Why choose the BVI for stablecoin issuance?

Stablecoins are a transformative force in the digital asset landscape, providing a stable alternative to traditional cryptocurrencies for entrepreneurs and investors.

The British Virgin Islands stands out as a premier jurisdiction for the issuance of stablecoins, with a progressive and innovative approach and a robust legal framework that provides clarity. These advantages allow issuers to navigate the digital asset landscape efficiently whilst ensuring compliance, fostering user confidence and maximising growth potential.

By pegging their value to fiat currencies or other assets to maintain a more stable price, fiat-referenced stablecoins mitigate volatility (especially against other popular cryptocurrencies), making them particularly suitable for everyday blockchain-based transactions, trading and decentralised finance applications. Their benefits include enhanced transaction speed, lower costs and increased transparency, positioning them as essential tools for both consumers and businesses.

As the popularity of stablecoins continues to grow, regulatory scrutiny is also increasing, focusing on reserve transparency and compliance.

In this briefing, we discuss fiat-referenced stablecoins and outline the key reasons why the BVI is an ideal choice for launching your stablecoin project.

Regulatory certainty under the VASP Act

The BVI Virtual Assets Service Providers Act, 2022 (the VASP Act) establishes a clear and supportive framework for virtual asset activities carried out in or from within the BVI based on Financial Action Task Force (FATF) recommendations. A notable aspect of the legislation is its detailed definitions and boundaries with respect to what constitutes a virtual asset and what activities fall within the regulated perimeter.

Crucially in relation to stablecoins, the BVI VASP Act does not treat the issuance of virtual assets, including stablecoins as a regulated activity in and of itself. The VASP Act regulates virtual asset services which, for most part, are activities conducted on behalf of third parties with interests in virtual assets such as operating virtual asset exchanges, providing custody and other relevant services conducted as a business on behalf of others such as virtual assets brokerage or other investment services. The mere act of issuing tokens or stablecoins, without more, is not captured as a regulated activity under the VASP Act.

Similarly, proprietary investment activities conducted by persons where virtual assets or stablecoins are held or dealt with solely for a person's own account, are not caught by the VASP Act. Entities engaging exclusively in their own proprietary activities, and not providing other regulated services to third parties, are therefore not required to register as a virtual asset service provider under the VASP Act.

The approach taken by the VASP Act therefore avoids imposing unnecessary administrative and compliance burdens on pure token issuers, supporting innovation and operational flexibility within the jurisdiction.

That is not to say that BVI issuers may take an entirely blasé attitude to compliance matters, however. All BVI persons, even if not regulated, are of course subject to the BVI Proceeds of Criminal Conduct Act and other general criminal conduct legislation. Therefore, BVI stablecoin and other crypto issuers must still ensure that appropriate means are place to ensure that issuers do not become party or accessories to money laundering, sanctions breaches or other criminal activity through token sales. In this regard though, there are a number of service providers such as World-Check that offer acceptable solutions for this.

Overall, the approach taken by the BVI in relation to crypto issuers provides significant advantages to businesses, investors and service providers and further enhances the BVI's attractiveness as a hub for digital asset projects.

Progressive, pro-crypto environment

The BVI has a balanced and forward-thinking approach to the regulation of digital assets and blockchain businesses. The BVI Financial Services Commission highlights the need for clarity in applying existing financial services laws to virtual assets. This approach ensures entrepreneurs benefit from legal clarity and regulatory predictability while upholding high standards of market integrity and responsible innovation. The public support of government and regulators in the BVI provides further confidence to entrepreneurs and investors.

No economic substance requirements for token issuers

The BVI's economic substance rules only apply to certain relevant activities. Pure stablecoin / token issuance is generally not defined as a relevant activity under the Economic Substance Act, meaning most token issuers are not subject to local economic substance rules, which significantly simplifies ongoing compliance.

Unique advantages for token offerings

Token offerings in the BVI allow issuers to engage in capital-raising activities without being subject to the stringent regulations that govern traditional securities, provided the tokens do not qualify as "securities" or "investments" under the Securities and Investment Business Act 2010. This flexibility is crucial for startups and technology entrepreneurs who may struggle to access conventional capital markets.

The BVI's Electronic Transactions Act, 2021 (ETA) further supports the digital nature of token offerings by ensuring that electronic contracts and records hold legal validity, thus streamlining the issuance process. For more information on token offerings in the BVI, please refer to our previous article: Cryptocurrency and token offerings in the BVI.

Global recognition and ongoing commitment

The BVI is a trusted global financial centre, known for its flexibility, responsive authorities and English common law system. While currently under enhanced monitoring by FATF, the BVI faces no international sanctions or restrictions. BVI business companies continue to operate globally with confidence as the jurisdiction remains committed to the highest international standards.

Flexible, efficient and cost-effective structuring

The BVI's modern company laws and efficient incorporation process make it easy and cost effective to launch cutting-edge digital asset projects. The jurisdiction's service providers and legal advisers have deep experience advising on token and stablecoin models and provide practical solutions for innovative digital asset businesses.

Tax neutrality

BVI business companies benefit from a favourable tax structure, with no stamp duty, income taxes, corporate or capital gains taxes, withholdings, levies, estate duties, inheritance tax or gift taxes.  However, it is important essential to consult your onshore legal and tax advisers to ensure compliance and optimise your tax strategy.

How Ogier can help

Ogier's multi-disciplinary Technology and Web3 team assists clients with creating, launching, funding and evolving their digital and decentralised projects and implementing blockchain and cryptocurrency related investment products. With experts across our jurisdictions, we bring a global perspective to our work with clients, which includes launching cryptocurrency and blockchain related funds, hedge and venture capital, private sales, airdrops and grants of tokens and non-fungible tokens (NFTs), and a variety of fundraising.

Recognised as leaders in legal and regulatory matters concerning crypto, blockchain, Web3 and virtual assets, our team has contributed to major projects and cases, including those involving leading stablecoin issuers. For further assistance or information, please contact our key team members listed in this briefing.

Get in touch with our team if you require any assistance.

About Ogier

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.

Disclaimer

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