA to ensure that the regime remains competitive and agile.

A key example of this is the recent work on the Insolvency Act. In 2021, we developed a series of recommendations to modernise the near 20-yearold act to ensure it is reflective of today’s global financial landscape.   Another priority for RISA is developing the reconstructing regime, ensuring the framework remains standardised across the different borders RISA operates in while remaining innovative and competitive against other jurisdictions. For this reason, RISA are consistently looking at how the processes can be improved and submit suggestions to the Bar Association on the matter.

LOCAL AS WELL AS GLOBAL APPROACH

The onset of the pandemic provided RISA with a platform to consider and implement measures that also assisted in local markets, leading local companies through the huge uncertainties they faced. This involved shaping legislation and guidance on issues such as forbearance of payment obligations and debt obligations.

Looking ahead, we will continue to embrace this dual role; assisting local businesses here in the BVI - including working to bring further employment opportunities to this growing sector - as well as playing a crucial role in restructuring and insolvency frameworks on an international scale.

CRYPTO COMPLEXITY IN INSOLVENCIES

Cryptocurrencies are exerting growing influence on traditional international financial systems. In the US in October 2021, the SEC approved the first bitcoin ETF and, in doing so, gave investors exposure to cryptocurrencies in a regulated environment. Elsewhere, financial regulators are looking at how investors can purchase conventional stocks and financial products with cryptocurrencies. Today, the total value of cryptocurrencies in circulation internationally was an eye-watering $1.62 trillion. That is more than the gross domestic product of all but the world’s seven richest nations. $91 billion in cryptocurrency trades are now being carried out daily.

The ascent of cryptocurrencies to the mainstream is in large part due to their intrinsic benefits—being weightless, digital and facilitating almost instant global exchange at a high level of confidentiality without the need to involve expensive intermediaries. However, these same advantages can also present challenges for insolvency practitioners where cryptocurrencies are involved in insolvency proceedings—whether for businesses with cryptocurrency-related service offerings or for more traditional organizations holding digital assets including cryptocurrencies.

The fundamental steps and processes for the liquidation of a company holding digital assets are not materially different from those of the liquidation of companies holding traditional assets, namely identifying and securing the assets, necessary (and commensurate) investigations, adjudication of claims and distributions to creditors.

The primary aim remains to maximize returns to creditors. In the case of crypto assets, these guiding principles are the starting point of a more complex exercise.

IDENTIFYING AND SECURING CRYPTO ASSETS

A The existence, location and value of digital assets may not be easily identifiable from the company’s financial statements. It is therefore important that, immediately following the appointment of insolvency practitioners, they quickly identify and work with directors and officers of the company, service providers and other stakeholders in the liquidation and ask them questions relating to the existence of any digital assets and their whereabouts.

In order to identify and secure crypto assets, it is important to ensure the cooperation of the individuals holding the private encryption keys to the associated cryptocurrency wallets. Where digital assets are held on private addresses (as opposed to service/exchange-controlled accounts), the first priority should be to move those assets to addresses that the Liquidators, and only they, control the private keys to. Otherwise, there is a risk that others may know the private keys to addresses and be able to move the funds without their knowledge.

KROLL

WHAT HAPPENS WHEN THE OWNER OF THE PRIVATE KEY REFUSES TO COOPERATE?

Under these circumstances, the insolvency practitioner will need to work with their legal counsel (and any leverage available to them) to push for compliance. The powers and tools available to liquidators to secure and control assets and legal remedies available in the winding up of traditional companies may also be helpful. Similarly, the powers of the company’s directors and officers cease upon the appointment of liquidators to the company; they and their representatives no longer have any power to hold or use the private encryption keys to the cryptocurrency wallets belonging to the company and are required to deliver those keys and wallets to the liquidators. Any non-disclosure or obstruction adopted by these parties will likely constitute a breach of relevant law and regulations. By way of example, for liquidations in Hong Kong, such conduct is likely a violation of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and they shall be liable to imprisonment and a fine. It is also conduct that entitles the liquidators to the assistance of the Court — such as to obtain an order for delivery of the keys and associated information.

In some cases, the existence of crypto assets can be established through thirdparty records accessible by liquidators — such as bank statements which may have recorded payments in fiat money to a cryptocurrency exchange for the purchase of a cryptocurrency or otherwise deposits of fiat money from a cryptocurrency exchange upon the sale of crypto assets, or records of instructions to legal / financial advisors for any (for example) unusual or sizable overthe-counter trading, i.e. private deals.

If there is evidence of dissipation of a company’s assets, insolvency practitioners may apply for injunctions or similar orders against the beneficiary party holding the digital assets or associated information, freezing the assets from any further transfer. This includes cryptocurrency exchanges where the crypto assets may be temporarily parked.

No matter how hidden or remote any crypto asset may seem to be, it is likely that at some point it will be connected to

mainstream financial systems and so will leave a trace of evidence.

INVESTIGATIONS

Investigations in insolvency matters involving cryptocurrencies include interviews with management to establish the flow of funds and any relevant transfer processes, systems and controls, however limitations in the available data sets can result in significant challenges to the investigations of the liquidator in forensic analysis and asset tracing.

Blockchain analytics has provided major breakthroughs in investigations by facilitating an immutable understanding of the flow of funds and establishing, for example, the recipient wallet addresses of misappropriated assets. This is increasingly a prelude for insolvency practitioners to pursue active recovery strategies and to pursue disclosure from exchanges as to the identities of those wallet owners.

DEALING WITH CREDITORS AND ADJUDICATION OF CLAIMS

In a recent case, thousands of customers across numerous jurisdictions had transferred cryptocurrencies to an exchange where the exchange’s online trading platform was subsequently shut down. Many creditors did not keep good (or any) records of their account balances and transaction history with the exchange and so were not able to submit or substantiate claims in the administration. Consequently, there were significant challenges in registering, reviewing and adjudicating creditors’ claims.

Data and information recovered by the liquidators and shared (appropriately) with creditors enabled many of them to confirm their account balances and supporting information and documents to prove their claims.

DISTRIBUTIONS TO CREDITORS

The volatile nature of many

cryptocurrencies means that value in fiat money terms can vary significantly from one day to another. By way of example, the value of bitcoin has increased over the past five years from just over $1,000 to more than $40K today, with a significant level of volatility along the way.

This volatile nature of cryptocurrencies can be a challenge for insolvency practitioners when paying proceeds to creditors. In certain jurisdictions, due to the need to comply with statutory notice requirements, there can be at least a twomonth gap between determining the amount of the dividend and the date of distribution where due to volatility, the cryptocurrency prices may have changed substantially. This can require an element of judgement in balancing the risk arising from the volatility of pricing on one hand and compliance with the relevant insolvency laws and regulations on the other.

Overall, new challenges arising from a new class of assets requires insolvency practitioners to combine traditional skills, knowledge and experience with specialist expertise and technological support to work efficiently and effectively to deliver the right result—which is nothing really new for insolvency practitioners!

KROLL BVI

Kroll provides clients a way to build, protect and maximize value through their differentiated financial and risk advisory and intelligence. Their transaction experience and expertise earns them global recognition as leaders in valuation, corporate finance and restructuring. They also are known for their world-class experts and solutions in corporate risk.

INTRODUCTION OF THE OECD CRYPTO-ASSET REPORTING FRAMEWORK

RELEVANT ENTITIES IN THE BVI WILL NEED TO PREPARE FOR AN EVOLVING REGULATORY ENVIRONMENT FOR DIGITAL ASSETS

By KAYLA LAIDLAW

The Organisation for Economic Co-operation and Development (OECD) released its final guidance on the Crypto-Asset Reporting Framework (CARF) and amendments to the Common Reporting Standard (CRS) on 10 October 2022, following a period of public consultation that took place earlier in 2022.

