COMMENTARY: Financial services survival not fully reliant on public register

By Mitsy Ellis-Simpson, Contributor

This month symbolizes a proud moment, for me, witnessing the conviction of the people of our beloved British Virgin Islands. Not so much because I am for, or against, a march for our economic freedom, but because I see our people rising with conviction at a time that tests our strength as a nation.

We have no idea how this march will transform our lives but it’s our human right to demonstrate and give our views peacefully, for the change we desire, especially when our livelihood is at stake. Although a very serious constitutional challenge has arisen, it’s important to note that the survival of the BVI financial services industry is not wholly reliant on whether, or not, we have public registers of beneficial owners as it relates to the resilience and significance of the industry to the global community.

Our social and economic storms are so loud that I am also in tune with other national matters not limited to the pros and cons of a medical marijuana movement and the protection of our youth, our infrastructure, housing, the state of our tourism product, commerce, unemployment, our education system and facilities, agriculture, risk management, the well-being of our people, a national investment plan, revenue and debt, health and financial services products among other things.

The purpose of this article, however, is to develop a critical think-tank among ourselves, which requires true Government support, to explore ways to maximize our country’s wealth in the area of financial services including an exploration of existing products, such as BVI trusts and mutual funds in particular.

Key to the future economic growth of the financial services industry is recognizing the need to consistently develop our local talents, improve the standard of living for our people and the visitor experience and by extension, attract international business and professionals to our country with a long-term goal in mind.

I wrote in my book, Secret Code: British Virgin Islands, that “the last thing that a prosperous nation wants to hear is that they need a bailout to make ends meet”. I also posed the question: “How did the BVI survive its past economic storms?”

The answer my people is highlighted, throughout the book, which presents a foundation of courage and faith plus a reminder that we should never forget who we are, as a people, through any storm that this life presents. My hope is that we pass on our knowledge, about our country, from generation to generation, thereby reinforcing our national values, and resilience, so that we can have prosperity for all.

I choose to stand

“I choose to stand” is a great message from my pastor which resonates in my mind. I believe that once we place our heavenly father first, then we have all the protection and wisdom, through Christ, who strengthens us. Hope is never lost
even when the fire is burning. So, my people, our engines are still running.

About twenty years ago, I was “thrown” into “the Dungeon”, as it was called at the time, to work for a fund lawyer at a prestigious law firm. I also have fond memories, of a time, when I found myself working as a trust officer, for a number of years, alongside some of the most talented fiduciary people in a local trust company.

To keep this piece short, I’m just as excited and positive, about the prosperity of my country, as I was back then freshly working and having fun in the dungeon. The challenges, our financial services industry has gone through, includes blacklisting, international pressure, increased regulations, offshore leaks and competition among other things.

The addition of a possible “imposed public register” of beneficial owners for business companies by the United Kingdom for all its overseas territories, obviously does not sit well with assiduous practitioners, governments and people in the North Atlantic/Caribbean.

Mitigating risk

As a country, we must do what is necessary to move forward for a brighter tomorrow. I’m also a firm believer in mitigating risk. While we aim to protect the industry, from all these challenges, there is much work to do otherwise to maximize our potential wealth from the industry.

It’s unlikely that incorporations of BVI business companies will ever reach the levels, which we enjoyed before, for years to come. Mainly because the demand, for standalone international companies, is just not there anymore and we also face the reality that there are other competitive players, in the game, vying for a slice of our market share.

Notwithstanding, we still rank number one for international company incorporations by far. We also saw how vulnerable tourism, our second pillar, can be after a natural disaster. It also takes time to gestate a new product, such as the recently established International Arbitration Centre, which may take years before we see any real revenue results. Nevertheless, I believe that our best hope is still financial services, as the main source of Government revenue, for the short to medium term, and I also believe that we can increase our revenue from existing products within the industry.

BVI did well after the hurricanes

We did pretty well after hurricanes Irma and Maria with minimal to no interruption in our financial services sector. The VIRRGIN electronic system, for example, was a superb innovation that we ought to be very proud of.

