A guide on ICOs and Cryptocurrency in the British Virgin Islands
Initial Coin Offerings (ICOs) have gained momentum as a favoured fundraising method for businesses seeking to secure capital in the form of cryptocurrencies, tokens and virtual assets. The European Corporate Governance Institute (ECGI) reported that ICOs garnered over USD 18 billion from January 2014 to June 2018. This number has significantly increased in recent years as ICOs provide a means for start-ups, early-stage enterprises and technology entrepreneurs to cost-effectively and efficiently access third-party capital.
In an ICO, investors contribute cash in exchange for a newly created virtual asset on a blockchain network. Typically, these virtual or crypto assets come as tokens intended for use within the application or platform developed by the project founders.
International Finance Centers (IFC) like the British Virgin Islands (BVI), have been actively positioning themselves as key players in the booming trend of capital raising through ICOs. BVI companies have gained traction as virtual asset issuers, with other IFCs also showing interest. However, the distinct advantages of utilising BVI companies for creating and launching new cryptocurrencies have propelled the BVI to emerge as a central base for ICOs.
ICOs in the BVI: the advantages
The BVI is a jurisdiction that has attracted many companies looking to conduct ICOs due to the following factors:
- Favourable Tax Regime. The BVI has an advantageous tax regime for ICOs. As indicated in the BVI Business Companies Act (Revised 2020), the BVI offers tax neutrality, meaning there are no taxes on corporate profits, dividends or capital gains. Additionally, the BVI does not impose value-added tax (VAT), making it an attractive option for businesses looking to raise funds through ICOs.
- Investor Privacy and Confidentiality. Investor privacy and confidentiality are a top concern for many businesses conducting ICOs. The BVI is known for, inter alia, robust Data Protection and privacy laws, which can provide confidence to investors. The BVI also allows service providers to provide nominee shareholders or act as directors. This not only allows clients to tap into a wider talent pool of industry experts and professionals, but it also presents an additional layer of privacy and confidentiality.
- Conducive Business Environment. The BVI has a straightforward company registration process, making it easy for businesses to set up and operate. Access to a worldwide network of investors also gives businesses the capital they need to grow. Furthermore, the BVI boasts a business-friendly atmosphere with modern and commercially-minded corporate legislation, which promotes corporate flexibility and efficiency. BVI’s ICO issuers would find the free movement of funds beneficial as there are no capital control or maintenance rules. Moreover, the costs of starting and maintaining a company in the BVI are relatively low compared to other similar jurisdictions, like the Cayman Islands and Bermuda.
ICO regulations in the BVI
In general, an ICO (in its standard form) would not be subject to more burdensome regulation under existing BVI financial services legislation; however, any proposed ICO should still be assessed against such legislation with due consideration given to the Financial Services Commission’s Guidance on the Regulation of Virtual Assets. This ensures that an ICO is appropriately structured to avoid violating restrictions that would otherwise not apply.
The important BVI financial services laws concerning an ICO are:
- Securities and Investment Business Act 2010 (SIBA) – The provisions of SIBA govern investment business activity in the BVI, which prohibits a person from carrying on or holding themselves out as carrying on, the investment business of any kind in or from the BVI unless that person holds a license from the FSC or falls within one of SIBA’s exemptions or safe harbours.
- AML/CFT Regulations – The provisions of the BVI AML Law are designed to establish a comprehensive set of regulations and protections aimed at eradicating or at least minimising money laundering or terrorist funding through the BVI. The AML Law imposes the identification, record-keeping and reporting duties on people (“relevant persons”) engaging in certain types of regulated business (“relevant business”). For these purposes, ICOs of ordinary utility tokens would not fall within the definition of a relevant business. Hence the BVI ICO Issuer participating is unlikely to be a “relevant person”. Read more about the KYC policies in place to address AML/CFT compliance in the BVI on our previous blog.
- Virtual Asset Service Provider (VASP Act) – The VASP Act creates a regulatory framework that establishes basic standards in the virtual assets sector regarding corporate governance, risk management and compliance to preserve the reputation of firms registered in the BVI and the protection of VASP clients. This BGA Law article will give you an overview of the VASP Act.
Cryptocurrency risks in the BVI
The regulatory environment for cryptocurrencies and virtual assets is dynamic and evolving globally and locally in the BVI, resulting in new regulations or changes to existing ones over time. While the BVI has its regulatory frameworks that govern virtual asset issuers and service providers, it may still be challenging for investors unfamiliar with the BVI’s cryptocurrency regulations to understand the legal and regulatory requirements, compliance obligations and potential risks associated with crypto investments. This may disrupt the investment process and create uncertainties and challenges for investors in staying compliant.
Bolder’s compliance and fund administration services
It is imperative to exercise prudence when investing in cryptocurrencies in the BVI and seek expert guidance to navigate through the intricacies of the country’s regulatory framework.
Our team has extensive experience in administrating digital asset funds with cryptocurrency services such as the set-up and fund launch, formulation of crypto trading strategies, among others.
Furthermore, Bolder Group has a team of legal experts ready to assist you in your venture with ICOs in the BVI. We are ready to provide you with the following compliance and governance solutions:
- AML and outsourced KYC Compliance services
- Provision of AMLCO, MLRO and DMLRO
- Automatic Exchange of Information (AEOI) reporting
- Directorship and Officer services
Contact our BVI team to find out more.