The CARF was developed in response to the rapid growth of the digital assets market, and represents a new tax transparency framework that provides for the reporting and automatic exchange of information on digital asset transactions and the users undertaking such transactions.

The introduction of the CARF marks an important shift in the regulatory attitudes and environment for digital assets globally, and will need to be carefully considered by relevant entities within the BVI.

BACKGROUND

The OECD’s CRS was adopted in 2014, with an aim of increasing global tax transparency and improving cooperation between tax administrations through the exchange of financial account information. BVI-resident reporting financial institutions have been required to comply with the CRS requirements since 2016, including the establishment and implementation of due diligence procedures to document and identify reportable accounts, as well as reporting certain information on each reportable account annually.

Since the introduction of the CRS, financial markets and investment practices have continued to evolve— particularly in the area of digital assets—and in many instances the reporting of digital assets has not been adequately covered by the existing CRS rules. As digital assets can be transferred and held without

interacting with traditional financial intermediaries and without the oversight of any central administrator, tax administrations have reduced visibility regarding the activities carried out within the digital assets sector. This increases the difficulty of verifying whether associated tax liabilities are appropriately reported and assessed, and poses a risk to global tax transparency objectives.

In response to these gaps and risks, the OECD has developed the CARF, designed to ensure the collection and automatic exchange of information on transactions in relevant crypto-assets. The key aspects of the new framework include the following:

• Digital assets subject to reporting;

• Intermediaries and service providers required to collect and report information;

• Transactions subject to reporting; and,

• Due diligence procedures to identify reportable customers.

SCOPE OF ASSETS TO BE REPORTED

The CARF targets assets that can be held and transferred in a decentralised manner, without the intervention of traditional financial intermediaries. The definition of “crypto-assets” under the CARF covers any digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions. In addition to cryptocurrencies, this includes stablecoins, derivatives issued in the form of crypto-assets, and certain non-fungible tokens (NFTs).

The final rules define “relevant cryptoassets”—the crypto-assets for which reporting will be required—as excluding any crypto-asset that is a central bank digital currency or a specified electronic money product, which will be subject to reporting under an expanded CRS framework. The rules also exclude from the reporting requirements any crypto-asset that the service provider has adequately determined cannot be used for payment or investment. It is anticipated that the OECD will continue developing guidance to support the consistent application of the CARF, including the criteria for adequately determining whether a cryptoasset can or cannot be used for payment or investment purposes.

SCOPE OF INTERMEDIARIES AND SERVICE PROVIDERS REQUIRED TO REPORT

The due diligence and reporting requirements imposed under the CARF will specifically apply to entities or individuals that provide services effectuating exchange transactions of crypto- assets for or on behalf of customers. These service providers may include crypto-asset exchanges, brokers, dealers, market makers, and operators of crypto-asset automated teller machines (ATMs). The entities and individuals that will be required to comply with the CARF reporting requirements are also likely to fall within the scope of the Financial Action Task Force (FATF) definition of a “virtual asset service provider,” meaning they already should be in a position to collect and review customer documentation following the enactment of Virtual Asset Service Provider (VASP) legislation.

The final guidance includes a significant clarification that investment funds investing in crypto-assets and entities solely engaged in the creation and issuance of crypto-assets, although potentially falling within the broad definition of a service provider, are not intended to be caught within the scope of the new requirements.

SCOPE OF TRANSACTIONS TO BE REPORTED

The CARF outlines a relatively complex transactional reporting regime, requiring annual reporting aggregated by asset type on the following types of transactions:

• Exchanges between crypto-assets and fiat currencies;

• Exchanges between one or more forms of crypto-assets; and

• Transfers (including reportable retail payment transactions) of crypto-assets.

Reportable information comprises demographic information on the customer as well as financial information on each transaction, including details such as crypto-asset type and transfer type. Where exchanges of crypto-assets are made for fiat currency, the reportable acquisition amount or disposition gross proceeds amount is equal to the fiat currency received net of transaction fees. For crypto-to-crypto transactions, retail payments, and transfers, the service provider is responsible for determining and reporting the fair market value of the crypto-assets in fiat currency at the time of the transaction and in a consistent manner. The documentation released by the OECD includes detailed valuation rules that will need to be considered by relevant entities.

DUE DILIGENCE PROCEDURES TO IDENTIFY REPORTABLE CUSTOMERS

The due diligence procedures included in the CARF are based on the CRS requirements and existing anti-money laundering/ know-your-customer obligations included in the FATF recommendations. Relevant service providers will be required to use self-certification forms and information on file to determine the tax residency and reportability of individual and entity

customers (referred to in the CARF as “crypto-asset users”), as well as the natural persons controlling certain entity crypto-asset users.

IMPLICATIONS AND NEXT STEPS

For the CARF requirements to take effect in practice, the OECD needs to establish a framework of international agreements (similar to the CRS multilateral competent authority agreement framework). The CARF requirements will then need to be adopted into domestic law within participating jurisdictions. While such adoption is currently optional, as with other OECD tax transparency regimes it is reasonable to expect there will be international pressure to adopt the rules, particularly in no or nominal tax jurisdictions such as the BVI. While waiting for implementation timelines to be agreed internationally, BVI entities can (and should) begin assessing the potential applicability and impact of the new requirements, as well as preparing their internal procedures and systems to reduce the implementation effort when the time comes. Facilitating effective and efficient compliance with the CARF requirements will be a key component in continuing to position the BVI as a leading jurisdiction for digital asset businesses.

Kayla Laidlaw

Tax Advisory Director, Deloitte BVI

Ms. Laidlaw is focused on assisting clients across the Caribbean region with meeting their global and local regulatory and information reporting obligations. Kayla has extensive experience bringing Deloitte’s wide range of FATCA, Common Reporting Standard (CRS), Country-byCountry Reporting (CbCR), and Economic Substance (ES) offerings to entities in the BVI, Cayman islands, and Bermuda. She has also assisted with the implementation of regulatory reporting portals and the related administration and oversight processes for various tax authorities in the region.

THE BRITISH VIRGIN ISLANDS PROVIDES REGULATORY CLARITY ON DIGITAL ASSETS

By ADENIKE SICARD

While there is continued regulatory uncertainty in the United States and other countries regarding their treatment of cryptocurrencies and other digital assets, the British Virgin Islands (“BVI”) has solidified its regulatory presence in the digital space by enacting its Virtual Asset Service Providers, Act 2022.

This is not the BVI’s first move toward ensuring regulatory clarity, compliance and consumer protection. From 2019, the BVI formed a focus group on virtual assets, which resulted in the BVI’s financial services regulatory and supervisory authority, the BVI Financial Services Commission (the “Commission”) issuing its “Guidance on Regulation of Virtual Assets in the Virgin Islands” which, while recognizing uncertainty in the world, clarified the BVI’s position on the regulation of virtual assets related activity, in order to safeguard against breaches of the BVI’s financial services laws relating to the use of, or trading in, virtual assets in or from the BVI.

In 2020, in recognizing the growing importance and use of new technologies in the financial services sector (“FinTech”) and the increasing use of the BVI as a jurisdiction of choice, the Commission established the “financial services regulatory sandbox” to allow FinTech creators a space to operate and test their products in a contained and regulated environment.

In 2022, the BVI amended its AntiMoney Laundering and Counter Terrorist Financing Code of Practice and Anti-Money Laundering Regulations, to clarify that virtual assets service providers (“VASPs”) were deemed “ relevant persons ” under the BVI’s anti-money laundering counter financing of terrorism and proliferation financing regime (“AMLCFT regime”) and, therefore, subject to complying with the full AMLCFT regime, including maintaining effective systems and controls to identify persons with whom the VASPs are conducting business, and engaging in risk assessments and risk management.

