In the recent Spear’s Wealth Insights forum, I had the privilege of participating in a panel discussing the future of wealth creation alongside leading practitioners including Greg Boyd, a partner at Harneys, and Jeffrey Kirk, managing partner at Appleby, two leading firms in the British Virgin Islands (BVI). The panel aimed to digest two of the principle changemakers in wealth creation for the decades to come, namely digital assets and Africa.
The rise of Africa and the adoption of digital assets are set to both transform the continent and impact the global economy like never before. However, this does not come as a surprise. Africa has been an early adopter of technology, with large investments in technology infrastructure as well as a huge demand and uptake from a young and dynamic demographic. The emergence of an increasingly affluent middle class has only spurred this trend.
This technological disruption is transforming markets and societies across the continent. For example, in recent years we have seen significant advances in both Rwanda and Ethiopia which have made major inroads in embracing digital technology. There has also been a surge in innovation in technology-based businesses. A frequently mentioned example is the mobile money industry, which has transformed the region and is helping to foster inclusive economic growth and financial access to communities who were previously excluded. In Uganda, for example, mobile money was introduced in 2009 and since then it has rapidly evolved from person-to-person transfers to include other services, such as facilitating loans and savings. Elsewhere, other sophisticated platforms are springing up, including Kuda, a Nigerian mobile finance platform, which last year raised nearly $1.6m in pre-seed funding. The region is a key hub for fintech innovations which are radically transforming the delivery of financial services.
Foreign direct investors and family offices are looking to see how they can participate and tap into the opportunity it presents. But how can international financial centres (IFCs), like the BVI, help to facilitate this and continue to foster innovation?
Firstly, the pandemic has accelerated digital innovation in all major economies and made it necessary for deals and transactions to be completed remotely and on digital platforms. For those who are lagging in innovations, there is now a greater urgency to adopt digital methods and innovate in order to overcome the barriers presented by Covid-19, especially as we wait for vaccines that can make frequent travel possible again. We have also seen that interacting using digital platforms is possible, and in the BVI, we are seeing the full panoply of FinTech innovation adopting corporate and also incubator and approved fund structures for their offerings.
Additionally, the BVI’s progressive corporate law enables the smooth flow of business and international trade. The jurisdiction provides factors that are important for investors and international family offices, including expert professional services, robust common law, arbitration – and perhaps crucially – compliance with international law enforcement authorities. Structuring investment vehicles in established jurisdictions like the BVI, provides stability as well as important economic incentives.
This is highlighted in a report by the Overseas Development Institute (ODI). The ODI’s paper looked at the valuable role IFCs play in development finance and that offshore centres like the BVI are excellent conduits for foreign direct investment into emerging markets. However, there are important challenges to be aware of - most notably, the diversity of the African continent which means that every business strategy will need to be carefully tailored for each specific market. Then there is also the matter of regulation, which can be notoriously difficult to keep up with, let alone enforce, on a sector that is young and evolving fast. Most of the existing regulations in the region only adequately apply to traditional financial services and products, but when it comes to blockchain technology or cryptocurrencies, these standards need to be updated to enforce good governance and protect consumers. The BVI’s Incubator and Approved Fund rules are well suited to the digital fund space for reasons of cost, speed and benign regulations.
In the BVI we are actively investing in regulation around fintech and recently launched the Fintech Regulatory Sandbox – a test-bed for fintech businesses to conduct live-testing and identify areas for improvement before they launch.
This is a light-touch regulation regime and the type of programme that others can also adopt to help mitigate some of the risk. Initiatives like this invariably encourage innovation and can have the domino effect of fostering expertise and skills and investment into technology infrastructure to name a few. Jurisdictions like Africa benefit from the BVI’s regulatory framework because of its flexibility and the approach that we have taken to developing the BVI’s regulatory framework and encouraging digital innovation. As always, this will be an area that the BVI as well as the rest of the world will need to pay attention to if we are to continue to benefit from the opportunities that fintech presents.
- Simon Gray, Head of Business Development and Marketing at BVI Finance