The British Virgin Islands in digital movement: Peer-to-peer lending introduced

Since the rushing air of financial technology hit the shores of the British Virgin Islands (the BVI) over the last few years, many BVI based service providers have been busy servicing this new and exciting area of business. The growth of FinTech is perhaps unavoidable as the world continues to digitize and electronic transactions continue to prove more beneficial to consumers, in terms of cost and effectiveness. As a result, the interest venture capitalists have taken in this burgeoning industry is undeniable and offshore jurisdictions like the BVI continue to take electronic steps in order to keep pace with the demands of the new kids on the blockchain.

The BVI Financial Services Commission, the central regulator (the Commission), is also keenly watching this space and it continues to encourage innovation in the BVI by recognising this evolution. In October 2018, amendments to the Financing and Money Services (Amendment) Act 2018 were gazetted which are expected to come into force shortly in the BVI (the Amendment Act). Once in force, the Amendment Act will introduce a range of new provisions which are noteworthy. In particular, the new provisions will introduce a new regime and a new category of licence for peer-to-peer lending which we will discuss further below.

First, however, we examine some of the more administrative, ‘house-keeping’, changes to the legislation.

Expansion of money services

Money services business will be expanded to include the following:

  • dispensation of money;
  • facilitation of deposits;
  • payments;
  • transfer of money or the reporting of account information via automated teller machines (ATMs); and
  • transmission of money in any form (including electronic money, mobile money or payments of money).

It is instructive to note at this stage that the terms ‘money’, ‘money transmission or ‘money transmitter’ are not defined under the Financing and Money Services Act, 2009 (the FMSA). However, under existing legislation, a reference to money under the laws of the BVI is a reference to fiat currency (ie money that is legal tender in a recognised sovereign state). Hence, at present, money transmission would exclude cryptocurrencies and other virtual currencies. Further, although the definition of transmission of money has been expanded under the Amendment Act to include other forms of money, the definition still excludes virtual currencies since the characteristics of these virtual currencies do not fall within the definition of electronic money, mobile money and payments of money.

New categories of licences

Importantly, the Amendment Act also reclassifies the licences issued under the FMSA. Under the current regime, only two classes of licences are issued, a financing licence authorising the holder to carry on financing business (as defined in the FMSA) or a money services licence, authorising the holder to carry on money services business (as defined in the FMSA). The Amendment Act provides for six categories of licences, Classes A – F. Classes A – D were already possible under the current regime as either a financing or money services licence, albeit the Amendment Act has streamlined the two original classes into further specific classes of licences. Class E is a new class of licence which permits the holder to carry on the business of operating ATMs.

Peer-to-peer lending

In addition to these amendments to FMSA, the Anti-Money Laundering Code of Practice, 2008 (the AML Code) has been amended by the Anti-Money Laundering and Terrorist Financing (Amendment) (No 2) Code of Practice 2018 to permit the use of electronic and digital means of verification. Now, instead of the traditional way of verifying individuals (eg certified copies of passports and utility bills) as regards KYC obligations, verification of such individuals can utilise proprietary software and programmes to include digital, electrical, magnetic, optical, electromagnetic, biometric and photonic forms of identification. These amendments to the AML Code also include provisions containing pertinent guidance as to when to rely and not rely on these digital forms of verification.

Offering the perfect cocktail of digital products, it is also expected that the Commission will very shortly provide industry guidance on Initial Coin Offerings, the offer and issue of cryptocurrencies, crypto-currency exchanges and the blockchain in general. We are also eagerly awaiting the imminent introduction by the Commission of a regulatory sandbox in order to allow FinTech and other innovators to conduct live experiments in a controlled environment so as to explore new ideas (potentially leading to more affordable products and services). It is therefore yet another ground breaking and trail blazing season in the BVI.  The Commission, the private sector and the Government are once again holding hands to create the necessary products, pass the necessary legislation and provide the necessary legal, corporate services and other support to BVI vehicles in an effort to ensure that the territory goes through a digital transformation and keeps itself on the cutting edge of the world’s top class offshore financial services offering.