BVI launches regulatory sandbox regime to facilitate FinTech innovation

The sandbox regulations designed to foster the growth of FinTech related business seeking to start up in the jurisdiction, will now come into force as of 31 August 2020, as announced by the BVI Government. The Financial Services (Regulatory Sandbox) Regulations 2020 (the Sandbox Regulations) were passed on 10 June 2020 but the date of their coming into force was not set at that time. In late July, key Government stakeholders announced that the Sandbox Regulations will commence at the end of this month.

Under the Sandbox Regulations, BVI companies and other undertakings will be able to test FinTech and relevant financial services products on a trial basis within a ”light touch” regulatory environment. The regulations apply to such businesses where they engage in “Innovative FinTech”. In turn this is defined 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. While the business operates within the regulatory sandbox the full suite of regulatory licensing requirements will not apply – instead the ”regulatory light touch” regime will apply.

Application to the BVI Financial Services Commission (the BVIFSC)

A BVI entity that would like to utilise the sandbox will need to make an application for approval to the BVIFSC. The application will need to include the following information:

• Written indication that the applicant is utilising or intends to utilise innovative FinTech
• Detailed and comprehensive business plan
• Written indication of the test scenarios the applicant has carried out, based on the applicant’s business model to demonstrate the usefulness, functionality and potential of the product or service, including the projected outcomes of the test scenarios and the appropriate indicators to be used in measuring such outcomes
• Statement of the maximum number of clients the applicant will have or engage while in the sandbox
• Written description of the risks that may be associated with the applicant’s business model and the framework established or to be established to ensure an adequate management of the risks
• Written indication of the resources at the disposal of the applicant which the applicant intends to use to support participation in and testing within the sandbox, including ensuring the appropriate control and mitigation of potential risks and losses arising from offering the product or service that is the subject of innovative FinTech
• Written strategies for existing in the sandbox

The application fee which is payable on submitting the application to the BVIFSC is US$2,000 and a further fee is charged on approval ranging from US$2,000 for a simple business model to US$10,000 for a complex model.

Approval of the application

Where an application is successful, the BVIFSC will indicate to the applicant how long the applicant will be permitted to operate within the testing period of the sandbox. The maximum initial time is 18 months, extendable by a further six months on good grounds.

At any time during, or at the end of the testing period, a sandbox participant that is not the holder of a full licence from the BVIFSC and who wishes to carry out financial services business, may apply to be licensed under any regulatory legislation applicable to the offering of its products or services in the BVI and that regulatory legislation will apply to the applicant from then on.

The BVIFSC can revoke any approval granted to a sandbox participant if it is satisfied that the participant: has contravened provisions of the Sandbox Regulations; has submitted false, misleading or inaccurate reports or information to the BVIFSC; has concealed or failed to disclose any material fact in its application for approval or in its report to the BVIFSC; is undergoing or has undergone liquidation; has breached any data security whether in relation to testing within the regulatory sandbox or otherwise; is carrying on business in a manner that is or may be detrimental to its clients or to the public generally; is no longer fit and proper; or where it is not in the public interest that the sandbox participant should continue to be approved.

Ongoing obligations

• The applicant will need to have at least two individual directors at all times
• The applicant cannot have more clients than were approved by the BVIFSC during the application
• The applicant must take adequate measures to identify potential risks relating to the business and ways to mitigate against such risks including matters related to AML and related risks
• The applicant must notify the BVIFSC immediately where there is a development or change to the conduct of the business or a change in the regulatory environment within which the FinTech product is being utilised, where such a change is likely to have an impact on the risk profile
• The applicant will need to keep adequate records and to file interim reports with the BVIFSC at such intervals that the regulator will determine
• The applicant will, when soliciting clients, need to let the client know that it is not licensed by the BVIFSC and disclose any risks that might apply and the period of time that the BVIFSC has approved the applicant to operate within the sandbox

BVI’s offering to the industry

The BVIFSC has been consulting on the concept of a regulatory sandbox for the jurisdiction since at least 2018 (see our earlier article here). The new Sandbox Regulations are a welcome addition to the range of options open to innovative businesses seeking to operate in or through the BVI. Further, the BVIFSC is a nimble and efficient regulator that makes it the perfect venue for approving and testing start-up businesses in the sector.

Globally, the new regime also ensures that the BVI’s legislative regime in this area is on par with those of the leading trend-setter jurisdictions in Europe (Lithuania, Poland, Netherlands, Denmark and the United Kingdom), North America (Canada and some states of the US) and Asia-Pacific (Australia, China, Japan and Singapore).

A copy of the Sandbox Regulations can be found here.

A copy of the FSC’s public presentation on regulatory sandboxing (BVIFSC’s Meet the Regulator, 3 July 2019) can be found here.