Innovation of products is vital for the growth of our financial services sector. We don’t need to reinvent the industry but we have to make some strong choices to be a more attractive jurisdiction. We must create a business-friendly think-tank to keep the wheels turning and strive to be regarded, as the most prestigious financial services jurisdiction, with affluent clients and top professionals (local and international talents) who are in the business for the long haul. We can sum up my attraction theory in three words: ‘Quality’, ‘Reputation’ and ‘Infrastructure’.

Have we done enough to maximize our revenue stream from our financial services products? I believe that, with the right research and expertise, the Government can seek to maximize revenue from products that the industry has already developed to substantive levels.

BVI is financial services leader

The BVI is a leader, not only in incorporations, but it is also known for its trust products including discretionary trusts, VISTA trusts, charitable trusts and private trust companies, investment funds, investment business regime and captive insurance.

Undoubtedly, there are thousands of trusts that have BVI governing law, which are exempt from current regulations. Our Government ought to take a closer look at the current fee structure, for BVI trusts, which currently only pay a one-time revenue stamp duty of $200 at set up.

Is this $200 stamp duty sufficient for the prestigious trust service the BVI has developed? It’s worth exploring the implementation of an annual Government fee payable, by every trustee, for each BVI law trust that they act as trustee.

This fee should apply to both BVI Trustees and Non-BVI Trustees once the trust is governed by BVI Law. I recommend that the Government annual fee can ideally be around $600 per annum or an amount equivalent to what the Government now charges for business companies.

Whatever fee is decided it should be competitive in comparison to other jurisdictions. With my proposal, the first thing that may come to mind is privacy, but this proposal has nothing to do with imposing regulations, or registration requirements, on the current or future trust structures, so BVI Trust settlors and beneficiaries should continue to enjoy the privacy offered under the Trustee Act and related trust legislation.

Added value

The introduction of a new and attractive trust structure, such as an exempt trust that provides the client with certain official guarantees, may also add value since that type of trust would justify an annual fee.

Compared to what is now being charged by service providers, for annual trustee fees, which can range from $1,500 to $10,000 based on the value of assets in the Trust, I doubt an annual stipend to our treasury would have an impact, on the continued use of our BVI trust products, but could go a long way economically.

The significant decline of BVI mutual funds, by over 40 percent within the last five years, has been disappointing. Is it possible that over-regulation, bank account difficulties, insufficient marketing and processing time, for new Mutual Funds, may be stifling its growth?

It’s certainly not the establishment fees, which are generally lower than that of other jurisdictions such as the Cayman Islands. Responsible regulation generally fuels growth but what we are seeing is the opposite. I believe this requires careful seeding to facilitate growth.

Potential revenue streams

The potential revenue stream that more mutual funds can bring to our T=territory is worth investing in. Also, in order to attract top fund managers, banks and other service providers to actually set up office here in the BVI, our Government may wish to consider some sophisticated incentives, attractive legislation, waiver of fees, extended work permits and increased improvement, of our infrastructure, in addition to having expert and savvy fund regulators.

I believe that giant asset management companies such as Blackstone Group and Bain Capital, for instance, do not choose their jurisdiction of choice, to establish new funds, because of modest fees alone. They seek a business-friendly environment, reputation, quality and a quick turnaround time in order to satisfy their business interests.

Affluent clients can facilitate an economic impact that is great enough to bring an abundance of resources
and wealth behind them. The slight increase in fees, for registration of charges, annual license fees for BCs and some post- incorporation services, over the last few years, has paid off in revenue maintenance.

However, the bottom line is that we need to maximize revenues from our existing products; in particular, we should take a good look at BVI trusts and mutual funds, while we continue to meet any market challenge.

A continued link, with the United Kingdom, a highly regarding legal system based on English Common Law, political stability, a business-friendly financial services sector, our ability to attract top professionals and our willingness to create optimal regulatory solutions will all play a central role in the uniqueness and growth of our financial services sector which can only benefit our territory as a whole.