Regulatory sandboxing in the British Virgin Islands
The concept of regulatory sandboxing was discussed at the Meet the Regulator Forum early in 2018 and in an article published in BVI Finance.
On a global scale, the regulatory environment has seen various changes recently with the introduction of various streams of technology and products. With these changes, comes the demand to keep innovating and developing new ideas and products relevant to the financial services market. One prime example that is at the forefront of most regulatory discussions now is the issue of FinTech. This new up and coming area of regulation would be an ideal fit for the concept of a regulatory sandbox. The regulatory sandbox is a product that is designed by a regulator that would seek to allow persons who are interested in exploring new and innovative areas to test regulatory products in a controlled environment whilst being supervised and monitored by a regulator in a ‘light touch’ regulatory environment and market.
What is the purpose of the regulatory sandbox?
The primary purpose of the regulatory sandbox would be to:
- provide innovators of small start up business with some support to navigate the regulatory system, to reduce the barriers to innovation while maintaining the same standards of regulation and consumer protection; and
- increase the range of regulatory products and services that a BVI business company can offer as it is anticipated that there would be significant interest in FinTech firms choosing the BVI as their new domicile of choice.
Key drivers for a regulatory sandbox include facilitating innovation and competition and the concept has proven popular and used in widely accepted common law jurisdictions such as the United Kingdom, Jersey, Hong Kong, Singapore, Australia, Canada and Malaysia. Other Commonwealth countries have explored the concept and welcomed it in various regulated sectors.
The regulatory sandbox as relevant to the BVI
The regulatory sandbox can act as a safe space for BVI business companies to test new ideas without incurring all of the normal regulatory consequences all the while remaining under the supervision and monitoring of the Financial Services Commission (the FSC) and its sister regulators. Opening a regulatory sandbox would be innovative. Innovation brings greater competition. Competition in turn will mean better outcomes for customers who are willing to use the product and this in turn will have real economic benefit for the BVI.
The ideas of technology and innovation were key parts of “BVI on China’s Belt and Road” message. Nominal form registration of this new type of regulatory innovation or proposed safe-harbour within the regulation will allow the FSC to have a greater insight on who are interested in the product i.e. who are using it, how popular the product is, who might the contact persons be.
The general test that is required to be fulfilled in getting entry into the sandbox is that the product is innovative, the product will benefit consumers and the applicant has considered and will put in place appropriate safeguards to manage risk and protect consumers. On this basis, having light touch regulation or exemptions in place will stimulate a new growth in regulated business where otherwise there was none or clients were opting to benefit from statutory safe-harbours through technical restructuring, the light touch registration of this new line of business will be a benefit to customers as they will have another option when compared to very heavy licensing and regulatory obligations and having the FSC as a prime regulator in place will afford protection to customers.
The regulatory sandbox is helpful for parties who want to launch their business to the market but are grappling with the regulatory uncertainty and complications involved with full form licensing. The concept will, through nominal regulation allow for access to information exchange between industry and the regulators allowing both parties to gain information on underlying businesses and further develop the thinking in this new up and coming area of law and regulation.
Utilising the sandbox approach will offer applicants strong potential opportunities to engage with regulators who in turn may use their increased insight and knowledge to create a more favourable environment for applicants.
The benefits sandboxes could provide firms may also lead to better outcomes for consumers through a range of products and services at reduced costs and improved access to financial services markets that they would otherwise may not have been able to access.
The current position in the BVI
At present, there is no legislation in place to establish a regulatory sandbox but it is an issue that the FSC is actively engaged with and looking into.