Enter 1 February 2023, the BVI then enacted its own Virtual Assets Service Providers Act, 2022 (“VASP Act”), which specifically deals with VASPs operating in and from the BVI.

WHY IS THE VASP ACT NECESSARY?

In an era fraught with fraud and misuse of customer’s funds, it is no surprise that the BVI seeks to protect (1) the growth and development in its financial services industry and business, (2) consumers and investors, who place their trust in the BVI financial services products, and (3) its valued reputation as an international finance center of choice. In 2021, the BVI overtook the United States as the second most popular location for crypto hedge funds to domicile.

According to the 4th Annual Global Crypto Hedge Fund Report 2022 (the “Report”), issued by PriceWaterhouseCoopers Limited, which gives an overview of the global crypto hedge fund market, (the “Report”), the BVI saw its share of the market increase slightly year over year, from 11% to 13% in 2021.

For the top locations chosen by crypto hedge fund managers, the BVI featured just under the fifth position in the world in 2021. A position that we expect to have improved in the last three years, based on the BVI’s actions to implement a carefully planned regulatory regime of VASPs, which incorporated the global standards issued by the FATF to prevent the misuse of virtual assets for money laundering, terrorist financing and proliferation financing.

Over the years, digital assets became an increasingly important part of many hedge fund portfolios, and the BVI saw the establishment of many fund entities investing in the digital space.

According to the Report, most crypto hedge funds chose their locations or domicile based on ‘crypto friendliness’ (22%), ‘regulations’ (20%) and ‘fund friendly’ regulations (17%). While governments worldwide try to figure out how to deal with cryptocurrencies and other digital assets, the results of the Report seem to indicate that most crypto hedge funds wish to operate in countries with the “least uncertainty regarding regulatory changes and government interventions, leaving them to focus on their investment activities”.

According to the Report, most crypto hedge funds chose their locations or domicile based on ‘crypto friendliness’ (22%), ‘regulations’ (20%) and ‘fund friendly’ regulations (17%). While governments worldwide try to figure out how to deal with cryptocurrencies and other digital assets, the results of the Report seem to indicate that most crypto hedge funds wish to operate in countries with the “least uncertainty regarding regulatory changes and government interventions, leaving them to focus on their investment activities”.

The reality is that, over the years, digital assets became an increasingly important part of many hedge fund portfolios, and the BVI saw the establishment of many fund entities investing in the digital space. In reviewing the statistics from the Report, “approximately 1 in 3 of hedge funds surveyed” were investing in digital assets in 2021, as compared to 1 in 5 when they were surveyed in 2020, showing an increase from 21% to 38%. When asked what percentage of their assets under management (“ AuM ”) is invested in digital assets, hedge funds surveyed

indicated that assets in their digital wallets accounted for 4% of their AuM, an increase of 1% from the year before. Another point of interest in the Report, which was refreshing to note in these recent times of crypto crashes, is that 91% of survey crypto hedge fund respondents used external auditors to audit their financial statements. The appointment of an auditor and the submission of audited financial statements to the Commission annually, has been a longstanding regulatory requirement for most funds established in the BVI. This simple regulatory requirement has served the BVI and investors in BVI crypto hedge funds well, as it provides a measure of accountability and oversight. The BVI’s VASP Act implements the same regulatory requirement for VASPs to appoint an auditor and to submit audited financial statements annually to the Commission.

WHAT REGULATORY OVERSIGHT OF VASPS DOES THE BVI PROVIDE?

From 1 December 2022, all VASPs were required to conduct their know-your-client and due diligence procedures on the users or customers of their virtual asset services, which include the FATF’s recommended “travel rule”1. The purpose of this is to ensure that all VASPs know their customers and to make it difficult for their platforms, exchanges or wallets to be used for nefarious or illegal activities without there being any identification or trace of their users or customers.

Now, with its recently enacted VASP Act, the Commission legally requires all VASPs to obtain a licence from the Commission before any VASPs provides any virtual assets services in or from within the BVI (including using a BVI company, wherever located, to provide such services). The application is a rigorous one, which includes the submission of resumes of all directors of the proposed VASP, references and details on their fitness and propriety, ownership structure and operational procedures of the VASP, such as a business plan, risk assessment framework, cybersecurity and reliability framework, statement of technological infrastructure, custody and safekeeping

of assets framework, data protection framework, clients handling and complaints handling framework, financial resources and insurance arrangements, and details of a legal adviser, an approved auditor and authorized representative. The VASP is required to establish measures to protect clients’ assets and there are prohibitions on making or issuing misleading advertisements, to list a few of the VASPs’ obligations. The rigorous process is designed deliberately by the Commission to ensure that any relevant money laundering and terrorist financing risks identified are appropriately managed and mitigated.

INTERNATIONAL NEWS

The International Organization of Securities Commissions (“ IOSCO ”) recently published a report titled “ Policy Recommendations for Crypto and Digital Asset Markets Consultation Report ” with the aim of finalizing IOSCO’s policy recommendations to address market integrity and investor protection issues in crypto-asset markets in early-Q4 2023. The recommendations in this report are aimed at supporting jurisdictions seeking to establish compliant markets for trading crypto or digital or virtual assets and are focused on crypto asset market activities (as opposed to decentralized finance (“DeFi”), which will be consulted on separately by ISOCO).

In my view, this initiative is completely headed in the right direction, by asking relevant questions to obtain feedback from members and being open to them submitting suggestions. In addition, the recommendations made are necessary and relevant in this day and age of relentless fraud and misuse of information.

Based on the BVI’s initiatives with amending its AML laws and regulations, and the implementation of the VASP Act, the BVI has addressed the issues and concerns that the IOSCO Report is aimed at capturing globally in preventing or retarding regulatory arbitrage in the crypto and digital assets space.

CONCERNS ABOUT VASPS GLOBALLY

Among other things, there are overwhelming concerns about customers who deposited their holdings on crypto exchanges and platforms being in jeopardy.

As I write this article, each day I read news being published on large VASPs or crypto exchanges being sued by the US regulators, from FTX, late last year, to Binance US on 5 June 2023, and Coinbase on 6 June 2023. Most of the allegations surround operating unregistered exchanges and, potentially, the misuse of investor funds and/or client assets.

The BVI evidences that it is concerned with ensuring that it is a well-regulated jurisdiction which provides clarity on the laws applicable to VASPs. While the BVI is considered a hub for virtual asset activities and providing such services, it knows all too well that it only takes one bad apple to mar the reputation and hard work of its regulators and service providers.

The onus is on each VASP and each person in the BVI who is involved in the establishment of a VASP under the laws of the BVI, to ensure that they carefully abide by the AML laws and regulations, and the VASP Act, to ensure that as many of the bad apples are not able to utilize their services for illicit means.

KEY TAKE AWAYS

• The BVI is a jurisdiction of choice for VASPs and is a popular location for crypto hedge funds to domicile.

• The BVI provides regulatory certainty and clarity for VASPs.

• The BVI’s Commission publishes a lot of guidance on and to VASPs on its website.

• The BVI’s VASP Act is necessary to regulate VASPs and virtual asset services, reflecting compliance with international FATF standards and IOSCO’s recommendations.

• The BVI is keen on guarding its reputation as a well-regulated jurisdiction of choice for international business.

Adenike Sicard

Managing Partner, Sinclairs BVI

Ms. Sicard has been practising law for over 18 years’ in the British Virgin Islands. She is the Managing Partner of Sinclairs BVI and is the head of the Corporate and Commercial Department. She specialises in corporate and commercial matters, banking and finance, investment funds and regulatory, and real estate matters. Her practice involves her advising on corporate restructuring and financing, joint ventures, mergers and acquisitions, establishing and advising on trusts, private trust companies and VISTA, Wills and succession planning, Probate applications, Company Restorations, establishing, restructuring and advising investment funds.

