As one of the foremost offshore financial centres, the British Virgin Islands (BVI) is recognised across the globe as the premier jurisdiction for the registration of asset-holding companies. The BVI is tax neutral, with no direct taxation on companies and a nominal rate of income tax on individuals, which has made it an attractive destination for technology entrepreneurs.

Notwithstanding that the majority of the BVI’s financial services legislation was written before the recent blockchain revolution began, the BVI has committed to being a welcoming jurisdiction for technology and innovation, and has taken a number of legal and regulatory steps to make the BVI a jurisdiction that will allow such innovation to thrive.

The BVI has been open and clear in its ambition to become a global technology hub, such declaration being supported by a sound legal framework. The BVI proved a popular choice for issuers of virtual assets during the initial coin offering (ICO) boom of 2017–18. During the “crypto winter” that followed, the BVI’s flexible, business-orientated legislation and internationally recognised securities regulatory regime enabled it to move with the trends in the blockchain field and encourage a shift towards security tokens and stablecoins, which provided greater value stability and more predictable investment returns. This evidence of flexibility means that the BVI has a proven track record of continuing to develop with fast-moving trends, and is well placed to take advantage of the latest shift towards securitising common assets and decentralised finance (DeFi) products as well as virtual asset funds.

The BVI Virtual Asset Service Providers Act (the VASP Act), which regulates virtual asset service providers, came into force on 1 February 2023 (see 4.1.1 Regulatory Overview) and has already attracted a number of new entrants to the BVI market.

While a large number of BVI companies have been affected (one way or another) by the bankruptcies of FTX and other leading centralised business in the blockchain space, the impacts have been more limited than might have been expected considering the BVI’s market-leading position in the industry. Where there has been fallout, the BVI courts and practitioners have mutually benefited from the experience afforded by such high-profile events, and remain at the forefront as applicable BVI regulations and jurisprudence continue to evolve.

New technologies have not yet displaced traditional financial service providers in the BVI. BVI Finance, a group that represents the BVI’s financial services sector, has established a digital assets working group, in which representatives from Appleby (BVI) participate, to engage with the financial services industry, regulators, the government and the media to promote the development and use of new technologies in the BVI.

In August 2018, changes were made to the Anti-Money Laundering and Terrorist Financing Code of Practice to permit entities in the BVI to digitally verify identities and receive electronic copies of documents instead of traditional “wet ink” paper-based processes. The amendments are further evidence of regulators in the BVI embracing the blockchain revolution, and will set a new standard for anti-money laundering (AML) verification in the region. Given the BVI’s stringent know-your-customer (KYC) requirements, and in light of these amendments, a number of service providers have adopted technologies to permit the onboarding of clients and the collection of KYC information digitally.

Tokenised funds have proved increasingly popular in recent years. In a tokenised fund, an investor’s interest is represented by a cryptographic token, as opposed to shares or other interests or units offered to investors in a more traditional fund structure. Additionally, the BVI is seeing a number of tokens pegged to or representative of real-world assets.

In Philip Smith and Jason Kardachi (in their capacity as joint liquidators) v Torque Group Holdings Limited, Justice Wallbank in the BVI Commercial Court, following decisions from numerous other courts in Commonwealth jurisdictions, held that crypto-assets should be treated as “assets or property”.

As to the ownership of crypto-assets in the case, Justice Wallbank recognised that the test for ownership of crypto-assets should be decided on the basis of who holds the private key that facilitates dealing with those assets. He found in the case that the crypto-assets in the “User Trading Wallets” were assets that belonged to the owner of the wallets who held the private key.

While the authors of this guide are not aware of this being tested in the BVI courts, subject to contractual terms, transfers likely would be considered final once they have reached finality on the blockchain and are credited to the wallet of the recipient to which they hold a key (regardless of whether these can be transferred).

