September 25, 2014 - Madame Speaker, last week I was privileged to open an exhibition at the Central Administration Complex to begin a week of celebrations commemorating the 30th anniversary of the International Business Companies Act, which was passed on August 14, 1984.
This exhibition was followed up by a series of activities including an enlightening televised discussion on Tuesday night on JTV with a simulcast on ZBVI, an essay competition among our high school students that is still ongoing, and this evening I will drink a toast with the industry and those who have contributed much to this sector.
As I reflect on this auspicious occasion of the 30th Anniversary of this innovative piece of legislation that catapulted the British Virgin Islands into becoming an international financial centre for global business, it is only fitting that I set out for this Honourable House the implications of this Act including the challenges that accompany it.
Madame Speaker, the tremendous success of the Act and its successor, the BVI Business Companies Act has resulted in the BVI becoming a first-tier, highly reputable financial services jurisdiction.
Beyond that, it has shaped what the BVI is today as a country. Without the economic prowess arising from its enactment and the resultant business development, we may have been but a mere group of beautiful sun kissed Caribbean Islands.
I want to thank the architects of the legislation, the so called Gang of Five, Mr. Paul Butler, Mr. Michael Reigels QC, Mr. Lewis Hunte QC Mr. Richard Peters and the late Neville Westwood for their gallant efforts to create the solid foundation on which our industry rests today.
But equally, I want to thank the other pioneers and industry partners, both here in the BVI and globally who have over the years, ensured that our industry grew from strength to strength.
Today Madame Speaker as we celebrate this 30th anniversary, I rise to continue to keep this Honourable House and the public fully informed as to the status of, and developments in, our financial services industry.
I will also provide an update on how as Minister responsible for Financial Services, I am leading the charge on behalf of my Government as we continue to work tirelessly—not only to preserve this critical industry, but also to put measures in place to further its development.
I am especially grateful to the Leader of the Opposition Honourable Ralph T. O’Neal for his responsible nonpartisan approach and unwavering support for financial services in the BVI.
He has always been free to offer his advice, and has always been careful to exercise restraint, with an obvious strong appreciation for the effect that our actions and statements within the BVI could have on the perception and reputation of this critically important sector of our economy.
I would publicly like to thank him for the valiant efforts he has made in supporting the industry and for isolating it from the brutal effects of politics. I urge others to follow his example.
Turning now to the status of the industry:
Firstly, let me explain that the Financial Services Industry is as much an external industry as it is internal, in fact even more so.
You see we have local firms, regulators and government providing for and servicing the industry; but largely, we export financial services. As such equally we have external firms, regulators and government driving and influencing our industry.
Our financial services industry is in a word: Global.
Thus, it will be vulnerable to global shocks, threats, and developments.
We saw this when the industry was born - really arising from the cancellation of the US/BVI Double Taxation Treaty in 1981.
We saw this when the BVI industry gathered momentum as a result of the Panamanian crisis in the late 80's.
We saw this again with the shocks and threats of the first wave of global regulation relating to Organisation for Economic Co-operation and Development (OECD) harmful tax initiatives in the late 90's, the subsequent shocks of the worldwide financial crisis, and more recently the shocks and threats resulting from the ebb and flows of other global financial regulation.
And even in the wake of all that, there was always resilience on the part of the BVI.
Madame Speaker, I have provided much of this information before in other fora, but for the sake of completeness I crave your indulgence in perhaps repeating some of this:
Over the past 20 years or so, we have experienced rapid growth in our companies’ incorporations. We have also experienced material growth in other financial services sectors. Looking back to the most recent six or seven years; however, we have seen slower growth.
For example from 2007 to 2013 the total number of companies grew on average at two percent per annum.
BVI’s recurrent business is stable. But a number of external shocks have impacted its growth.
Today the total number of companies on the Register as of June 2014 is down one percent when compared to December 2013. In addition, there is a more noticeable decline of approximately nine percent in the number of new incorporations over the past two years.
However, BVI remains the significant leader in company business across the offshore financial centres with 454,000 active companies on its register. This is five times more than its closest offshore competitor.
In addition, revenues to Government from BVI Financial Services have remained strong and are expected to be on par with previous years.
Madame Speaker, I am pleased to report that despite some decline in incorporations that the BVI is ranked as the leading offshore centre in the September 2014 Global Financial Centres Index, the bi-annual survey that provides ratings and rankings on 83 global financial centres.
In the last six months the BVI has overtaken all other offshore competitors and is ranked several places higher than all of them.
Madame Speaker, let me now tell this Honourable House and the people of the BVI more specifically what we have been doing in financial services generally and about our response to recent challenges:
Firstly, as the Minister for Financial Services I have taken ownership of, and the lead on all of these matters.
After my Government took office in November 2011, one of the first substantial things, I did with my Financial Services portfolio was to consult industry practitioners to ascertain their views on the state of the industry. Madame Speaker, from that early effort we very quickly found out that there were concerns as to the state of the Industry.