THE FUTURE FOR THE BVI UNDER GLOBALIZATION

By GARY SMITH and LOEB SMITH

Globalization is defined as the process of interaction and integration among people, companies, and governments worldwide. It is primarily an economic process of interaction and integration causing a growth in international trade and the exchange of ideas, beliefs, and culture.

Economically, globalization involves the international exchange of goods, services, data, technology, and the economic resources of capital which along with advances in telecommunication have developed and expanded global markets to facilitate the economic activities of the exchange of goods, services and capital.

This article seeks to briefly assess where the British Virgin Islands (BVI) stands in the current period of globalization (Globalization 3.0) and also to explore the future of the BVI under the next phase of Globalization 3.0.

PERIODS OF GLOBALIZATION

The American political commentator, Thomas L. Friedman in his book, “ The World Is Flat : A Brief History of the Twenty-first Century” divides the history of globalization into three periods: Globalization 1.0 (1492–1800), Globalization 2.0 (1800–2000) and Globalization 3.0 (2000–present). The Globalization 1.0 period, according to Friedman, involved the globalization of countries, “the main agent of globalization was the nation-state globalizing for Empire, or for resources, or for power.” Globalization 2.0 involved the globalization of companies. During this period, Friedman argues, globalization “was spearheaded by companies globalizing for markets, for labor, and for resources.” The activities related to this phase further broke down the barriers of international borders, trade, and cross-cultural connections.

The third and current phase of globalization, what is referred to as Globalization 3.0, involves the globalization of individuals. This began around the year 2000. Friedman noted that “what’s really new, really exciting, and really terrifying about this era of globalization is that it is built around individuals. What is really new about this era is that we now have individuals that can compete, connect, and collaborate globally as individuals.”

FEATURES OF GLOBALIZATION 3.0

Features of Globalization 3.0 include the development of the personal computer, which “allowed individuals, for the first time in history, to author their own content” in digital form, the “dot com bubble,” which funded the necessary infrastructure for global internet access, the development of optical fibre and cable connectivity arrangements, leading to a revolution in global connectivity. The development of the internet from the “static web”, made of read- only webpages that, by and large, lacked much in the way of interactive features, to web 2.0, which is what we have now, and marks the internet’s evolution into an era of dynamic content. Users can interact with web pages, communicate with each other and create content – for example on social media networks like Weibo, Twitter, WeChat, Facebook, and Instagram.

Developers of Web 3.0 infrastructure (with its different sectors, such as (i) Decentralised Finance or DeFi, (ii) NFTs, and (iii) Decentralized autonomous organizations (DAOs)) are increasingly using BVI entities to own and manage their creations as BVI companies are cost effective to establish, take 1-2 days to be formed and their annual maintenance costs compare well against other offshore jurisdictions and mid-shore jurisdictions.

Web 3.0 is predicted to include the next evolutionary stage of the internet which involves decentralization, token-based economies and blockchain technology. Decentralization means internet users can transact business peer-to-peer, cutting out intermediaries and removing power from controlling entities. With Web 3.0, there is a greater focus on user privacy, transparency and ownership. The BVI has a common law legal system that facilitates commercial transactions and maximizes flexibility and additionally has been introducing legislation such as the Data Protection Act, 2021 (“ DPA ”) to enhance the protection of rights related to privacy, transparency and ownership. Under the DPA, any BVI entity that handles an individual’s personal information will have obligations with respect to how that data is handled. For example, the individual to whom the information relates must be informed of what their personal information is being used for, and by whom. The processing and control of such

data must also abide by certain specific principles.

THE NEXT PHASE OF GLOBALIZATION

3.0 – ARTIFICIAL INTELLIGENCE AND WEB 3.0

The increasing use of Blockchain and other distributed ledger technology (DLT), big data and artificial intelligence (AI) as well as cloud computing is likely to cause significant transformation of the financial sector as the use of DeFi, NFTs and other DLT features expand. For example, investment Fund managers are already being significantly affected by improved availability of data, by algorithms, the digitization of assets, and by new processes in custody, settlement and reporting. As a fast-growing jurisdiction for offshore investment funds investing in sectors such as web3.0 and AI, the BVI has been developing its laws to ensure that it encourages the use of BVI structures within the framework of international standards. The BVI is committed to ensuring that its financial services industry is aligned with international best practices and compliant with the standards imposed by the Financial Action Task Force in order to actively participate in the various aspects of this next exciting phase of Globalization 3.0. The BVI enacted the Virtual Asset Service Providers Act, 2022 (“VASP Act”) to implement the Financial Action Task Force’s standards on virtual assets and virtual asset service providers (“VASPs“).

The VASP Act creates the legal framework for the registration and supervision of Virtual Assets Service Providers (VASPs) operating in and from within the BVI.

The BVI implemented measures to ensure a VASP which is carrying on or providing “virtual asset services” when a transaction involves virtual assets valued at US$1,000 or more is required to be compliant with the BVI’s Anti-Money Laundering Regulations (“AMLRs“) and related AntiMoney Laundering and Terrorist Financing Code of Practice (“Code“).

With the advantage of having a sophisticated legal framework that includes the VASP Act, the AMLRs, the Code, and the DPA, the BVI is setting itself as a key jurisdiction for individuals around the global to set up corporate structures to actively participate in the next phase of

Globalization 3.0, namely the development and growth of (i) artificial intelligence (AI) and (ii) Web 3.0 infrastructure (e.g. DeFi, NFTs, etc.). Other advantages of the BVI such as (i) aligning with international best practices and compliant with the standards imposed by the Financial Action Task Force, (ii) the absence of currency exchange controls, (iii) tax neutrality (i.e. utilizing BVI entities or trusts does not add to the tax burden or complexity of a corporate group structure as there are no income tax, capital gains tax, corporation tax, wealth tax or other taxes applicable to the BVI entities or trusts), (iv) political stability, and (v) a common law legal system that facilitates commercial transactions and maximizes flexibility, will make the BVI increasingly competitive in the next phase of Globalization 3.0.

Gary Smith Partner, Loeb Smith

Mr. Smith leads/coordinates, the firm’s Corporate Group and Investment Funds Group. His practice focuses principally on offshore investment funds formation and launch, particularly hedge funds, private equity funds, and funds investing in blockchain technology. He also advises on M&A, corporate, corporate finance, and private equity investments.

Loeb Smith BVI

Loeb Smith is an offshore corporate law firm with a wealth of experience of providing expert advice to investment fund managers, in-house counsels, financial institutions, onshore counsels, banks, companies, and high net worth individuals to help deal with day-to-day issues and complex, strategic matters.

ESG

By JEFFREY KIRK and TOM JOHNSON

Environmental, social and governance ( ESG ) is a topic likely to be high on the agenda in boardrooms across the global community. This is mainly due to the fact that ESG principles now account for a significant element of the analysis undertaken by potential investors when identifying both material risks and growth opportunities associated with both funds and individual companies.

Global events such as the Covid-19 pandemic and a greater focus on issues such as environmental sustainability and diversity in society are all factors that have continued to drive ESG.

Over recent years, there has been significant growth in ESGlabelled investments and the BVI’s commitment to building a flexible yet effective and credible regulatory regime whilst maintaining a tax neutral environment provides a fertile setting for ESG fund structures to thrive.

WHAT IS ESG?

In its essence, ESG is a measure employed by investors to determine the environmental and social impact of a company but also how the company performs in relation to its governance. There is no exhaustive list of the criteria that may factor into an ESG based assessment of a company however there are certain common themes.

To assess a company’s impact on the environment, the approach the company takes towards issues such as climate change, emissions, energy efficiency, pollution, usage of land, waste and depletion of resources will likely be considered. The social impact element of ESG focuses on the company’s treatment of its employees and/or customers and also on the impact it has on the wider community. Specific factors that may be considered are working conditions, human rights, slavery, diversity and health and safety. In terms of governance, an ESG conscious investor will consider issues such as the company’s activities and policies in relation to bribery, corruption, political lobbying, executive remuneration, tax strategies, anti-money laundering and the independence and structure of the board.

