11 minute read
BEYOND GLOBALISATION: THE FUTURE IFCs' IN AN UNCERTAIN WORLD
In March 2022, Larry Fink, Chairman and CEO of Blackrock, wrote a letter to his shareholders, asserting that “The Russian invasion of Ukraine has put an end to the globalisation we have experienced over the last three decades.”
A lot has happened since Fink made this claim and this disruption has been ongoing. The Russia-Ukraine conflict has continued, geopolitical tensions have intensified, and major economies have teetered on the brink of a recession. The combination of these events has led many political and economic commentators to heed his words, predicting that Ukraine will provide future historians with a significant end point to what was already a faltering postcold war world order.
To explore the implications of these events, BVI Finance gathered leading BVI professionals at the Beyond Globalisation Conference. The panel shared their views on the future of globalisation, the emergence of a bloc economy, the role of International Finance Centres (IFCs) in this new world order, and how the BVI can remain resilient and competitive.
Is this the end of globalisation? And is there a role for IFCs in the new world order?
Vanessa: Globalisation has been fragmented for some time, not just because of the conflict in Europe. The growth of popularist and nationalist governments in Europe and Latin America, protectionist policies, and the threat of trade wars between large economies have fragmented globalisation as we know it. However, I do not see this as the end of globalisation – it’s simply evolving. Whatever this new world order will look like, there will be a role for IFCs.
Rosa: All the changes we have seen have triggered the need for something that is certain and secure. The way that IFCs have been working internationally shows that they can remain neutral. The BVI is a trusted advisor and people look to the jurisdiction for direction and advice in uncertain times, as one would a financial advisor and lawyer.
Julia: I have a very positive outlook. It is too early to jump on the grave of globalisation because it is not dead. I do not think it will ever die. We will see evolutions of it. The BVI Business Company as its core has been a great product to facilitate cross border transactions and the need for this will always be present. I do not think we will ever have a bloc economy on its own – persons will put their interests first at some point. The role of the BVI will continue as long as we adapt our business products and services and provide better opportunities to those seeking –and will always seek - cross-border transactions.
Robert: For the first time I am concerned. The reason for that is the weaponization of the rule of law by the West. Sanctions against Russia are extensive and these may intensify further. Other countries are watching this, notably China, and my fear is that China will diversify away from BVI to proof itself against a bloc scenario or nationalism scenario.
Matthew: We have all enjoyed the benefits of globalisation and the world isn’t going to give that up easily. It will change and look different. There may be players that are excluded from it from time to time but generally I think we will continue to pursue it.
Clarence: The whole matter of the role of globalisation will remain, and the role of IFCs will be focused on what role do they wish to provide. The question becomes, how do we leverage on what we established before to strengthen our role? We can pivot and say exactly what we can offer the global community in terms of continued global cross-border transactions. There is some resemblance of the bloc economy already established and I think we need to recognise what has taking place and where are we positioning ourselves to continue being a force to be reckoned with in the global community.
The Beyond Globalisation Report has hypothesised three scenarios as responses to the shifts in globalisation trends. The three scenarios help illustrate the potential range of implications for the cross-border finance, investment, corporate services and advisory markets.
i. Weaker internationalism - sees no change in the direction or nature of globalisation – but these trends continue at a slower pace
ii. The bloc economy - envisions continued economic, regulatory and, in some cases, political integration between countries within predominantly regional geopolitical blocs, but with these different groupings diverging from each other
iii. New economic nationalism - sees many of the larger individual nations increasingly go their own way and become more protectionist and anti-internationalist
Which of these three do you think would be the most challenging scenario for IFCs?
Robert: The biggest challenge is the bloc economy and I think this is the most likely scenario. To deal with this, the BVI will need to diversify its products and its
markets, and most notably, move away from a reliance on China.
We are in the western bloc, there is no way around that and we are subject to UK sanction law. But does this mean going to Europe, which will require greater transparency, or will we tap into opportunities in South America, which will be partially in our bloc, where security is a greater priority?
The weaker internationalist scenario is the continuing of the status quo and in the new economic nationalism scenario, there will be a lot of new opportunities for IFCs, but as a result of the chaos of the new world order.
Julia: There is an additional frustrating factor for the BVI in the bloc economy in that as a British Overseas Territory (BOT), we do not have much say to which alliance we follow. Whatever the UK decides passes through the orders and council and we have to find some way to pivot away from it slightly.