Therefore, in February 2012, just three months after assuming office I appointed a task force to review the work; and to implement recommendations stemming from the public consultation forum held with those industry stakeholders. This was followed by a strategic retreat in February 2013 to look critically at the Territory’s current business model and advise on its continued viability.
Madame Speaker, the results culminated in a document which we simply call the “Action Plan”. This is a roadmap to help address the issues identified in these reports. The reports and the plan contain various recommendations on how to maintain the current business model, develop additional sectors of the industry and ensure the available workforce is equipped with the necessary skills needed to support the industry.
Madame Speaker my Government’s plan requires us to Adapt, Develop and Educate.
The first area – Adapt – identifies issues affecting the current business model including:
the Territory’s responsibilities as they relate to key international initiatives,
the need for legislative and policy reforms,
development of human resource capacity and
effective communications strategies to successfully promote the jurisdiction, improve the image of the jurisdiction, ensure optimal communication between government and the private sector, and
ensuring timeliness and efficiency in providing support services to the industry.
The second part of the ‘Action Plan’ – Develop – addresses the need to diversify the industry and identifies issues relevant to the development of new areas of business. This part of the ‘Action Plan’ looks at identifying ways of in-sourcing some of the services currently being offered by overseas providers.
It also sets out the need to identify other lines of business that existing and potential clients may be willing to conduct from within the Territory, and the ways in which such business and services could be encouraged.
The ‘Action Plan’ also promotes the pursuit of the development of the Territory as an International Arbitration Centre, as well as encouraging international banking facilities to establish operations in the Territory to service the financial services community.
We recognised that in order to provide such services, however, the Territory’s supporting infrastructure needs to be at a level that can attract and sustain this additional business and enhancement of services. This part of the Action Plan also sets out the need to address the development of effective labour and immigration policies and to provide a more business-friendly environment that will attract such potential activity.
The final part of the ‘Action Plan’ – Educate – looks at the need to expose persons within the Territory to the subject of financial services, and is divided into three sub-sections.
The first focuses on developing a programme to further sensitise the general populace to the importance of financial services to the Territory’s economy and how the industry directly and indirectly impacts their daily lives.
Madame Speaker, we are concentrating on educating our people:
We have launched a series of training for Public Officers and I mentioned earlier our TV discussion earlier in the week.
The Financial Services Commission has also been tasked with educating and one of their first key initiatives is imminent with the launch of a text on Financial Services to be used as a teaching resource at the college and professional studies level.
The second section focuses on the need to ensure students coming out of secondary school have a solid appreciation of the various issues relevant to the financial services industry and that they are prepared with the basic skills to take up their place in the workforce if they choose not to immediately pursue tertiary education.
This too Madame Speaker is already in train with my Honourable colleague's introduction of Financial Services in the High School. We are looking to deepen these efforts.
The final section looks at the need to develop the workforce by ensuring persons wishing to pursue tertiary level education in fields relevant to financial services are afforded such opportunity through meaningful and relevant scholarship programmes, and pupillages to ensure that once these individuals complete their studies they are afforded the opportunity to gain the necessary experience needed to successfully contribute to, and build the local expertise, in the industry.
Madame Speaker, on all of these initiatives in the ‘Action Plan’, I have tasked my office to work in conjunction with the other Ministries to further discuss and develop these ideas with a view to implementation.
Allow me now to shift to some of the Key external threats to our industry.
Members are well aware of the French Blacklisting that came into effect in January of this year. I have personally engaged the French Government and Tax Officials, on this issue. As I have said before, this issue was related to how timely and completely the BVI Government was providing information to requests for information by the French between the periods July 2010 to July 2013. We have now provided complete responses to virtually all of the cases and we are hopeful for a positive outcome.
But what is more important here Madame Speaker is that my Government including the team in the Ministry of Finance have now addressed more holistically a systemic weakness that existed long before our time: difficulty in being able to timely respond to Tax Information Exchange Agreement information requests.
I am pleased to advise you that we have put in place a dedicated and fully functional Unit, complete with appropriate technology and databases to properly and timely respond to requests for information.
In short we have remedied one of the key problems that got us on the French Blacklist in the first place.
And we have further to go Madame Speaker.
There is the issue of the OECD Non-Compliance rating which is equally critical.
Our OECD non-compliant rating too was in large part due to the absence of the effective response facility to which I just referred. I reiterate that that is now fixed.
Further, we recently passed amendments to the Mutual Legal Assistance (Tax Matters) Act which creates the legal obligation for companies to maintain certain financial information.
This will greatly enhance our ability to comply with both the international standards and or ability to comply with the information exchange requests and consequently and hopefully also improve our OECD rating.
I would hasten to add, that my team in the Ministry of Finance has also recently been able to successfully secure the OECD’s commitment for a supplementary review of the BVI to commence in October.
The review Madame Speaker hopefully will reflect all of the improvements to our regime and will hopefully result in improved OECD ratings.