Where digital assets represent shares in a BVI company, the register of members is prima facie evidence of ownership of the shares, and, therefore, legal title to the underlying shares represented by the token will be determined (in the absence of fraud, manifest error, or other extraordinary circumstances) by reference to the company’s register of members (which can be maintained in a digital format). A BVI company’s constitutional documents will usually oblige the company to treat the holder entered on the register of members as the sole person entitled to the shares, including any voting rights and dividend payments in respect thereof.

The Securities and Investment Business Act (SIBA) (see 4.1.1 Regulatory Overview for an outline of the legislation) sets out an exhaustive list of financial instruments that constitute “investments”. Cryptographic tokens are not expressly included in that list. However, whether the characteristics of a token or other digital asset could nevertheless render it an “investment” under SIBA is a fact-specific enquiry dependent on the unique functionalities exhibited by the token or asset. If a token qualifies as an “investment”, the issuer of the token will be either dealing in, or arranging deals in, securities, although the issuer’s activities may fall within a list of excluded activities or safe harbours under SIBA.

For example, shares in a company or interests in a partnership are considered “investments” under SIBA. Where tokens grant rights to the holder equivalent to partnership interests, equity or share rights (eg, a right to vote or a right to receive dividends or a share of the profit), these characteristics will be relevant where considering whether or not the token is an “investment” under SIBA.

Virtual assets which represent “investments” under SIBA may result in issuers, custodians and other service providers being required to be licensed (please see 4.1.1 Regulatory Overview).

Please refer to 4.1.1 Regulatory Overview.

There are no legislative distinctions between the different types of stablecoins. As outlined under 2.2 Categorisation, an analysis of the coin’s characteristics will be required on a case-by-case basis. That being said, there are a number of factors that can assist with the analysis.

Stablecoins are not expressly included under the definition of “investments” in SIBA, and it is unlikely that a fiat backed or “algorithmic” stablecoin would fall within the definition of an “investment”. The BVI Financial Services Commission (FSC) has also confirmed in its recently updated Guidance on Regulation of Virtual Assets in the Virgin Islands that “virtual assets and virtual assets-related products 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 captured by financial services legislation”. 

Stablecoins would not fall within the definitions of either “money” or “coin” as defined as follows.

• “Money” is defined in the Regulatory Code, 2009 as including notes and coins; postal orders; cheques of any kind, including travellers’ cheques; bankers’ drafts and other payable orders; and money deposited in an account; in each case, in any currency.
• “Coin” is defined as any coin that is legally current in the Territory (see section 2 (1) of the Interpretation Act, (CAP. 136)).

A stablecoin will likely fall within the definition of a “virtual asset” under the VASP Act. A BVI company involved in the issuance (including oversight of a treasury backing the stablecoin), transfer, exchange, or custody of stablecoins will need to review their activities to determine whether registration will be required under the VASP Act.

The FATF in its Guidance made clear that NFTs are generally not considered to be virtual assets under the FATF definition. This is on the basis that NFTs are not used for payment or investment purposes and therefore would not meet the definition of a “virtual asset” under the VASP Act. However, as with all tokens, each project will turn on its own facts and so consideration should be given to the qualities of each NFT before a determination is made.

NFTs should also be considered in the context of SIBA to analyse whether the NFT is an “investment”, and, as such, the issuer is required to be licensed.

There are currently no restrictions on use of digital assets in payment, subject to AML compliance. See 2.4 Stablecoins regarding confirmation from the FSC as to the use of digital assets as a means of payment for goods and services.

There are currently no restrictions on use of digital assets in collateral arrangements.

There are no laws or regulations in respect of the legal enforceability of private contractual arrangements made in whole or in part utilising agreed-upon computer code that executes across multiple “nodes” on a blockchain-based network.

Additionally, the authors are not aware of any binding judicial decisions or recognised interpretations addressing legal enforceability of private contractual arrangements.

There is no separate framework for the regulation of investment funds that invest in virtual assets in the BVI.

