Partners, symbiots, sandboxes: the UK / CDOT opportunity
The CDOTs: a misunderstood resource
The British Crown Dependencies and Overseas Territories (CDOTs) get a bad rap. A diverse set of islands, military bases, and one peculiarly-shaped peninsula, the CDOTs occupy a strange role in the public mind. Ignorance and double standards abound. Campaigning NGOs are wont to give the impression that these jurisdictions are embarrassing relics of the empire, or dubious centres for financial crime. Newspapers will raise ‘concerns’ when investment infrastructure is funded by entities based in the Cayman Islands or Jersey; MPs will occasionally urge that Britain somehow seize the capital ‘sitting’ in these islands. These views are worse than wrong: they are stupid. They are based on a misunderstanding of Britain's economy, Britain’s history, and the actual activities of the CDOTs. Perhaps more worryingly, they fail to account for the exciting new opportunities the CDOTs offer in emerging technology.
Britain is a highly open, international trading country - a place that exists on its ability to serve international flows of capital, and to build products, services, and goods that it can sell to the outside world. The CDOTs are partners, symbiots, and sandboxes for Britain’s financial and professional industries. Taken together, they are Britain's 9th largest export partner, allowing the UK to export its professional services around the world. As common law jurisdictions, they enable the export of English and English-based law and burnish its international standing. As financial entrepots, they funnel capital in and out of the UK, and enable UK based financiers to generate income by serving capital flows that otherwise have no UK nexus at all. To take one example: most companies in the British Virgin Islands hold Chinese assets, and are owned by Chinese people. As a result, they’d usually have no connection with the UK, but through the BVI, British firms can serve them.
Finance-focused jurisdictions like Jersey and the Cayman Islands are centres for financial intermediary services, hosting corporate vehicles like companies, funds, and trusts. By doing so, they facilitate international trade and investment around the world. A Guernsey fund may combine capital from investors based in the USA, UK, Germany and the Middle East; the fund may then reinvest this capital in projects across Europe and Sub-saharan Africa. This investment supports jobs and produces tax revenue for the countries receiving capital.
More broadly, the CDOT jurisdictions have been important partners to the development of the postwar British economy - and they have done this due to their role in financial innovation.
Offshore flying cars? One day, perhaps
1. Hubs of financial and legal experimentation
There is something about islands that invites experimentation. Anthropologists will tell you they are liminal spaces — small enough to be bounded, but porous enough to absorb and transmit flows of people, capital, and ideas. For the British Crown Dependencies and Overseas Territories (CDOTs), this has been their historic role in the global system: not merely remote appendages of empire, but sites of innovation, intermediation, and governance at the edge of orthodoxy.
If the City of London is the great cathedral of global finance, the CDOTs have been its chapels, cloisters, and buttresses — spaces where legal forms and financial techniques could be trialled before they were sanctified in the metropole, and which have provided ongoing support ot the whole structure.. This is the real role of the CDOTs: laboratories for legal and economic design, and enduring semi-external partners to the UK financial sector. Historically, this has meant trusts, funds, banking, and insurance.
Below we examine of of the main areas of innovation:
A non-exhaustive list of CDOT financial innovation
IBCs: The first international business company law was passed in the BVI
Offshore hedge funds: The Cayman Islands, closely followed by the BVI, is the world’s leading center for the hedge fund industry. Tax neutrality and flexible licensing rules help investors form and deploy capital across the world, boosting economic growth.
Trust law: various different trust laws and artefacts. Forms such as the STAR and VISTA trusts; varying rules on protectors, perpetuities, and purposes.
Insurance: Bermuda is a leading centre for insurance and re-insurance
Analogue stablecoins: The Isle of Man may not exactly realise it , but it is an early example of a national stablecoin: all Isle of Man pounds are issued 1:1 against a deposit of British pound sterling
The Eurodollar: the development of the ‘eurodollar’ - dollars traded away from the auspices of US regulatory control - led to the creation of the modern financial sector. Though invented in the City of London, it developed with the strong assistance of the CDOTs. Money deposited in the local CDOT offices of British banks was use to fuel the growth of the UK banking sector, providing liquidity for lending and trading activities.