But BVI is also facing a perhaps an even greater threat, which is in part because of some of the initiatives I discussed, this is the threat to our reputation and perceptions related thereto. The importance of a solid reputation cannot be underscored.
It is absolutely necessary for practitioners, clients, service providers and other global stakeholders to have confidence in our jurisdiction. Failing this, there would be no interest in doing business in our jurisdiction. This is why we are working so tirelessly to improve our reputation.
So Madame Speaker, we have been working.
We are adapting, we are meeting international standards, confronting emerging international initiatives, we are completing necessary policy and legislative reforms and we are exchanging information, we are engaging with industry stakeholders and we are building our reputation.
I am pleased to say that we are fully engaged in developing our industry. Indeed this is the central tier of my action plan. And, we have been doing so from early into my Government’s term.
For example, very early on we put in place the Financial Services Business Development Committee which comprises a wide cross section of industry practitioners who are tasked with assisting with the development of strategic plans to grow and build the industry and increase our global market share. We recognise that innovation comes from the private sector and so we partner with them on an ongoing basis to that end.
But Madame Speaker, there are a few other specific initiatives that I wish to elaborate on.
The top level initiative which I have reported on in other forums and which we have embarked upon is a consultancy by world leading consultants McKinsey to undertake a Financial Services Management Consultancy which will help to chart a new direction in the financial services industry.
The input to this work is the initiatives I elaborated earlier, as well as working Committees made up of public sector representatives, a wide cross section of domestic private sector practitioners and other BVI international practitioners in Latin America, Europe and Asia.
The consultancy is being undertaken in three phases and has a number of objectives.
These include the development of a strategy and implementation plan for BVI to continue inclusive economic growth towards 2020; and to review the Territory’s existing legal and business environment to identify the health, quality, and productivity of the financial services industry.
Additionally, the team will assess the state of the Territory’s current international reputation and advise on how it may be strengthened and protected.
The final output of the exercise will be a strategic framework and implementation plan to diversify the existing financial services model, and build a new dynamic one which will seek to create greater substance and value-added activities in the British Virgin Islands.
Madame Speaker, I have been specific in my remit to the Mckinsey team: we do not want another report. Instead we want an actionable plan to implement in short order. I am satisfied that fine progress is being made.
Madame Speaker, a more effective communications strategy, one that is proactive in defending, representing and promoting the BVI’s proposition as a world class financial services jurisdiction is also pivotal to our success.
This is why we have engaged a new global communications firm to help us repair and further enhance our reputation.
Madame Speaker, I pride myself in leading a proactive Government.
So it is within this context that I am pleased to report that we are already moving ahead with initiatives that we know will help to diversify our financial services offerings.
One such example is Arbitration.
You see with hundreds of thousands companies on our registry there will always be disputes, and quite necessarily, there must be avenues for dispute resolution. Already our thriving and successful Commercial Court provides one solution. But another is quite obvious; this is why we have moved quickly to pass legislation in this House. We expect that this legislation will come into force in the coming weeks and therefore put in position to potentially develop the BVI as an Arbitration Jurisdiction.
Madame Speaker, early on in this statement I made the point about exporting financial services. You cannot export financial services without having relationships where you export.
My Government made the bold decision to set up offices in Hong Kong, to service the region where we export most of our financial services. Just over a week ago I was there in Hong Kong; and for brief while, also Shenzen in China.
We were there on the occasion of the first anniversary of the BVI House Asia and the 30th anniversary of the IBC Act. Equally important, we were there to solidify our ties with the region and to deepen our relationships with Asia.
I am assured by the business community, clients and practitioners that it was the right thing to do -- to have a reach into and a presence in Asia.
Many other jurisdictions are now beating a path to Asia. Madame Speaker we were already there!
For over 25 years we have been there, and over 1 year ago now we have solidified in Bricks and Mortar our commitment to that region.
So Madame Speaker when it is asked what we are doing to preserve and maintain our financial services sector, I am proud that we are making bold decisions - even in the face of criticisms - to solidify and expand our largest base.
China—and Asia more broadly—represents the best of opportunities. This is why my government is doubling down with an Asian strategy in which we will aggressively explore those opportunities, even beyond the realm of financial services and our partnership with Shenzen and onto other regions in China and Asia.
Madame Speaker the BVI’s position as the world’s leading offshore financial centre is a testament to the work we have done to reaffirm our reputation for offering world class products and services in financial services.
It is therefore no coincidence that the BVI is celebrating the 30th anniversary of the BVI International Business Companies Act – the innovative legislation that kick-started the widespread use of BVI companies around the world.
Today the BVI offers a whole range of products and services, which is unrivalled in the offshore world. Our forward looking, innovative approach to financial services combined with the support from our thriving private sector will ensure our continued success as a global financial centre.
Madame Speaker, our work over the past two years has been strenuous. And yet it is not done. In fact the road ahead will probably be even harder. But Madame Speaker, I am committed to work and to lead. But with God’s blessings and the support of this Honourable House, the industry stakeholders, and the people of the Virgin Islands, we will carry on.
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