THE GROWTH OF ESG

There are a number of driving factors behind the growth of ESG. As referenced above, the Covid-19 pandemic brought issues such as environmental sustainability to the forefront of public mindsets and this in turn lead to it becoming high on the list of corporate agendas. A number of modern investors will now choose to incorporate ESG considerations into investment strategy purely on the basis of ethics and it being viewed as morally the desirable course of action to take. Public attitudes towards environmental sustainability alone has changed dramatically within recent years and it is likely to shift further in the short to mid-term future. The same can be said to be true of public attitudes towards issues linked to diversity. Many investors now consider ESG focused companies as having a better risk profile than those that have yet to take any steps or decisive action to formulate ESG policies.

There are also more financially driven factors, many ESG funds are now outperforming traditional indices and it is becoming increasingly common for longer term investors to target ESG focused products which are seen as a safer more sustainable investment. The likely long-term cost base of a company with a clear ESG strategy compared with that of a company that has yet to even consider formulating appropriate policies can also be seen as more desirable from an ESG conscious investor’s perspective.

REGULATION

As referred to above, the growth in ESG-labelled investments has prompted the implementation of a number of ESG focused laws and regulations across various jurisdictions worldwide.

The EU has introduced a package of sustainable finance regulations and more specifically a regime relating to ESG disclosure.

Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment came into effect on 12 July 2020 (Taxonomy Regulation). The Taxonomy Regulation implemented a system of classification for the assessment of how sustainable certain economic activities are. This in turn allows for the assessment of the ESG credentials of a particular company or portfolio. It also introduced disclosure obligations that will apply to financial market participants under the Taxonomy Regulation. Participants will have to disclose information on how, and to what extent, the underlying product meets the criteria to be classed as environmentally sustainable.

BVI

The BVI’s various cost-effective fund products and vehicles and the proven capabilities of its business services and industry professionals mean that it is well placed as a jurisdiction to support the growth of ESG focused products.

Bespoke provisions incorporated within the constitutional documents of a BVI corporate is a common way for ESG focused funds to implement and safeguard its investment and operating principles. For instance, the memorandum and articles of association can contain provisions dealing with environmental, social and/or health

and safety objectives along with prohibited activities restricting areas or sectors within which the fund can invest.

The prohibited activities can prevent the fund from investing in businesses which support issues such as forced or child labour, trade in environmental waste products, radioactive materials, pornography or prostitution, racist and/or undemocratic media or where the primary business activities deal in alcohol, tobacco, weapons or gambling. A fund could also be restricted from dealing in certain countries or jurisdictions.

The BVI, as of yet, has not enacted any specific legislation incorporating ESG principles but the flexibility offered by the current corporate and funds’ regime in the BVI permits ESG fund managers the freedom to structure funds as they desire and to therefore achieve and enforce ESG specific principles.

If ESG focused investment continues to out perform traditional investment products and if public opinion follows the same trajectory then ESG funds and sustainable investment will no doubt continue to grow. The BVI as a jurisdiction is well-placed to support this growth and to offer a framework within which ESG focused products can continue to thrive.

Jeffrey Kirk

Managing Partner, Appleby (BVI) Limited

Mr. Kirk is the managing partner of the Appleby British Virgin Islands office and he leads the BVI office Corporate Practice Group. He advises on public and private M&A, capital markets, banking & finance, FinTech including digital assets, investment funds & services, private equity, (re) insurance and other corporate matters. He is also the global head of the Appleby Islamic Finance Practice Group.

Tom Johnson

Associate, Bedell Cristin

Mr. Johnson specializes in banking, finance, corporate law, and regulatory compliance. He brings experience from renowned firms like Freshfields Bruckhaus Deringer and others. Based in Jersey, he also advises on BVI matters.

WHAT’S NEXT FOR PILLAR 2 AND THE MINIMUM GLOBAL CORPORATION TAX RATE?

In July 2021, BVI Finance convened its first panel of experts to discuss the Organisation for Economic Co-operation and Development (OECD) proposed global tax reforms which had just been endorsed by G7 and G20 countries in the month prior.

Since, then, there has been continued debate around the benefits and drawbacks of the Global Minimum Corporate Tax, as well as a legislative push from supporting nations to implement the changes into law.

Earlier this year, BVI Finance hosted a follow-up panel discussion, ‘What’s next for Pillar 2 and the minimum global corporation tax rate?’, once again bringing together experts to take a deep dive into the current key issues, in order to evaluate how the reforms have progressed since 2021 and discuss the likely future of the OECD’s proposal.

Moderated by Oliver Cooper, Policy Lead at Charles Russell Speechlys LLP and Counsel to the IFC Forum, the expert panel consisted of Geoff Cook Geoff, Cook Advisory Ltd, Chair of Mourant Consulting Ltd and Chair of the STEP Global Public Policy Committee, Mark Pragnell, Director of Pragmatix Advisory and La Toya James, Director of the BVI International Tax Authority.

BACKGROUND AND WHERE WE ARE TODAY

The Organisation for Economic Cooperation and Development’s (OECD) Pillar Two proposal to set a global minimum corporate tax rate has been widely reported, but not always with the greatest level of accuracy. This has resulted in confusion about its implementation and ramifications.

To establish the basics, the OECD envisages a global minimum corporate tax rate of 15% on multinationals with sales of more than €750 million and a profits tax levied where sales are made – not where profits are reported – on companies with over $20 billion of revenue. According to the organisation, the reform will yield an extra $220 billion in global tax revenue.

At the time of discussion, the plan has been endorsed by 137 countries including the UK and US. The European Union strongly backs the idea, with some countries, such as France and Germany, calling for a higher minimum tax rate than is currently proposed. Swiss voters are also expected to approve the new tax regime by ballot in June, with most political parties backing the change.

Others, such as Ireland, which have attracted multinational companies with their low corporate tax rates, have expressed concerns about the impact of a global corporate minimum tax on their economies and have called for an extended transition period. Significantly, jurisdictions can choose not to implement Phase 2 and there currently no penalties for this decision.

UNDERSTANDING THE ISSUES

“The plan originated in Europe, especially in France and Germany, who were concerned about a race to the bottom on corporation tax” notes Geoff Cook, who added:

“it’s true that corporation tax levels have fallen over the last couple of decades. However, the tax base has broadened and as a result countries are actually collecting more corporation tax. The decision to implement a minimum corporate tax rate is more about the revenue deficit of many large countries, and the opinion that businesses should contribute more in order to address issues such as unfunded social welfare benefits.”

Geoff also noted that the low levels of tax being paid by American digital companies, especially in Europe, was another key motivator.

Mark Pragnell believes that the complex nature of the Pillar Two proposal is, in part, the root cause of the confusion around its intended operation, including in the specialist financial press.

“It’s no surprise that the nuances have been missed,” he explained. “It’s very easy to misconstrue what a global minimum tax is. International Financial Centres (IFCs) really need to be aware that they’ll have a better understanding than the bulk of their client base.”

TAKING A LEAD ON GUIDANCE

La Toya James added “We’ve kept an eye on how this has developed and it’s going down the same path as every other international tax proposal. I think what we’ll see is the BVI providing guidance to jurisdictions that have to apply the OECD’s minimum global corporation tax. Our government has put a lot of resources into the International Tax Authority to ensure we can follow the changing landscape.”

Mark Pragnell: “At the practical level there’s not a lot of activity. However, there is a still a question around what could be done. Fundamentally, what a global minimum tax does is remove one the levers a nation can have to demonstrate their competitiveness and to provide an incentive for that location. Where this has the biggest impact is amongst developing nations, where being able to offer tax breaks has been a big driver of inward investment.”

