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The British Virgin Islands is a good example of a successful co-operation between a local financial community and a pragmatic government intent on retaining the distinctive nature of island life. This year, the Financial Services Department has been active in widening the palette of financial options.
The BVI government is keen to promote financial services, and by all accounts is proactive in listening to the private sector. But there is disappointment at the lack of progress in certain areas. For example, the government has discouraged the growth of an offshore banking community in a deliberate bid to ward off money launderers. This conservatism is characteristic of the island's people, who want to develop, but not at the expense of their culture and lifestyle.
Over the years, BVI's reputation has grown through familiarity with the professional adviser group that recommends international business companies (IBCs) and trusts to its clients. More recently, Hong Kong has become a huge market for IBC business, and now the company registrar and the trust firms are working all hours to process Hong Kong Chinese business. More than 3,000 IBCs a month are being processed.
Cost is certainly an advantage. It costs just US$300 to set up an IBC in BVI and $50 to set up a trust. With 30-40,000 IBCs being set up by Hong Kong Chinese, that is a significant revenue for the government. At least two people in BVI companies refer to the Hong Kong business as "garbage" but, for the moment at least, the exchequer is not complaining.
The perception of the BVI as a one-product jurisdiction is one that local practitioners are keen to alter. Specialist vehicles such as limited partnerships and limited life companies (called limited duration companies in Cayman) are being introduced to heighten the attraction of BVI, primarily for the US. There is also hope that the territory will attract more insurance and mutual fund business as a result of new legislation in these areas.
The island does not expect to grow to the size of Bermuda or Cayman in the foreseeable future though. For BVI to grow to the size of other centres, business has to leave them, which is not likely to happen in any significant numbers. But companies with operations in more than one Caribbean location may use BVI more if it develops as planned.
The consensus is that the new Partnership Act and the limited life companies legislation has been introduced too late to make an impression. Mutual funds legislation though, which has been in draft form for a number of years and is still the subject of considerable debate, is seen as key to the islands' development. Of all the potential new business areas, this is the one likely to generate most activity. As it is, 40 per cent of US hedge funds are domiciled in BVI.
The other thing the territory needs to ensure is the supply of local expertise to deal with the expected growth. There is concern that the pool of local labour is not sufficiently sophisticated. The community college is offering a number of courses in finance and locals would like to see the initiative extended. Government wants to see islanders in top positions and that needs to be matched by a willingness on the part of private sector companies to employ locals rather than bring in migrant workers. There are some, such as Lorna Smith, permanent secretary to the chief minister, who believe that the private sector is failing to employ and train its fair share of local people.
The key to the Insurance Act is its flexibility: it does not actually define what a captive is. Provided an applicant can prove its pedigree, it will be given a free rein.
However, the Insurance Act does give insurance supervisors draconian powers. They have the power to investigate if they have sufficient justification - and they have scope to close down operations where they deem it necessary.
One area where there has been no real growth is in private banking. The Caymans has 500 offshore banks, BVI just eight. All the trust companies would like to see a greater variety of banks to serve the offshore companies and a proper offshore banking industry would give the territory the added infrastructure that investors are looking for.
To cater for increasing levels of investment management and banking activity, Barclays Bank is planning to completely revamp its presence in the BVI this year. Its proposals include opening an offshore banking unit to cater for trust companies.
The finance sector in BVI is hoping for bigger and better things as a result of the initiatives masterminded by director of financial services Robert Mathavious. In the meantime, business levels are sufficient to attract good quality companies.