2. CDOTs in the 21st century: New role in technology & beyond
Used well and wisely, the CDOTs continue to offer a range of possibilities for innovation, experimentation, and growth - growth that will both benefit individual CDOT economies, and that of Britain. The CDOTs are core members of the British family, and a key resource for the United Kingdom.
Data laws: We all agree that data is valuable, albeit hard actually to value. Data is a critically important input to AI, and generally of commercial and operational use to organisations across industries and geographies. At the same time, data is important to people - online, we are our data. Data is sensitive, important to manage well, and - used in context - extremely valuable. The CDOTs offer a unique space to develop new rules and practices around the ownership & exchange of data, and through these to boost economic growth:
Data ownership: creating ways for individuals and organisations to ‘own’ certain forms of data, thus creating new business models, new ways of creating financial value, and new ways of protecting citizens
Data vehicles: New corporate structures in which to hold and manage data will generate economic grwoth in CDOT jurisdictions and - through providing legal clarity - further promote the wider British tech industry
New fiduciary structures: If data is property, it can be situated in pre-existing fiduciary structures like that of the trusts - meaning that data can be managed not just in the interests of corporations, but in the interests of the people and communities who generated the data
Data exchanges: By boosting legal clarity around data and incentivising data transactions, CDOT-led experimentation can promote the development of data exchanges. This will lead to greater data liquidity, provide more useful inputs into the tech sector, and promote economic growth in the UK and CDOTs.
Real world asset tokenisation: Britain’s historic power and enduring economic performance has been based in no small part on the scale and health of its capital markets. Yet capital markets are in flux, and among the more important trends facing them is the development of new technological rails to express ownership, and to create, execute, and settle transactions.
Stablecoins: ‘Stablecoins’ refer to blockchain based financial instruments backed by real-world currencies. There are curiously few sterling stablecoins, something that presents long-term threat to the international strength and use of the British pound sterling. The regulatory flexibility offered by the CDOT jurisdictions can be used to develop sterling stablecoin ecosystem.
Security tokens: Broadly speaking, security tokens are those that represent securities - company shares, bonds, and other forms of financial instruments. Working with the CDOT governments, the UK can experiment with new ways of issuing and licensing security tokens
Tokenised funds: Tokenised funds represent an exciting new innovation for the funds industry; these should be spread and promoted.
Tokenised IP: CDOT could be used to experiment with favourable laws for tokenising intellectual property. This could be used to help creators, influencer, scientists - all those who need to protect their work
Other industry-specific use cases: The sky is the limit!
DAOs, protocols, and other web3: Within the blockchain space, innovation occurs at a heady pace. Platforms, protocols and business models rise and fall at breakneck speed. Web3 is a vast wealth creation opportunity and - especially in the developing world - a mechanism through which to leapfrog ahead in financial and technological infrastructure. British CDOT jurisdictions are already among the world’s leading web3 jurisdictions; working inc loser partnership with the UK, all will be stronger:
Foundations: The dominant form of legal wrapper for both DAOs
DAO LLCs: Those seeking fully ‘wrapped’ DAOs are currently constrained to utilise entities in Switzerland, Wyoming or the Marshall Islands. Britain’s CDOT jurisictions could develop their own DAO LLC or web3 association propositions
Licensing: CDOT jurisdictions could update their VFA licensing regimes to promote and attact business internationally
Utility tokens: The BVI is the world’s leading jurisdiction for the issuance of security tokens. Using this excellent example, Britain and other CDOT governments should promote the issuance of utility tokens across the entire CDOT network
DePIN: new and experimental rues and protocols around the internactionf of decentralised physical infrastructure. This is of revelance to a wide range of applications - sensors, satellites, drones, cars, ships, robots.