According to Cook, the OECD tries to act equitably and he believes it will deal with the global minimum corporate tax rate in a pragmatic way. “However, I’d be surprised if any IFC’s installed their own minimum tax in the early stage,” he added. “We have to be very careful in what we do and how we choose to get involved,” added James. “Going from no taxation to 15% would be very big administrative burden for the government of the BVI.”

However, like other countries and jurisdictions, the BVI will carefully consider the implications of a global minimum corporate tax rate and will share information to help ensure that it is implemented in a way that is fair and equitable for all stakeholders, including small and developing economies, particularly those that have relied on low tax rates to attract foreign investment and stimulate economic growth.

“There are still questions about what countries are thinking of doing and how this will impact IFCs” says La Toya James.

The full taxing times breakfast briefing can be viewed on the BVI Finance YouTube Channel.

MODERATOR

Oliver Cooper

Policy Lead, Charles Russell Speechlys LLP

Counsel, IFC Forum

Mr. Cooper advises governments and private clients on international regulations and trends in tax, trade, and financial services. His work specialises in advising on international tax reform, economic substance, and related market access issues.

PANELISTS

Geoff Cook

Geoff Cook Advisory Ltd

Chair, Mourant Consulting Ltd

Chair, STEP Global Public Policy Committee

Mr. Cook is an experienced Chair and nonexecutive director. He has led significant business enterprises for more than three decades and helped major international groups to grow and prosper. As a Chartered Director, Geoff has deep knowledge of corporate governance, global regulation, and risk management. He has authored numerous articles and papers on cross border investment and the role of International Finance Centres (IFCs) in the global financial system.

La Toya James Director, BVI International Tax Authority

Ms. James is the director of the International Tax Agency since 2015, La Toya is an expert in international obligations and exchange of information for the British Virgin Islands. She’s a qualified lawyer with a strong background in legislative drafting, including a master’s from the University of London. She also served as a Tax Policy Analyst at the OECD.

Mark Pragnell

Director, Pragmatix Advisory

Mr. Pragnell has almost 30 years’ experience of applying economics and business research techniques to markets, industries and public policy. He has held leadership roles in respected macroeconomics consultancies, as well as policy and campaigning organisations.

TAXING TIMES 3: NO ONE-SIZE-FITS-ALL FOR PILLAR TWO

BVI Finance hosted its “Taxing Times 3” webinar to provide an update and discussion on the status of the global implementation of the OECD’s Global Minimum Tax (Pillar Two, or GloBE Rules).

The roundtable, the third in the series, brought together a distinguished panel of experts to discuss the path towards implementation for the OECD’s Global Minimum Tax (GMT), potential roadblocks, and the impacts for countries across the globe, both in terms of implementation and nonimplementation.

Moderated by Oliver Cooper, Policy Lead at Charles Russell Speechlys LLP and Counsel to the IFC Forum, the expert panel consisted of Pascal Saint-Amans, Former Tax Policy Director at OECD; Mindy Herzfeld, Counsel at Potomac Law and Tax Professor at the University of Florida; Geoff Cook, Former CEO of Jersey Finance and Chair of the STEP Global Public Policy Committee; and Kayla Laidlaw, Tax Advisory Director at Deloitte BVI.

The panel discussed the status of the global implementation of the OECD’s Global Minimum Tax (Pillar 2) and how the changes will impact International Finance Centres such as the British Virgin Islands.

THE CURRENT STATUS OF IMPLEMENTATION

• As of January 2024, over 140 countries have agreed to implement the OECD global tax deal, with around 50 countries having taken practical steps to implement part of the plan.

• This is a significant milestone. Pillar Two was conceived in a way that once a ‘critical mass’ of participating countries has been achieved, the remaining jurisdictions will have an incentive to implement the GMT as well. It is now believed that this critical mass has been achieved.

• This is because Pillar 2 includes the Income Inclusive Rule; a principle whereby a “top-up tax” will be applied on profits in any jurisdiction whenever the effective tax rate is below the minimum 15% rate.

• It is therefore within the best interests of a jurisdiction to implement the GMT and benefit from the additional tax income.

• The EU adopted its Pillar Two directive at the end of last year and Member States were obliged to implement the rules by 31 December 2023. Variations on how and when this will occur but it is a significant step.

• Major economies such as Japan, Korea, UK and Canada have all signed up to the tax deal, with notable absences including China and the USA.

• Whilst China is not expected to participate, there is hope the United States will join. Reasons for its absence are multifaceted and include a lack of consensus in Congress as well as the push ahead of their own minimum tax policies.

• An increasing number of low-tax jurisdictions have shifted their stance to support Pillar 2 after periods of public consultation, in order not to lose tax revenues to foreign countries.

CHALLENGES IN TERMS OF COST AND COMPLIANCE

• Despite the growing global support, challenges around compliance and costs remain complex and affect the ability and motivation of nations to sign onto the deal.

• It is estimated by IMF that more than €200 billion in additional revenue would be brought in annually.

• Effective implementation would therefore also require each jurisdiction to come up with a wide strategy regarding longterm revenue generation and the overall strategic direction of each jurisdiction.

• For developing nations, the cost of building the adequate taxation infrastructure would be high. And for those who are not home to a significant number of companies that qualify for the 15% tax, it may be their decision to not implement their own framework and participate through the Income Inclusive Rule.

• For multinational companies impacted there will be two main implications. Firstly, a likely increase in tax expenses globally and resulting decrease of net profit at a group level. And secondly, there will be a compliance and administrative burden, to not only complete the required calculations but to track the groups obligations and top up taxes in each jurisdiction.

IFC s: AN APPROACH TO GLOBAL MINIMUM TAX

• The very nature of International Finance Centres is supporting cross-border business in accordance with international standards.

• Co-operation and participation from IFCs will be a given, but this will vary by circumstance, predominance of business sector, by geographic standards and international relationships.

• A handful of IFCs have already committed to Pillar 2, with the justification that it will ensure they will not lose tax revenues to foreign countries and to create legal certainty and a stable framework around the new taxation regime.

• British Crown Dependencies differ from British Overseas Territories in that they already have the broadly traditional taxation framework in place. For British Crown Dependencies, adoption of Pillar 2 will be relatively straightforward.

• For OTs, building the taxation infrastructure will be costly and may participate through the Income Inclusion rule.

CONCLUSION

The developments surrounding Pillar 2 are ongoing and the components are complex. For IFCs such as the BVI, participation will not look uniform and will vary depending on each jurisdiction’s specific circumstances.

IFCs play a vital role in the global economy, offering world-leading financial and professional services and products in a tax neutral environment. For the centres to continue this critical work, it will be important to be pro-active and co-operative with Pillar 2 where necessary in order to remain compliant with international standards and to eradicate any concerns around profit-shifting that would undermine the OECD agreement.

MODERATOR

Oliver Cooper

Policy Lead, Charles Russell Speechlys LLP Counsel, IFC Forum

Mr. Cooper advises governments and private clients on international regulations and trends in tax, trade, and financial services. His work specialises in advising on international tax reform, economic substance, and related market access issues.

PANELISTS

Geoff Cook

Geoff Cook Advisory Ltd

Chair, Mourant Consulting Ltd

Chair, STEP Global Public Policy Committee

Mr. Cook is an experienced Chair and nonexecutive director. He has led significant business enterprises for more than three decades and helped major international groups to grow and prosper. As a Chartered Director, Geoff has deep knowledge of corporate governance, global regulation, and risk management. He has authored numerous articles and papers on cross border investment and the role of International Finance Centres (IFCs) in the global financial system.