The primary piece of legislation in the BVI regulating funds is SIBA, which is supplemented by regulations including the Mutual Fund Regulations, the Financial Services Commission (Securities and Investment Business Fees) Regulations 2010 and the Securities and Investment Business (Incubator and Approved Funds) Regulations 2015, and is regulated by the FSC. The legislation only captures open-ended investment funds, being those which collect and pool investor funds and issue fund interests (such as tokens in a tokenised fund structure) that entitle the holder to receive on demand, or within a specified period thereafter, an amount calculated by reference to the net asset value of the fund. Such open-ended funds are categorised in the BVI as either public funds, professional funds (with only professional investors with a minimum initial investment), private funds (with no more than fifty investors), recognised foreign funds (being open-ended funds incorporated outside the BVI but who wish to offer inside the BVI), approved funds (aimed at family offices) or incubator funds (for start-up funds). Such open-ended funds must be approved or recognised by the FSC.

Closed-ended funds, being funds where the investor or token holder is not entitled to redeem on demand their interests at a sum calculated with reference to the fund’s net asset value, were not traditionally caught by fund regulations within the BVI. The BVI enacted the SIBA Amendment Act and the Private Investment Funds Regulations, 2019 (the PIF Regulations), which came into force on 31 December 2019 and which legislation introduces a new regulatory regime for close-ended funds. Such closed-ended private investment funds are required to apply for recognition as a private investment fund within 14 days of commencing business. The fund’s constitutional documents must specify that:

• the fund is not authorised to have more than 50 investors;

• an invitation to subscribe for or purchase, fund interests issued by the fund must be made on a private basis only; or

• the fund interest shall be issued only to professional investors, with an initial investment of each professional investor, other than an exempted investor, not being less than USD100,000.

In August 2020, the FSC launched a regulatory sandbox for companies whose proposed business model involves 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. The sandbox is designed to encourage technological innovation in financial services under a lighter-touch regulatory regime.

An application for entry into the sandbox will consist principally of a business proposal to cover, among other things, the following:

• the proposed product or service, and how this encompasses innovation to improve accessibility, efficiency, effectiveness, security, quality in the provision of, or addresses shortcomings or opens up new opportunities in, financial services or the regulation thereof;
• the testing already carried out on the proposed product (with the expectation that testing, to the extent permitted by legislation, will be carried out prior to entry into the sandbox);
• details on the proposed customers (including estimated numbers, investment experience and geographical reach);
• an analysis of the risk profile of the proposals and the measures to be taken to manage those risks;
• an indication of the resources (whether financial, technological, human or otherwise) available to the application; and
• a strategy for exiting the sandbox.

The BVI has long been committed to implementing best international practices and is compliant with the anti-money laundering and anti-terrorist financing requirements of the OECD and FATF. As a member of the Caribbean FATF, the BVI implements recommendations promulgated by the FATF.

All BVI-incorporated entities are subject to the BVI Proceeds of Criminal Conduct Act, 1997 (as amended), which sets out the principal money laundering offences. Certain “relevant” businesses (which would include, for instance, entities caught within BVI financial services regulations and other entities thought to be at a higher risk of money laundering) are further subject to the BVI Anti-Money Laundering Regulations, 2008 (the AML Regulations), and the Anti-Money Laundering and Terrorist Financing Code of Practice 2008 (the AML Code) (each as amended), which prescribe certain identification, record-keeping and internal control procedures for such businesses.

In August 2018, changes were made to the AML Code to permit entities in the BVI to digitally verify identities and receive electronic copies of documents instead of traditional “wet ink” paper-based processes. The amendments are further evidence of regulators in the BVI embracing the blockchain revolution and will set a new standard for AML verification in the region.

Following amendments to the AML Code which took effect from 1 December 2022, certain virtual asset services will satisfy the definition of “relevant business” under the AML Code which may result in certain virtual asset service providers being treated as a “relevant person” for the purposes of the AML Regulations. Such entities which satisfy the definition of “relevant person” and “relevant business” will be subjected to a reduced threshold of USD1,000 for a one-off transaction.

