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The British Virgin Islands recently introduced new regulations relating to products and services in the innovative fintech space, reaffirming its commitment to remaining a jurisdiction of choice for new financial products and services. These new regulations represent an exciting development in the approach taken by the BVI to the regulation of novel financial technology, representing a good balance between oversight and accountability on the one hand, and freedom to innovate on the other.
The Financial Services (Regulatory Sandbox) Regulations, 2020 (the Regulations) were introduced in June 2020 and commenced on 31 August 2020. The Regulations will provide a way for new, innovative fintech products to be trialled for a limited time by BVI companies, without the need to comply with the more onerous licensing requirements set out in more mainstream financial services regulations.
"Innovative Fintech" is defined in the Regulations 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'. In this context, financial services business relates to activities that would usually fall to be regulated and licensed, such as fund management, banking, money services, and operating an investment exchange. Where an entity that is engaged in innovative fintech is permitted to operate within the regulatory sandbox (the sandbox), such licensing requirements do not apply for so long as the entity is within the sandbox.
An entity that wishes to be considered to operate within the sandbox needs to make an application to the Financial Services Commission (the FSC), which application must be accompanied by the following:
The fee for making such an application is currently US$2,000, and a further fee is charged if the application is approved, ranging from US$2,000 for a simple business model to $10,000 for a complex model. Where, after submitting an application, any of the submitted information changes, the FSC must be informed immediately. They may also request additional information to help them in making their decision.
If the FSC is satisfied that they have been given all requisite information outlined above (as well as any further information requested), that the applicant is 'fit and proper', and that granting the application is not against the public interest, they may grant approval for the applicant to participate in the sandbox. The 'fit and proper' criterion relates to the directors or senior managers of the applicant, and is assessed by the FSC based on their (i) honesty, integrity, and reputation, (ii) competence and capability, and (iii) financial soundness.
Where an application is granted, the FSC will tell the applicant for how long they will be permitted to operate within the sandbox, which, initially, will be a period no longer than 18 months, although there is scope for this period to be extended by a further six months if a good reason can be shown. During this time, the applicant may not change their business model without the prior approval of the FSC. They may, however, make an application to become a fully licensed regulated entity and leave the sandbox.
It should be noted that, once approval has been granted, the FSC may revoke such approval for a number of reasons, including where the applicant breaches their obligations under the Regulations, submits false reports, breaches data security, or is being liquidated.
A sandbox participant that is a BVI company must have at least two individual directors (as opposed to corporate directors), or two individual partners in the case of a limited partnership, and may not have more clients than were approved by the FSC during the application process. They must also take adequate measures to identify potential risks relating to their business and to take measures to address those risks (including prevention of money laundering and terrorist financing).
Where there is a development or change to the conduct of the participant's business, or change in the environment in which it operates, that has or is likely to have a material impact on its risk profile or obligations under the Regulations, the participant is required to immediately notify the FSC.
Participants in the sandbox will be required to keep adequate records and to file interim reports with the FSC, at such intervals as the FSC may determine. These reports must be signed by the chief executive officer (or equivalent) and are required to:
When soliciting clients, a participant will be required to alert the client to the fact that they are not licensed by the FSC, and disclose to the client or potential client the risks of participating in the sandbox, that the activities are being conducted pursuant to the participant's business proposal, and for how long the FSC has approved the participant operating within the sandbox.
Ogier is a professional services firm with the knowledge and expertise to handle the most demanding and complex transactions and provide expert, efficient and cost-effective services to all our clients. We regularly win awards for the quality of our client service, our work and our people.
This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.
Regulatory information can be found under Legal Notice
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