Artificial intelligence: The capabilities of AI are advancing at a rapid rate. Despite this, many of the laws and legal regimes around AI and its various applied uses remain unclear. The CDOTs can promote their local economies, boost the British tech sector, and meaningfully contribute to international change through passing innovative & ethical laws about AI.
Agent ownership: How does done one own an AI agent, and how the the returns from this shareed between the creator of the agent, the person using it, and the person who provided the data used to train it? The CDOTs jurisdictions could contrinute to this question by trialling various laws
Agent personality: Should there be legal personality for AI agents? If so, in what situations should this be granted, and with what results? Again the CDOTs could experiment here
Limited liability: What liability regimes will we have for AI agents, both in general and for specific use cases? Should we have different liability for the actions of drone fleets and trading bots
Avatars: Guernseys innovative and under-utilised copyright laws could be used to explore personal ownership for digital avatars and the AI agents using them
Copyright & IP: New rules and laws for the protection of AI in the age of generative AI
Space: Strange though it may seem, the CDOTs also have a role in space. The Isle of Man was for some years one of the world’s leading space jurisdictions due to its satellite fleet licensing regime, a fact that promoted economic growth in both the Isle of Man and the UK.
Satellite licensing: CDOT governments could create specialized licensing regimes for satellites in various tiers of orbit; these could be tied to UK incentives for hosting said companies in the UK.
Data centres: China is building solar powered data centres to operate in midorbit; major tech corporations are contemplating data centers on the moon. British CDOT jurisdictions could make creative use of their regulatory flexibility to provide new laws and practices through which to govern offworld data centres.
Asteroid and moon-mining: As technologies continue to advance, ideas move from the realm of fantasy into everyday reality. In coming decades, we may soon see the commercial exploration of outer space That being so, under what regulatory regime will this occur? Jamaica hosts the International Seabed Mining Authority; one of the British CDOTs should aspire to host a new Outerspace Mining Authority
3. Britain’s place in the world: fighting decline through Anglo-CDOT partnership
Britain is in long-term relative decline. Wages and living standards are declining, our infrastructure is fraying, and businesses are suffering from a chronic lack of investment. More and more strategically-relevant businesses and industries are failing or choosing not to scale, and selling themselves to international buyers. At the same time, companies and capital are leaving. Attracted by superior valuations, more and more hitherto UK-based firms are choosing to list in New York over London. Wealth taxes, meanwhile, have seen millionaires leave the UK in their thousands. Britain is failing to achieve dominance in the companies of the future. Assessed by revenue, only 5 of the world’s top 100 companies are British, and none of these are tech firms. Despite a proud tradition of science, technology, and innovation, and despite the fond imaginings of Britain’s PR booster, the UK is now ‘punching below its weight’.
Decline is a choice. It is a failure to invest, a failure to make hard choices, a failure to innovate. It lies in culture and in economics - in taking easy choices, in avoiding risk, and in devaluing the things that made Britain great. Britain’s current malaise is thus neither necessary nor inevitable. The continued prosperity and independence of the United Kingdom is entirely dependent upon the energy, optimism, and enterprise of the British people and the British state. New technologies are transforming social and economic life, and with them the presumptions of domestic and international politics.
The solution to these problems is economic growth. Growth provides jobs and higher living standards; growth provides tax revenues through which to fund infrastructure, pensions, and the NHS; growth creates capital with which to fund the development and expansion of new businesses. Without growth, Britain is doomed to stagnation and deeping decline.
Having facilitated British finance, the CDOTs are now ideally positioned to boost Britain’s technology sector, and with it the growth of the wider economy. They are ideal partners, symbiotes, and testing beds for a new British century. Churchill warned De Gaul that, given the choice, Britain would always choose the open sea; and so it has proven. In 2016, Britain made the choice to leave the EU. One can agree or disagree with the wisdom of that particular decision, but has now long since been made. A central rationale for Brexit was to embrace openness to the world, and the opportunity for regulatory experimentation; the CDOTs offer both these in spades. To embrace growth and to embrace innovation, Britain should now embrace the CDOTs.