Fintech: An offshore perspective

What is FinTech lending?

FinTech lending is a decentralised form of lending which relies on technology and digital solutions to facilitate the process of soliciting applicants, applications and repayment of loans. These digital lenders operate online and not in a physical location, as with traditional banks; and they use data-driven processes and technology to underwrite loans, calculate interest rates, service the loan debt and deliver loan proceeds to borrowers. FinTech lenders encourage financial inclusion and ensure that certain individuals, smaller start-ups or MSMEs, some who find it challenging accessing the traditional financial and banking avenues, can access funding without the need to produce onerous documentation. They guarantee fast responses, and innovative repayment plans (eg daily) via these digital capabilities. The FinTech market is certainly revolutionising the way traditional banking and financial services are currently operating and is doing so at an incredible pace.

Opportunities in FinTech lending

The FinTech market has been on a steady rise. In the aftermath of the COVID-19 pandemic, the market has seen ginormous growth spurts and it continues to grow. In 2023, the market was valued at US$305.7 billion.

Some of the opportunities as discussed above include:

• financial inclusion (global reach to more customers)
• faster credit decision making
• convenience created by online banking (no need for physical presence)
• CDD can be handled by biometrics and alternative data instead of physical documentation (requiring physical certifications)
• immediate or quick troubleshooting or resolutions
• less customer risk aversion (borrowers with weaker credit histories may be eligible)
• FinTech lenders are able to keep overheads low and expand business quicker

Challenges in FinTech lending

• confidence in the market (many still argue that it is a bubble that will burst)
• lending credit will always be risky
• attracts higher interest rates (to mitigate higher risk)
• high risk of fraud (due to quicker decision times and reliance on alternative data for CDD)
• cyber-attacks (risk of losing money and reputation)
• regulatory compliance (robust government regulations)

FinTech lending offshore

The BVI edge: Unlocking the benefits for global businesses

FinTech businesses need much of the same environment (sensible regulation, fair taxation, the rule of law and reliable infrastructure), as the flexible corporate structures which are established in offshore jurisdictions. The British Virgin Islands (the BVI), as an offshore jurisdiction, has always been on the cutting edge of cross-border transactions whilst ensuring a conducive environment. The BVI leads the international market with company incorporations under the BVI Business Companies Act, 2004 (a modernised version of its predecessor, the IBC Act, 1984). In responding to the FinTech market, the BVI Government, in 2018, amended the Financing and Money Services Act 2009 (which regulates persons who carry on financing and money services business in and from within the BVI) to include a new Class F licence, which is a licence permitting the holder to carry on the business of international financing and lending in the peer-to-peer (P2P) FinTech market, including peer-to-business (P2B) and business-to-business markets (B2B).

From around 2015, VASPs began showing keen interest in the BVI as a jurisdiction to conduct virtual assets services, in particular initial coin offerings (ICOs). There has also been a high surge of crypto-funds, and crypto-exchanges shortly followed the movement. Major international platforms who have realised the benefits of structuring in the BVI, have therefore joined the BVI FinTech family. In the summer of 2020, the BVI Government introduced sandbox regulations and guidance on virtual assets (the Guidance) and more players found their way to the jurisdiction. In 2023, the BVI responded to the nearly 100 VASPs which were already operating in the BVI pursuant to the Guidance in creating its regulatory regime for VASPs. To date, the BVI Financial Services Commission (the FSC) has received in excess of eighty applications from these entities and in March 2024, approved its first two VASPs with more to follow shortly. Our well-versed Harneys regulatory team advised in respect of one of the first two VASPS the FSC recently licensed under the BVI Virtual Asset Service Providers Act, 2023. To find out more about the BVI VASP approved click here.

Regulatory conditions for FinTechs to consider when choosing offshore

With this fast-pace moving and high-risk industry, ensuring FinTechs receive the proper legal advice at the initial stages is key. BVI legal professionals understand this market very well and can advise on best practices offshore to ensure a successful operation. Compliance with the BVI regulatory, legal and AML regimes is also critical to ensure continued operation and avoids enforcement action by the regulator. When contemplating offshore, FinTech operators should seek out a jurisdiction with a pragmatic approach to regulation and one which understands financial services. The BVI, as a jurisdiction, has enjoyed a successful marriage of compliance/regulation and financial services business over the last forty years and counting. It is very agile when enacting and updating financial services legislation and in responding to international co-operation obligations. It also makes certain that it co-operates with an over-achieving private sector who is always willing and able to ensure BVI financial services products remain top tier and futuristic.

As an offshore jurisdiction, the BVI offers many other infrastructural advantages including the following:

• absence of capitalisation requirements
• absence of exchange controls
• English language
• US dollar (as currency)
• stable democracy
• common law legal system (with final appeal to the Privy Council in London)
• neutral tax jurisdiction
• speed
• competitive cost
• confidentiality
• corporate flexibility
• light touch regulation and products
• dedicated commercial court

Conclusion

As the FinTech revolution continues to gain momentum, more and more activity will continue to travel offshore, the BVI will continue to leverage its position as the premier offshore domicile for wealth structuring to strategically position itself as the premier offshore jurisdiction for FinTech. Forward thinking, ultra-modern legislation and regulations are already part of that wider framework. As a jurisdiction, the BVI is quite aware of the boundless opportunities in this digital expanse and it is well positioned to welcome and regulate commensurately. Harneys is a leading law firm on the ground and in the forefront. Harneys has the right team to provide the legal and regulatory guidance, so that those seeking to do business offshore can reap the benefits.