The FSC provides oversight for investment funds, entities caught by SIBA and also oversees the VASP Act. The FSC has not changed its approach but has maintained its supervision, in particular, in relation to products offered to retail investors.

BVI Finance, a group that represents the BVI’s financial services sector, engages with the financial services industry, regulators, the government and the media to promote the development and use of new technologies in the BVI.

To date, there have been no other state-backed regulatory programmes.

There have been a number of recent decisions in the BVI that demonstrate the BVI Court’s ability to understand complex cryptocurrency issues but also demonstrate the desire of the Court to be at the forefront of this international area of developing law. Written judgment remains limited, although, by way of example, in Philip Smith and Jason Kardachi (in their capacity as joint liquidators) v Torque Group Holdings Limited, the BVI accepted that cryptocurrency was a form of property; and in ChainSwap v The Owner of Digital Waller & Ors, the Court permitted relief against persons unknown (as owners of cryptocurrency wallets). In November 2023, Justice Mangatal handed down a written judgment in BVIHCM2023/0239 AQF v XIO & Ors. While the names were strictly anonymised, the judgment clearly records relief being granted to an applicant in the form of a freezing order (amongst other things) against a person unknown as well as the second and third respondents “who issue and operate a well-known cryptocurrency”. In its recital of leading English authorities on the same, the Court also granted certain disclosure relief and permission to serve out.

As highlighted above, in 2022, the BVI Commercial Court handed down its judgment in ChainSwap v Persons Unknown. This judgment was the first time that the BVI court granted a freezing order over assets held by persons unknown. The judgment was in relation to crypto fraud, and follows similar decisions in the UK and other commonwealth countries. Additionally, as the respondents were “persons unknown”, the Court permitted ChainSwap to serve the respondents outside the jurisdiction using alternative methods. In November 2023, ChainSwap was supplemented by BVIHCM2023/0239 AQF v XIO & Ors as summarised above.

The BVI is a tax-neutral jurisdiction. A registered BVI entity is not subject to any direct taxes. There may, however, be tax implications for beneficial owners in their own jurisdiction.

There are currently no ESG/sustainable finance requirements that apply to digital assets in the BVI. To the knowledge of the authors, no work has been undertaken on indicators to estimate the environmental impact of digital assets or the consensus mechanism on which they rely.

The BVI Data Protection Act (DPA) came into full force on 9 July 2021. Drafted around a set of EU-style data protection principles to which data controllers must adhere, it mandates that personal data must be collected in a fair and transparent manner and only be used and disclosed for purposes properly understood and agreed to by data subjects. Any personal data collected must be adequate and kept up-to-date, and should not be retained for longer than is necessary to fulfil the collection purposes.

Importantly, the DPA provides a standard framework for both public and private entities in the management of the personal data they use. Internationally active organisations will find many similarities between the DPA and data protection laws of other jurisdictions where they are active, but there are some key differences. The DPA provides for a lighter-touch approach to data protection regulation than other jurisdictions in the region.

BVI courts recognise and subscribe to the common law duties of confidentiality and privacy, and English common law is persuasive, although not binding, in the BVI. As a result, all entities that manage and maintain personal data will be subject to the common law duty of confidentiality described above.

The duty of confidentiality has also been codified in various aspects of BVI legislation, in particular the Banks and Trust Companies Act, 1990 (as amended), which regulates all banking and trust/fiduciary-related activities in the BVI. Licensed operators of such businesses, regulated by the FSC, are under a general obligation to maintain the confidentiality of a client’s personal data unless the individual has granted specific permission for its release or disclosure to third parties. This obligation may be limited where the licensee is required to deal with anti-money laundering and similar legislation.

For corporate entities, the Registrar of Corporate Affairs is currently permitted to release only limited information regarding the particulars of any registered company, which would include the name, type of company, date of registration/incorporation, registered office address and status of the company. Details of individual shareholders, directors and officers of the company are not available for public inspection, and shall only be made available by the Registrar to competent authorities (for tax compliance or other law enforcement purposes) on written request.