More than two months after the United Kingdom’s decision to leave the EU, predictions about what the UK’s exit will look like are still speculative.
What are the legal and constitutional implications of Brexit for the BVI?
For now, nothing will change for the BVI as the UK has not yet exercised Article 50. When it does, the separation process is likely to take at least two years. Once the UK leaves the EU, the BVI will cease to be one of the EU OCTs. However, the BVI’s relationship with the UK will not change and we expect the BVI’s relationship with those other UK Crown Dependencies and Overseas Territories that have strong financial services sectors to remain strong.
EU legislation does not apply to the BVI directly; so there are unlikely to be any significant legal or constitutional changes to BVI law. However, once the UK leaves the EU, it is likely that its foreign policy and the economic and financial sanctions it chooses to apply will start to differ from that of the EU. This may have a knock-on effect to the financial and economic sanctions which apply in the BVI and the countries with which it is able to do business. Exactly what the differences will be and what impact this will have is pure speculation at this stage.
The good news for the BVI is that it has carefully drafted legislation and a very stable legal system, so the consequences of Brexit will be minor from a legal and constitutional perspective. It is very much business as usual for us.
How could the Brexit decision impact the financial services industry in the BVI?
One key concern for the BVI, and particularly its funds industry, is the loss of the UK’s influence in developing EU regulation and legislation affecting the financial services industry.
One aspect of particular concern stemming from this is the EU’s exercise to create a list by the end of 2017 of what is being referred to as its “common EU list of problematic tax jurisdictions”. A similar exercise is being conducted by the OECD but based on objective criteria, including compliance with the OECD’s standards for exchange of tax information – on which the BVI and other UK Crown Dependencies and Overseas Territories rank highly. The EU process, in contrast, is highly political. With the UK absent or marginalised in negotiations, there is a real risk that this list becomes primarily an attack on low-tax jurisdictions. This could be problematic for the BVI despite its full compliance with OECD transparency requirements and FATF anti-money laundering and terrorist financing standards.
In general, uncertainty is the biggest immediate consequence of the Brexit decision. On the one hand, this stalls economic activity as businesses delay investment and expansion decisions and investors stall or lose confidence and pull out; indeed, a number of UK real estate funds have had to suspend redemptions due to liquidity pressures. On the other hand, fund managers and other businesses who thrive on market volatility may do very well as a consequence of this period of uncertainty.
While the BVI has strong links, both constitutionally and economically, to London, its outlook is global and its vehicles are used extensively throughout the US, Asia, Africa and South America. Any slowdown in work originating from the UK and the rest of Europe is unlikely to have a lasting or significant effect on the BVI’s business.