BVI to take ‘Goldilocks’ approach for regulating crypto assets
“I would say every day I get two or three inquiries on some crypto or blockchain-related project. There is a lot of interest in all things crypto here in the BVI,” observes Michael Killourhy, Partner at Ogier (BVI).
Such is the level of interest that earlier this year, Killourhy (pictured) noted in a briefing that the BVI was keen to investigate a role in this new capital raising phenomena, which, it is believed, raised an estimated USD3.5 billion in ICOs around the world during 2017.
According to Cryptobriefing, over the first six months of 2018 the BVI saw USD78.5 billion of trading volume in crypto assets, putting it in second place behind the US, which, with USD83.8 billion is the world’s largest cryptocurrency market.
“We have looked at various structures and we regularly get asked to give guidance and memoranda of advice on whether a token is an investment? Is it a security? What is it, in respect to the BVI? A lot of people are showing interest in using the BVI to set up issuer vehicles,” confirms Killourhy.
Crypto assets have dominated investor and manager interest over the last couple of years as more awareness of the potential of blockchain technology builds. At the end of 2017, Nick Rogers heads the Cayman Digital, Blockchain and Fintech Group at Ogier in the Cayman Islands, featured in the Hedgeweek Cayman Islands Special Report.
Rogers confirmed that Ogier have developed specialist understanding of the particular issues that arise including around custody, intra-day dealing, valuation and regulatory and compliance issues.
“At this stage in the evolution of cryptocurrencies,” he said “there are still quite a few barriers to entry – eg regulatory treatment, limitations on short selling, volatility, technical complexity – but even if the ICO market cools it seems clear that blockchain applications and digital currencies offer the key to future financial innovation.”
In some respects, offshore financial centres still have to tread carefully in terms of how they strike the right balance of imposing regulatory guidelines while still appearing attractive to entrepreneurs.
“On the one side the BVI is keen to explore what the value of crypto and other blockchain applications are and how we can use what we have, in terms of the success of the BVI company and the legislation we have here to enter into a new technology world. But equally, we don’t want to find ourselves associated with any business or scheme that might have negative effects in the wider world and damage the reputation of the BVI by association. It is a tricky sphere at the moment and the jurisdiction generally, as well as law firms like Ogier have to be extremely careful,” says Killourhy.
“Currently, there isn’t any specific legislation dealing with cryptocurrencies or ICOs but the BVI may change that at some point. The Territory is looking at what other jurisdictions are doing (including Bermuda) in order to get the right level of regulation and encourage entrepreneurs.
“Getting the right regulation that provides protection and safeguards against AML and other issues is important. It’s good marketing for a jurisdiction to demonstrate that it knows about crypto and can confidently say, ‘Here is the regulatory regime we’ve put in place to oversee it and to uphold our reputation’,” concludes Killourhy.
For the BVI, it could be a case of adopting a regulatory Goldilocks model.