Lorna Smith OBE, Vice Chairman of Bank of Asia talks about how CFOs could benefit from digital offshore banking.
FutureCFO: How would digital offshore help the finance function and the CFO during and post pandemic?
Lorna Smith (LS): The Covid-19 pandemic has presented challenges for businesses around the world. Amid market volatility and disruptions in supply and demand, companies are increasingly looking for alternative structures to hedge their investment risks and support expansion.
Offering such advantages as tax neutrality, corporate flexibility and efficiency, political stability and privacy, international finance centers (IFCs) like the British Virgin Islands (BVI) have long been used by large corporations to create centralized hubs for business investments.
To the CFOs of these corporations, there are tremendous savings on the cost of capital for investment coupled with a level of efficiency and flexibility in setting up funding structures.
Offshore banks play a key role in supporting companies engaged with IFCs as well as facilitating cross-border transactions and investment in international assets for corporate investors and high-net-worth individuals globally.
Offshore banking services are particularly crucial to offshore companies these days as it has become more difficult for them to open accounts with traditional banks.
With the imposition of strict international border and local movement controls, the ability to continue operating remotely is paramount during this pandemic and beyond.
By providing key banking services digitally via advanced FinTech platforms, offshore banks like Bank of Asia facilitates corporate finance functions to continue to carry out a wide range of financial activities from managing their offshore assets to incorporating new entities no matter where they are, just by using their digital devices.
In response to the current movement restrictions, Bank of Asia has upgraded its account opening process to do away with mandatory face-to-face interviews while ensuring authenticity through its robust Know Your Customer processes enabled by FinTech and Big Data.
The use of fully digitalized financial services is in line with the BVI’s commitment to innovation and our digital infrastructure is geared to support the relevant client activities.
VIRRGIN, the BVI Financial Services Commission's internet-based information network provides online electronic access to the services of the Registry of Corporate Affairs including full electronic filings of documents.
The Beneficial Ownership Secure Search System (BOSSs), a digital platform with a searchable portal offers BVI Competent Authorities with direct access to verified beneficial ownership information on any active business company within 24 hours.
This minimizes the possibility of using the BVI for illicit activities and can significantly reduce CFOs' concerns regarding money laundering and financing of terrorism.
Finally, the timely passing of legislation for the Electronic Transactions Act 2019 allows financial services to be tapped into across customized business platforms with heightened authentication measures, while the recent passing of the BVI Regulatory Sandbox Regime enables the Regulator to test innovative financial solutions in a defined and controlled environment.
These provide CFOs with more options for investment in these challenging times and beyond.
FutureCFO: What are some of the concrete benefits to the CFO?
LS: To give an idea of the scale and benefit of offshore investment, a study published in 2017 entitled “Creating Value: The BVI's Global Contribution” by the UK think tank Capital Economics conservatively estimates that BVI business companies hold US$1.5 trillion of assets.
As far as Mainland China and Hong Kong are concerned, investment mediated by BVI business companies was assessed at US$608 billion.
A report by East & Partners in collaboration with BVI Finance earlier this year acknowledges that Asia is the epicenter for trade innovation and economic growth. The survey of 700 entities across Asia (Mainland China, Hong Kong, Singapore and Vietnam) found that on average, 36 percent of institutional investors and 20 percent of large corporates in Asia are currently engaged with IFCs.
In terms of the perceived benefits of IFCs, the top four benefits cited by large corporates were multi-jurisdictional coverage (36%), a single administrative hub for offshore business assets (30%), regulatory consistency (20%) and the availability of experienced management within the IFC (20%).
FutureCFO: What are the usual concerns facing companies when it comes to digital offshore banking?
LS: Concerns that companies using digital offshore banks may express relate to data security, service stability and whether the digital bank can provide the gamut of services available through traditional banks.
Companies can rest assured that there are comprehensive and stringent processes in place to safeguard data security and mitigate risks.
Taking Bank of Asia as an example, the bank was only licensed after the greatest degree of scrutiny by the Financial Services Commission which is highly regarded globally.
The integration of bank’s core banking system with anti-money laundering monitoring systems developed by such companies as Oracle, SAS, Refinitive and Surety assures clients of the level of data security they expect.
Electronic identification verification and increasing security protocols with biometric verification are also well managed within our digital environment.
With regard to risk, a digital bank is at every level subject to the very same requirements for compliance as a traditional bank. Digital banks must adhere to all rules related to anti-money laundering and combatting the financing of terrorism. The basis of the standards changes with evolving international guidelines.
In terms of the level of services, digital banks offer the same level of services as traditional banks, the only difference being that they operate online. Bank of Asia, for instance, is able to provide a wide range of cross-border financial services 24/7 through its advanced Fintech platform.