Kayla Laidlaw

Tax Advisory Director, Deloitte BVI

Ms. Laidlaw is focused on assisting clients across the Caribbean region with meeting their global and local regulatory and information reporting obligations. Kayla has extensive experience bringing Deloitte’s wide range of FATCA, Common Reporting Standard (CRS), Country-by-Country Reporting (CbCR), and Economic Substance (ES) offerings to entities in the BVI, Cayman islands, and Bermuda. She has also assisted with the implementation of regulatory reporting portals and the related administration and oversight processes for various tax authorities in the region.

Mindy Herzfeld

Counsel, Potomac Law Group

Tax Professor, University of Florida

Ms. Herzfeld specializes in cross-border taxation, and has experience advising both public and private clients in complex international acquisitions, dispositions, and joint ventures. She also regularly consults with clients on international tax policy developments.

Pascal Saint-Amans Partner, Brunswick

Mr. Saint-Amans advises clients worldwide on policy and regulatory matters, including taxrelated issues. Prior to joining Brunswick, he was director of the Centre for Tax Policy and Administration at the OECD where, working with G20 countries, he led the international tax policy reform, including ending bank secrecy or updating the rules for the taxation of Multinational Enterprises, known as the BEPS (Base Erosion and Profit Shifting) project.

OPPORTUNITIES AND CHALLENGES FOR THE BVI

Over the last 30 years, the British Virgin Islands (BVI) has been a vital cog in the global economy, enabling the international business and finance landscape and facilitating investment, However, it is now clear the economic environment the BVI has been operating in for the past three decades is changing.

From climate change to the rise of digital assets, governments and businesses are being required to adapt and prepare for a markedly different future. These changes will present challenges and opportunities for the BVI. The extent to which the BVI can benefit from these winds of change and remain competitive will now rely on the agility to remain both proactive and reactive in the fast-shifting landscape. To explore these challenges and opportunities, BVI Finance invited leading BVI professionals from across the financial services industry to discuss the role of the BVI in the shifting global economy and explore how we can future-proof our position as an innovative and competitive jurisdiction.

The global economy is shifting. How optimistic are you about BVI’s future role in this new economic landscape?

Lorna: I am optimistic because the BVI has proven its resilience, both post-covid and post- hurricane. The BVI continues to punch above its weight; as a country of 30,000, we contribute to the employment of 2.3 million people across the globe. That is very significant.

Elizabeth: The BVI has demonstrated time

and time again over the last 30 years that it is resilient, and that we have the experts, the professionals, and landscape to make it work. The energy and enthusiasm we have seen from the BVI is not going to go away but we must always remain mindful and alert. We cannot change what happens on a geopolitical level but we can adapt and embrace new opportunities.

George: As Elizabeth just said, we have a lot of energy, enthusiasm, and a phenomenally talented financial services industry, which is why we have always succeeded in challenges so far. Moving forward, we must remain proactive and consider how we can improve our framework outside of responding to external events and pressures.

Jeroen: The world has changed very quickly and the only thing you can do is prepare, train yourself and your team, and ensure you have the right legislative environment in place. We also need to be able to pick up anything new that comes down the line, such as digital assets, which we are in a very good position to do.

The potential of digital assets and crypto

Ayana: There is an interesting opportunity for the BVI in the digital assets space, but it will depend on several factors.

Crucially, it will depend on the level of understanding on what the crypto space means - not just amongst regulators but also the people working within it. You need expertise on both sides of the fence who can manage the risks in this industry. On

one side, you need governance, risk, and compliance to monitor the transactions, and on the other side, you need the regulators to be able to supervise and other competent authorities to investigate when suspicions are reported. We need this holistic approach. There is going to be new upcoming legislation, but it is not going to fill all necessary gaps immediately. Only once we start to implement and use it, then we will gain a deeper understanding of best practices and how we can better evolve. We should not be wary of this space; we need to embrace it and are well positioned to do so.

Jeroen: We must be careful in this space and ensure that we avoid a situation like the Bahamas had with FTX. There is great scope for the BVI to benefit from digital assets and crypto, but we need to be careful not to move too quickly.

Lorna: It is important for us to better understand what digital assets are and how they can be used. The sector has been met with increased caution since the collapse of FTX but I am confident that we can learn from it and make positive changes.

I think digital assets are a wonderful opportunity for our young people. It is a huge opportunity for them to get them involved in the financial services industry and we must do more to ensure BVI’s young people are more attuned to the opportunities in the sector. We have a very vibrant digital assets group here in the BVI and we need to focus on how we can drive progress in this sector.

George : I think ultimately FTX demonstrate that need for increased regulation in the sector. The fact that some businesses fail doesn’t necessarily mean that the technology will not change the world - it just means we haven’t yet quite worked out how best to do it.

Attracting talent in the digital age

George: The rise of remote and hybrid working is an interesting development and I think the digital nomad trend is particularly exciting for the BVI. There is a lot of interest in it, and we need to move from the idea to execution to provide people will clarity on the issue.

Moving to the BVI eight years ago was the best decision I ever made, and we will see increased interest in relocation to the BVI

if we reduce the bureaucracy around it. At a time when people are less likely to travel for business, we must make it as easy as possible for people to come to the BVI for work, whether on a short-term or long-term basis. This will also benefit our wider local community, such as restaurants and hotels, who have missed out on business tourism by the decline of in-person meetings since the pandemic.

Green Finance and Sustainability

Elizabeth: ESG considerations will become more important in the next 5-10 years and there are so many reasons why the BVI must get on board and take a leadership role. In terms of the financial case for ESG, those seeking short term profits will not have a big interest in ESG, but those looking at long-term investments will understand the significance. Larry Fink, for example, has asserted how he is looking at pensions 30 years in advance and has acknowledged that at some point in the near future, you will not be able to operate in certain government spheres or do certain transactions unless you follow ESG principles. Some people might still view green finance and ESG as a tick box, but for investors, employees, and customers, it is increasingly a priority, so we need to take it seriously. It is a key focus for the next generation; for example, when we interview new recruits, they ask about our ESG credentials and want to know if we are aligned to their values.

Future-proofing the BVI Business Company

Ayana: The BVI Business Company is naturally our core; it is our foundation and what we have developed our reputation on over the years. The private sector has done an excellent job at understanding what our clients want and facilitating that. In order to ensure our continued success, the private sector, government, and other stakeholders must come together to create a joint vision for the financial services sector and the future of the BVI Business Company.

George: Our product is a fantastic one and we have one of the best corporate laws in the world. However, the last time we made any serious amendments because of shifting client demands was in 2016, and every round of amendments since then has been due to pressures from external events. We all know why that has occurred, but moving forward, it will be a priority for us to be more proactive and create positive changes that make our client’s lives easier. We need to find the space to do this, instead of always being reactive.

Elizabeth: We have excellent product and excellent people. I do think the BVI is shifting from mass incorporations to that highvalue model and that is not something we need to shy away from. The knock-on effect for high value clients is enormous and we cannot be afraid to evolve in that way.

Jeroen: We must be proactive and be prepared for anything that might happen - it is crucially important to understand what future needs might be. We can look to other jurisdictions for learnings, but I do not think we should try to copy other jurisdictions. We need to find our own sweet spot based on our own strengths.

MODERATOR

Brodrick Penn

Deputy Managing Director of Operations, BVI Financial Services Commission

Mr. Penn has a professional career spanning over 25 years in financial services and government affairs and is currently the Deputy Managing Director at BVI Financial Services Commission.

PANELISTS

Elizabeth Killeen Partner, Carey Olsen

Ms. Killeen is a partner in the firm’s corporate and finance practice. She has a broad range of experience in corporate, commercial and financial transactions.

George Weston Partner, Harneys

Mr. Weston is a partner in the Corporate practice group and advises on all aspects of corporate and commercial law.

Lorna Smith O.B.E., M.A. TEP

Deputy Premier and Minister of Financial Services, Labour and Trade

Ms. Smith has several decades of experience at the highest levels of the public service in the BVI and has spent the last decade supporting Caribbean Governments, corporations and individuals in various commercial ventures.