Rosa: The bloc economy would present the most challenges – but it does also present opportunities as well. We will have to diversify, invest more time to accommodate each client needs, and appeal to new clients. The BVI is prepared but our clients are mobile, and we must be open to that. The only downside is that it will require more time and it will be more expensive for clients to find a finance structure that complies with new legislation.
Robert: The bloc economy will cut off markets and we do not get a choice in that. Our chips are in one particular region and if that was cut off from us, I do not know if we are prepared for that.
Vanessa: I predict a bloc economy will emerge, but I do not foresee the situation becoming as polarised as some fear it might. China, for example, will be the major player in its bloc but the country relies significantly on globalisation for their trade. Since covid, we have also seen a huge increase in the trade of specialised services, and this will also continue.
Clarence: I agree the bloc economy will be a challenge, but it provides some opportunities. The whole matter of us being a part of the Western bloc is of concern for us, in that we are an BOT and it might change our ability to provide services outside of the western world. The opportunities are there but the reality still boils down to the geopolitical issues as they relate to the stance of the Western bloc.
The Future of Wealth and Asset Protection, Confidentiality and Transparency
Rosa: First of all, there is a huge misconception around wealth and asset protection, which we need to address. When we talk about providing these services, people assume it must involve some illicit activity, but we are talking about legally acquired assets that our clients trust us with. Our clients are required to provide us with all their information around this, but is it necessary for the public to also have access to this sensitive information? I do not think so. We cannot allow the assets of our clients to become vulnerable.
This is particularly important for clients in South American countries such as Colombia where high-net worth individuals have been known to be targeted for their wealth. We need to strike a balance and maintain the confidence of our clients that confidential information will be kept that way.
Matthew: Transparency will have an impact on the shape of IFCs, especially in the private market and family offices side of our business offerings. They are seeing the amendments to the Companies Act and want to know what lies ahead for them and the BVI.
Vanessa: In this uncertain climate, we have also experienced more individuals looking for products to provide wealth planning and asset protection. It is important for us to future-proof this area but also to think outside the box and about what the next client will want. The client we have now is not the client we are going to have in 10 years. The younger generation will have different desires, needs and priorities, and we need to do more research to better understand how we can accommodate and appeal to these groups.
BVI: Perception vs Reality
Julia: In my experience, clients have differing opinions of BVI companies depending on geographical location. However, misconception around IFCs is rife. We need to go further to educate people around the BVI and emphasise our excellent regulatory landscape to reduce the misconception.
Rosa: It is up to us within the industry to promote the BVI and highlight all the good work we do here; the deals, the law firms, and our regulatory frameworks. There are other basic things we can do to help protect our image too – for example, do not cut corners and do not accept clients who seem reluctant to comply. Clients need to have due-process and we need to be out there helping potential clients with any concerns or challenges they face.
Shifting Markets
Clarence: When it comes to our core markets, we need to preserve what we have and be pro-active in our approach. China is traditionally a very important market for us, but we need to pay closer attention to what has happened in emerging markets such as Vietnam and African economies whilst China was in lockdown.
We must acknowledge what has worked for us over the past decades and leverage off those relationships to build our presence in these new markets where we can capitalise. It also requires us to look beyond what we have consistently offered over the years and broaden the offering, creating a one-stop shop facility where we can encourage cross-border transactions.
Digital Assets
Julia: The BVI has emerged as an industry leader in digital assets and finance. However, the crypto and digital assets sector is still experiencing the fallout from the FTX collapse last November and regulation is now a top priority for many jurisdictions to help reduce risk to investors and consumers. A lot of these crypto firms might not want it, but the reality is they do need it – they cannot work in silo and require banks and financial services providers to trust them. My firm has been involved in the first sandbox and crypto currency exchange, thanks to the progress we have seen with regulation, and we need to keep updating our framework.
Matthew: We need to diversify on the product front. In addition, we need to ensure our VASP regulation is appropriately resourced to provide maximum efficiency. Clarence: I would take a more cautious approach and assert we need to tread carefully in this area and resist the rush to be first to market. There is a huge knowledge gap between practitioners and the regulators in terms of effectively keeping pace with what the companies are doing. We do not want to bring reputational risk to the jurisdiction by rushing the process.
Final Thoughts
Vanessa: The key takeaway from this panel is the importance of diversification. The BVI needs to diversify its products to remain relevant in this new era, including tapping into digital assets and finance. We also need to diversify our markets. In my opinion Latin America and Ghana are hugely untapped and have huge potential for the BVI, so we need to find our space here and look at how we can support local movements and development across LatAm and Africa.
We have been speaking about diversification for years – but now is the time to act, supported by the proper data and research.
