BVI FINANCE struggling to put proper regulatory frameworks in place for new sectors like cryptocurrencies. Regulation has not always kept up, especially with digital assets which essentially live on borderless blockchains. Nevertheless, and to nurture further innovation, it is important to interrogate new technologies and make sure the right policies are in place. As a result, it is becoming increasingly attractive to structure investment vehicles in established jurisdictions like the BVI that provide the right balance between stability, robust and pragmatic regulation and attractive economic incentives. Playing in a regulatory sandbox The jurisdiction is keen to support innovation in technology infrastructure underlying digital assets funds. In the BVI, we are actively investing in fintech regulation and in 2020 launched the Fintech Regulatory Sandbox – a testbed for fintech businesses to conduct live-testing and identify areas for improvement before launch. This light-touch regulatory regime is designed to foster innovation and create a cost-effective friendly ecosystem for digital startups to thrive. It is helping formalise the existing significant digital activity already taking place in our business company and funds regimes. A regulatory sandbox aims to promote more effective competition in the interests of consumers. It allows both existing and prospective licensees to test innovative products, services and business models in a live market environment, while ensuring appropriate safeguards are in place. This approach is of particular relevance in the digital assets space given the nascence of blockchain and cryptocurrency as an asset class. A sandbox environment can be considered to be a bridge between the creative innovators and the regulators whose aim is to keep a tight rein on financial activities. Tech focus and the BOSS The BVI has also been proactively exploring opportunities in cryptocurrency and blockchain technology. The jurisdiction actively invests in its own technological capabilities and has deployed leading-edge technology to ensure it maintains global international standards through establishing a more effective partnership with global regulators and law enforcement authorities around the world – driven by technology. 26
The BVI’s Beneficial Ownership Secure Search system (BOSSs) is the gold standard in accessible company registers. This fully searchable platform is decentralised and cloud-based, and uses the highest levels of security and encryption to hold verified data on companies incorporated in the BVI. The digital platform has been lauded by prominent law enforcement authorities like the UK’s National Crime Agency (NCA) and was integral to disclosing information that warranted the UK’s first Unexplained Wealth Order (UWO), obtained by the NCA in 2018. Smart contracts The distributed ledger is a decentralised database where transactions are kept in a shared, synchronised and distributed book-keeping record, which is secured by cryptographic sealing. It can be an important tool for building a fair, inclusive and secure digital economy, as the platform can provide a transparent and user-centric digital service. From its perspective and in support of progress in this area, the BVI is looking to further the use of smart contracts such as the Decentralised Autonomous Organisations (DAO) and Limited Liability Autonomous Organisations (LAO). These which can codify transactions and contracts, and in turn, ‘legally’ manage the records in a distributed ledger. This is a rapidly evolving area and, in the future, we could see smart contracts potentially interacting with multiple financial systems, automatically transferring assets while monitoring for compliance and making sure the terms of a contract are fulfilled. This technology is still in its infancy and the BVI is committed to cooperation and dialogue between industry stakeholders and regulators to foster and deploy blockchain-based applications within an appropriate regulatory framework. n
Simon Gray Head of Business Development and Marketing Simon Gray is a senior financial services’ professional with strong international experience gained in the Caribbean, Middle East and Asia as well as major experience in both public and in private sectors. Combining an investigative background with 25+ years of first-hand experience of international financial services and product innovation and design, Simon has spent much of his working life in the private sector with senior roles including Baring Asset Management and Barclays Wealth. He has previously worked well established organisations including as Director, Supervision (DFSA) within the Dubai International Financial Centre.
DIGITAL ASSETS IN FOCUS | Mar 2021
