Vistra, an offshore financial services provider with an office in the Virgin Islands, conducted a study on international financial centres that was published late last month. (File photo: CONOR KING DEVITT)

The Virgin Islands ranked as the second-most-important financial jurisdiction in the world in a recent study published by Vistra, a corporate services provider.

The research — titled the “Vistra 2020 Report” — evaluated insight from more than 800 financial services industry professionals around the globe, according to the company.

Published late last month, the report, like past Vistra reports before it, describes an industry shift towards “mid-shore” and onshore jurisdictions like Singapore, Hong Kong and the United Kingdom.

The VI, however, was an exception.

“A small number of traditional offshore jurisdictions — specifically the BVI and the Cayman Islands — are performing well and bucking the wider trend away from offshore,” the report reads. “Why is this? Our view is that these jurisdictions’ popularity reflects a growing preference for tried-and-tested service at a time of economic uncertainty.”

Both jurisdictions have carved out specific niches — incorporations in the VI and fund structuring in Cayman — with corresponding expert capabilities, and both are “established trade routes for Asian businesses,” which have grown more than in other regions, the report argues. Asian businesses demonstrate loyalty to offshore financial centres “that provide consistently high service,” it added.

11.2% growth in VI

Vistra reports that it saw 11.2 percent growth in its office’s VI incorporation volume in the first nine months of 2018 compared to the previous year. Most of that increase was driven by Chinese investment.

Those numbers are mirrored by territory-wide statistics published by the Financial Services Commission, which demonstrated improvements in incorporation numbers in the first and second quarters of 2018 compared to their corresponding quarters in 2017. The FSC has not yet published statistics for the third quarter.

Vistra respondents ranked Hong Kong as the most important financial jurisdiction overall, with the report noting that the autonomous territory was winning Asian business away from some offshore regions.

Potential negative impact

The report didn’t have entirely positive news for the VI, however: Vistra’s respondents picked the territory as the most likely jurisdiction to be negatively impacted by changing international regulations. About 61 percent of respondents predicted regulations would have a negative impact on the VI, while only 14 percent said they thought changes would have a positive effect on the territory.

Respondents also predicted large onshore financial centres like the United States, as well as midshore financial centres, would benefit the most from changing regulations.

Another potentially worrying statistic: 62 percent of respondents said they expected China to increase scrutiny of its funds moving to international financial centres, and that percentage was even higher when looking at responses from industry professionals in Singapore (78 percent) and Hong Kong (68 percent), two jurisdictions that are accustomed to Chinese business, according to the report.

Vistra, however, pointed to Chinese activity in the VI and Hong Kong, as well as the business potential of the Chinese government’s “Belt and Road Initiative,” as evidence that the country’s value to the industry would “not diminish in importance in the years to come.”