Innovation Incubator for FinTech Innovators | The BVI Sandbox Approach
Innovation Incubator for FinTech Innovators | The BVI Sandbox Approach

Innovation Incubator for FinTech Innovators | The BVI Sandbox Approach

British Virgin Islands – Crowned as jewels of the Carribean, British Virgin Islands (BVI) lives up to its alias by being one of the foremost offshore financial centers underpinned with a thriving tourism sector. Many investors quote BVI’s cornerstone of success due to its unique structure of sharing English Common Laws and being able to maintain a clean reputation. Therefore, in a bid to maintain its sterling reputation, the Financial Services Commission (FSC) was established in 2001 as a regulatory authority for supervision and inspection of all financial services in BVI, including FinTech innovators [IMF]. 

Since the setup of FSC, BVI has seen various initiatives and developments, boosting growth in the financial services industry. There was a significant increase of 35% in company incorporations between 2016 and 2018. The regulator cites attuning to the needs of the grounds and developing new frameworks such as the limited partnership legislation as imperative to entice investors [InternationalInvestment]. Plans to bolster BVI’s position as an international FinTech business hub are in the pipeline with the revision of The Financing and Money Services Act 2009 (FMSA) to include new class licence and broadening of money services regulation [Harneys].

As the third largest cryptocurrency market in the world, BVI is no stranger to the FinTech industry [PWC]. Focusing initially on cryptocurrencies, initial coin offerings (ICOs) are executed through an ICO issuer that is incorporated as a BVI company under the BVI Business Companies Act, 2004. This allows the issuer to enjoy the jurisdiction’s benefits such as tax exemptions in relation to other markets, thus drawing investors to the territory (See Desfran’s article on the advantages of incorporating in BVI). As the FinTech industry evolves to encompass other business models, FSC recognises the need to foster advancements in the sector and assist startups in innovation. 

A Glimpse of the BVI Regulatory Sandbox Framework

Adopting the latest concept, regulatory sandboxing is one of FSC’s commitments to substantiate its support towards FinTech and to cement its standing as the forefront of innovative offshore services. Setting its sight on the gargantuan of opportunities that come with the new framework, FSC seeks to assist entrepreneurs to innovate through regulatory and financial technology.   

Sandbox regulations were introduced as a solution to seek an equilibrium between the rigidity of rules yet providing enough margin for innovators to manoeuvre when developing products and services. Under this proposition, entrepreneurs can do small-scale and live testing of innovations in a controlled environment. The “incubator” comprises a special set of exemptions and other limited, time-bound exceptions under the supervision of a regulator. Entrepreneurs will now have the privilege of operating under with special exemptions and other limited, time-bound exceptions under the supervision of a regulator [CGAP]. This ultimately translates to creating more efficiencies and attracting different players to explore this innovative landscape. The FSC is currently open for sandbox applications and more information can be found here

With an overarching purpose to promote competition and efficiencies within the financial services markets, the FSC has set the following objectives for BVI’s regulatory sandbox:

  • Promote market inclusion and protect markets
  • Develop a regulatory framework without restraining innovation
  • Generate new business models within the confines of the jurisdiction

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Advantages of Regulatory Sandboxing in BVI

In recent times, automation is all the rage with businesses focusing even more on cost-saving and greater efficiencies. Technology, in particular digitalisation, is the key for entities to exercise more innovation and stay relevant in the face of rising needs. Innovation trials can render high cost with low returns and this is where participating in sandbox experimentation in BVI can value-add [CGAP]. In essence, the infographic below encapsulates the benefits of BVI’s sandbox framework for the FinTech industry and businesses:

The Perfect Greenhouse for FinTech Innovators

Similar to a greenhouse, BVI’s sandbox framework provides the right conditions for developing ideas and eventually executing plans. Alluring benefits of sandbox regulations paired with other finance and money services regimes, not mentioning prerequisite conditions of the offshore jurisdiction make BVI an ideal hotspot for innovation investments. 

With the wide range of business models entrepreneurs can now explore, having experts with profound knowledge on BVI is imperative to making informed decisions. Desfran’s experienced advisors and extensive networks can guide you in your business endeavours. Contact us today to learn more.

References

Executive Summary, imf.com 

BVI sees 20% increase in number of new companies, internationalinvestment.net

Revisions to financing and money services regulation in the British Virgin Islands following 2018 consultation, haneys.com

2019 Crypto Hedge Fund Report, pwc.com

Regulatory Sandboxes and Financial Inclusion, CGAP.com

A Guide to BVI’s FinTech Regulatory Sandbox, bvifsc.com

About the Author

Joey Tan is Strategic Communications and Research Manager at DesFran. Joey has a flair for creatives and is always keen on improving and upgrading herself within the realm of the financial services industry. She manages the strategic communications and marketing initiatives in DesFran and has a keen interest in financial licensing and regulations. Joey is a sociology graduate from the University of Buffalo.

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