Ayana Glasgow

Director of International Business Regulations, Ministry of Financial Services, Labour and Trade

Director of International Business Regulations, Ministry of Financial Services, Labour and Trade

Ms. Glasgow has 25+ years in BVI financial services, with expertise in trusts and corporate vehicles. She’s a regulatory veteran, previously with the BVI Financial Services Commission.

Jeroen Hoogendijk

Then Managing Director, TMF

Mr. Hoogendijk holds a master’s in business economics and specialised in accounting and control. His career spans insurance, finance, and risk management in the Netherlands and offshore operations.

THE BRITISH VIRGIN ISLANDS’ CONTRIBUTION TO GLOBAL PROSPERITY IN AN UNCERTAIN WORLD

The ‘Beyond Globalisation: The British Virgin Islands’ contribution to global prosperity in an uncertain world’ report found that the British Virgin Islands (BVI) supports jobs, prosperity and government revenues worldwide through trade and the facilitation of cross-border business.

The investment mediated by the BVI as an international business and finance centre supports around 2.3 million jobs worldwide, with China (including Hong Kong) accounting for approximately one million, and around 400,000 in Europe and North America combined.

In terms of trade, the BVI supports 134,000 jobs in the United Kingdom alone.

Analysis in the report reveals that the economic activity and incomes generated by 2.3 million jobs worldwide will likely contribute over US$13.8 billion annually to government coffers worldwide.

The scale of the BVI’s global contribution to investment and jobs sheds new light on the debate on its impact on the tax receipts of other nations.

The BVI, through its ability to enable such global trade and investment, is a substantial net benefit to business and government across the globe.

Russia and Central Asia

BVI used for litigation and dispute

Middle East and North Africa

China, Hong Kong and Macau

BVI is a recognised jurisdiction on Hong Kong Stock Exchange

Asia and Paci c Region

Single vessel holding structures are popular for the maritime industry

ESTIMATED ECONOMIC AND FISCAL IMPACT OF INVESTMENT MEDIATED BY BVI BUSINESS COMPANIES, 2021

BVI BUSINESS COMPANIES

What is a BVI Business Company?

BVI Business Companies are asset holding vehicles which may include an operating business, with employees and operations within their structure. However, they may also hold assets which do not involve commercial activities. BVI Business Companies, like all other companies, exist to box up control and allocate responsibility and risk, including liabilities.

BVI Business Companies are much more than just a piece of paper – even those which hold assets without active operations have real legal and contractual substance and are vital to the efficient operation of trade and investment in an increasingly globalised business world.

Who uses BVI Business Companies?

Major respected companies worldwide use BVI Business Companies to manage their cross-border activities. Bluechip companies listed on the London, New York or Hong Kong main stock exchanges use BVI vehicles to support their international investment activities.

Companies, institutions and private individuals use them for: holding companies for various assets corporate group structuring; investment business, joint ventures, listings, real estate; family, trust and succession planning; and vessel or aircraft registration.

Estimated underlying value of active BVI Business Companies by primary purpose (outer ring) and estimated share of active BVI Business Companies by primary purpose (inner ring), 2022, per cent

2.3

Trade

China’s

Two

IFCs

IFCs

Tax

Upholding

Facilitating

Three

United States and Canada

Jobs: 72,000

Investment: US$79bn

Tax: US$1.6bn

Caribbean and Latin America

Jobs: 336,000

Investment: US$117bn

Tax: US$0.9bn

United Kingdom

Jobs: 134,000

Investment: US$153bn

Tax: US$3.5bn

Rest of Europe

Jobs: 186,000

Investment: US$297bn

Tax: US$4bn

China, Hong Kong and Macau

Jobs: 1,164,000

Investment: US$638bn

Tax: US$2.8bn

Rest of World

Jobs: 399,000

Investment: US$133bn

Tax: US$0.9bn

BVI BUSINESS COMPANIES

Why use a BVI Business Company? Companies, institutions and private individuals use them for: holding companies for various assets corporate group structuring; investment business, joint ventures, listings, real estate; family, trust and succession planning; and vessel or aircraft registration.

A robust and internationally well-regarded regulatory regime.

Political stability and a legal system rooted in English common law. This protects assets from potential loss, damage or sequestration resulting from socio-political instability.

A cadre of specialist providers which are part of a network of international groups with offices around the world.

Company and related laws which are adaptable for the needs of individuals and businesses with complex structures

A statutory infrastructure which is respected by international regulators and standard setters.

The ability to settle disputes at the highest levels of a company. The International Arbitration Centre maintains a roster of over 190 highly regarded international arbitration and dispute resolution practitioners. Ultimately actions can be decided through the Eastern Caribbean Commercial Court which is based in the BVI.

Tax neutrality – this does not mean that there is no tax in the BVI but there is a zero tax on corporate profits. All this means is that investors are not exposed to double taxation and only pay taxes due to the authorities in their domicile and/or where funds are invested.

The United States dollar is the only legal tender.

ASSETS

BVI Business Companies hold US$1.4 trillion of assets, equivalent to 1.5 per cent of global GDP.

These holdings reflect cross-border investment in the widest variety of physical, corporate and financial assets.

These substantial cross-border investments provide the underlying finance that enables real world economic investment in homes, factories, hospitals, railways, broadband, machinery, entrepreneurs – and more.

They also provide the essential liquidity for the secondary markets that underpin and provide confidence in these primary real world investments.

How many?

At the end of 2022 there were approximately 375,000 active BVI Business Companies. Roughly 44 per cent originate from China, while use by clients in North America and Europe account for 16 per cent.

BVI vehicles are being used for longer periods of time in 2022 than in 2011. While the annual number of new incorporations have reduced steadily each year since 2011, the total cumulative stock of active BVI Business Companies has remained relatively stable over this same period. In 2011, the implied lifespan of an average BVI Business Company was 7.8 years compared to an average lifespan of approximately 19 years in 2020.

To access the full report, visit www.bvifinance.vg

Percentage of the number of active BVI Business Companies by location of ultimate beneficial owner, 2022, per cent

2023 FINANCIAL SERVICES AWARDS WINNERS

BEST CORPORATE SOCIAL RESPONSIBILITY

National Bank of the Virgin Islands

REGULATOR OF THE YEAR

BVI Financial Services Commission

TECH SAVVY FIRM OF THE YEAR

Harneys

BANK OF THE YEAR

National Bank of the Virgin Islands

INSURANCE AGENCY OF THE YEAR

Caribbean Insurers

AUDITOR OF THE YEAR

KPMG BVI

LAW FIRM OF THE YEAR

Harneys

ACCOUNTING FIRM OF THE YEAR

KPMG BVI

INSOLVENCY PRACTICE OF THE YEAR

Deloitte

FUTURE LEADERS AWARD

Chantee Mathavious, National Bank of the Virgin Islands

COMPLIANCE OFFICER OF THE YEAR

Roschelle Smith, First Caribbean International Bank

LAWYER OF THE YEAR

Jenelle Archer, O’Neal Webster

CORPORATE SERVICES PROVIDER OF THE YEAR

Harneys

JURISDIC TION OF CHOICE

JURISDICTION OF CHOICE

B R I T IS H

W H Y BVI?

Compliance with international regulatory standards

Competitive star t-up costs

Innovative legislation

Internationally renowned commercial cour t

No currency controls

Qualfied professional pool of practitioners

Strong par tnership between public and private sectors

Pioneering, innovative and leading the way in g lob a l busin e ss solution s, th e Br it i s h Virg in I sla nd s ( BVI) is an in te rnation all y respected business and fi nance centre with a proven committment to connect markets, empower clients and facilitate i nve stm e nt, t ra d e a nd cap it a l fl ow.