Introduction
The British Virgin Islands (the "BVI") is one of the preferred international jurisdictions for fintech businesses. This is due to the BVI Government's commitment to ensuring its legislative and regulatory environment remains attractive to fintechs, with a bespoke framework for digital assets providing legal certainly since 2022, and the fact that the BVI is well-established as an investment jurisdiction with global appeal.
Types of fintech business
BVI fintech businesses comprise a variety of business models, several of which involve digital assets. These business models include:
- regulated BVI funds that invest in digital assets or blockchain-based businesses;
- regulated BVI tokenised funds;
- token and stablecoin issuers;
- digital asset related market infrastructure and service providers (such as market makers, digital asset exchanges, including DEXes, and custodians);
- online platforms where users mint and burn NFTs; and
- proprietary trading companies that invest in digital assets.
The BVI's legislative and regulatory framework
Before establishing in the BVI, a fintech business will want to consider whether it will require a licence or registration from the BVI financial services regulator, the Financial Services Commission (the "FSC"). As the principal regulator of the financial services industry in the BVI, the FSC has responsibility for the regulation, supervision and monitoring of regulated entities, the enforcement of financial services laws, the monitoring of regulated entities' compliance with applicable legislation, the issuance of guidance to regulated entities and the issuance of advisories to regulated entities and the public. It is also empowered to facilitate the fulfilment of international requests for regulator-to-regulator assistance.
The following legislation is potentially relevant to a fintech business (including those that involve digital assets).
VASP Act
The Virtual Assets Service Providers Act, 2022 (the "VASP Act") came into force on 1 February 2023. Its goal is to implement the Financial Action Task Force ("FATF") recommendations 15 and 16 in relation to virtual assets. The VASP Act provides a registration regime for any person carrying on in or from within the BVI a "virtual assets service" as a business. There are five virtual asset services. Such virtual asset service providers ("VASPs") are required to apply to the FSC for a registration before they are permitted to operate a VASP business in or from within the BVI (unless the VASP took advantage of transitional relief which was available for incumbent operators until 31 July 2023). As the VASP Act derives from the FATF's recommendations, the FSC pays particular attention to a VASP's anti-money laundering compliance and risk mitigation systems and controls. Although this is a registration regime, the FSC applies the same thorough approach to applications for registration as it would to a traditional financial services licence application. The FSC has stated its aim is to work with applicant businesses with the goal of the applicant successfully achieving its VASP Act registration (although it recognises not all will be successful). The FSC has now approved more than 16 VASPs, including custody providers and exchanges. More successful registrations are expected this year.
SIBA
A fintech business will also need to assess if its activities fall within the scope of the Securities and Investments Business Act, 2010 (as amended) (the "SIBA"). To be in the scope of the SIBA, the fintech business must be conducting "investment business" in or from within the BVI, an element of which is whether the business activities relate to "investments" (as defined in the SIBA). Investments include traditional securities such as shares, debt, warrants, certain futures and options, and contracts for differences. Certain digital assets products may also be considered "investments". In its "Guidance on Regulation of Virtual Assets in the Virgin Islands" that was published in July 2020 (the "Virtual Asset Guidance") the FSC observed that virtual assets used as a means of payment for goods and services (for example, tokens) which provide the purchaser with an ability to only purchase goods and services (utility tokens) would not be considered an "investment". However, the FSC also noted that, where a virtual asset provides a benefit or right beyond a medium of exchange, this may be captured under the SIBA. Similarly, the FSC confirmed in the Virtual Asset Guidance that certain derivatives, in particular, futures and contracts for differences that reference virtual assets, would be "investments".
FMSA
The Financing and Money Services Act, 2010 (as amended) ("FMSA") also merits consideration by a fintech business. This defines and regulates "money services business" and "financing business". The definition of "money services business" includes the transmission of money in any form including "electronic money", "mobile money" and "payments of money" and other alternative methods of money and payment transmission. Certain kinds of financing are also in scope. Although FMSA has provisions which require a licence for a business conducting international lending and financing (Class F) these provisions are not yet in force. Once they are in force, a Class F licence will be needed for international financing and lending in the peer-to-peer fintech market, including peer-to-business and business-to-business markets. There is no scheduled date for these provisions to go live.
The Virtual Asset Guidance confirms that "the transmission of virtual assets or virtual asset related products would not require a money services business licence" under FMSA. However, the FSC advises that the views and guidance of the FSC should first be secured before proceeding with virtual money services activity in or from within the BVI. The Virtual Asset Guidance is silent as regards "financing business" under FMSA, and this, in our view, would need to be assessed where a business was intending to engage in crypto lending to BVI borrowers.
Other points to note
The VASP Act, the SIBA and FMSA are not mutually exclusive and a fintech business may obtain approval from the FSC under more than one act if needed.
AML/CTF/CPF
Fintech businesses will also need to consider the application of the BVI's laws and regulations that relate to anti-money laundering, counter-terrorist financing and counter-proliferation financing ("AML/CTF/CPF") as well as the BVI's sanctions requirements. If conducting "relevant business" in or from within the BVI (which is broader than just FSC regulated business), a fintech business will be required to adhere to the Anti-Money Laundering Regulations, 2008 (as amended) (the "AML Regulations") and the Anti-Money Laundering and Terrorist Financing Code of Practice, 2008 (as amended) (the "AML Code"). VASPs carrying on or providing virtual assets services when a transaction involves virtual assets valued at US$1,000 or more are within scope of the AML Regulations and the AML Code.
Guidance for VASPs has also been provided by the FSC in the "VASP Guide to the Prevention of Money Laundering, Terrorist Financing and Proliferation Financing" published in 2023 and the "VASP Travel Rule Guidance" published in 2024.
A fintech business will also need to consider the BVI's National Risk Assessment when assessing its AML/CTF/CPF risks.
All businesses whether or not regulated must adhere to the BVI's Proceeds of Criminal Conduct Act, 1998 (as amended) and the BVI's sanctions regime. While it is permitted for a business to take a risk-based approach to AML/CTF/CPF compliance, it is not permitted to take a risk-based approach to sanctions compliance.
Electronic communications and transactions
The BVI's legislation supports online business. The BVI permits the use of "appropriate digital and electronic means" to carry out identification and verification for the purposes of compliance with AML/CTF/CPF rules and regulations. The Electronic Transactions Act, 2021 also recognises the validity of electronic signatures. Together with the Electronic Transfer of Funds Act, 2021 and the Electronic Filing Act, 2021, these three acts are designed to enhance the BVI's legal system to legally recognise the filing, creation or retention of official documents with or by a government body by electronic means. They also legally recognise the provision, deliverance, retention, or access to information or documents by electronic means, where the law requires access be given to information or documents, or for the same to be retained, delivered or presented in original form.
Other initiatives
The FSC introduced a regulatory sandbox in 2020 through the Financial Services (Regulatory Sandbox) Regulations, 2020. This has been open to applications since the beginning of October 2020. The objectives of the BVI's regulatory sandbox are to align regulation and innovation by providing a defined test environment and to offer a tailored and focused supervisory framework, while protecting market participants. The goal is to permit the development of new and innovative business models that are operating in or from within the BVI. The VASP Act permits VASPs to participate in the regulatory sandbox under the innovative fintech business model. Participants in the sandbox that are proposing to carry on VASP Act regulated activities are still required to comply with the aspects of the VASP Act relevant to their proposed VASP Act activities.
How we can help
We have a team of lawyers with significant experience in advising on BVI fintech related matters. If you would like any assistance with establishing a fintech business in the BVI, please get in touch with one of the contacts listed below or your usual Walkers contact.
