• BVI Securities and Investment Business Act, 2010 and Mutual Fund Regulations, 2010
Article:

BVI Securities and Investment Business Act, 2010 and Mutual Fund Regulations, 2010

30 August 2016

BACKGROUND CONTACT

Following an extensive consultation process between the British Virgin Islands (“BVI”) Financial Services Commission (the“Commission”) and the industry partners, the BVI government introduced new landmark legislation to regulate securities and investment business.

The Securities and Investment Business Act, 2010 (“SIBA”) and the Mutual Fund Regulations (the “Regulations”) will be an important step in the continued development and regulation of the financial services sector in the BVI, providing the jurisdiction with a more modern and sophisticated statue which is in tune with the current business and regulatory environment worldwide.

On May 17th, 2010 (“enactment date”), SIBA and the Regulations will replace the current Mutual Funds Act, 1996 (the “MF Act”), and will also serve to formalize processes and practices already undertaken by funds domiciled in the BVI. In addition, provisions have been made to regulate investment business, public issues of securities and market abuse.

Broderick Penn, Director of Investment Business at the Commission, stated that “[SIBA] signals the maturity and growth of the jurisdiction beyond that of a fund only jurisdiction as it ushers in new laws and rules for areas such as public issues and securities intermediation activities. It reinforces the British Virgin Islands’ commitment to developing a prudent regulatory regime for investment business including fund activities which are consistent and compliant with international standards and balance the commercial interests of the BVI.”

KEY OBJECTIVES

According to the Commission, the key objectives that SIBA will serve are as follows:

  • Define and regulate the licensing of entities conducting “investment business” in the BVI;
  • Provide regulations and restrictions on the issuance of securities to the public in the BVI;
  • Introduce standards and regulations to market abuse; and
  • Modernise the mutual funds and investment business regimes, developing appropriate legislative provisions in relation to securities business while addressing current and emerging international standards of regulation.

KEY FEATURES OF SIBA

The following are some of the key features of SIBA and the Regulations:

INVESTMENT BUSINESS

  • Under SIBA, any person carrying on “investment business” in the BVI must hold a license to carry on the specific business that he or she is carrying on. The types of investment business included under Schedule 2 of SIBA are as follows:
    1. Dealing in investments
    2. Arranging deals in investments
    3. Managing investments
    4. Providing investment advice
    5. Providing custodial services with respect to investments
    6. Providing administration services with respect to investments
    7. Operating an investment exchange
  • Schedule 2 also provides for a wide range of excluded activities for which the provisions of SIBA do not apply.
  • Any directors or officers carrying out investment business must first be approved by the Commission, in writing.
    1. The approval of such persons is subject to such persons satisfying the Commission’s fit and proper criteria and complying with the requirements of any guidelines issued by the Commission.
  • The regulations of investment business also extends to branches, representatives and contact offices outside of the BVI of a licensee. Therefore, the application of SIBA extends to those BVI-domiciled companies carrying on investment business outside of the BVI.
  • No licensee carrying out investment business shall issue bearer shares.
  • Maintenance of records is required for a period of at least five (5) years after the completion of a transaction to which the records relate.
  • Conducting investment business in the BVI without holding a license is an indictable offense carrying a maximum fine of US$75,000.

PUBLIC ISSUES OF SECURITIES

  • No security shall be offered to the public in the BVI for purchase or subscription by or on behalf of an issuer, unless the offer is contained in a registered prospectus and the offer complies with the requirements specified in the Public Issuers Code (“PI Code”).
    1. SIBA extends it regulations to include any offer of securities to any person in the BVI, however the PI Code is disapplied where the issuer is a listed company or foreign listed company and complies with the requirements specified for public offers may be listed companies or foreign- listed companies in the PI Code.
    2. The PI Code and SIBA are also disapplied when the offer is made to qualified investors, as defined under SIBA, a person having a close connection with the issuer, and offers made to the Government of the Virgin Islands.
    3. It is important to note that BVI Business Companies are not restricted from offering securities outside of the BVI nor will it be restricted from offering securities to other international BVI Business Companies, provided they are not “received” in the BVI. The second caveat means that the simple fact that a BVI Business Company receives an offer of securities at its registered office in the BVI does not itself constitute receipt of the offer in the BVI.
  • The PI Code has not yet been enacted, but is expected in the very near future.
  • Details of the requirements of the information to be included in all registered prospectuses are laid out in SIBA and the PI Code.
    1. An amended prospectus must set out the amendments from the registered prospectus and be made available to every person who received a copy of the original prospectus
  • SIBA provides relief guidance for Court-ordered compensation orders issued to subscribers who suffer losses or damages on securities acquired in reliance on the prospectus if the damage has been caused by an untrue or misleading statement in the prospectus or by a missing matter that was required to be included in the registered prospectus by virtue of SIBA or the PI Code.
  • SIBA gives the Commission the authority to cancel or suspend a registered prospectus if certain situations occur, as laid out in SIBA. No suspension of the registration of a prospectus shall last more than thirty (30) days.

MUTUAL FUNDS

There are no significant changes with SIBA from the practices of the MF Act – SIBA has mainly codified the practices and policies that were already followed under the MF Act. The main points raised by SIBA relating to Mutual Funds are as follows:

  • A foreign-domiciled fund is not seen as doing business in the BVI solely by reason that it appoints a BVI licensee as its fund administrator, fund manager, investment advisory or custodian.
  • An important addition brought into SIBA, which will affect all current and future funds is that all licensed mutual funds must have at least two directors at any time, of which at least one must be an individual.
    • Unless the fund has a significant management presence in the BVI, all mutual funds regulated under SIBA require to have an authorized representative resident in the BVI.
    • A licensed fund is required to inform the FSC in writing within seven (7) days of the resignation of a director that includes a reason for the resignation.
  • All public funds must register a prospectus with the BVI FSC, which provides full and accurate disclosure of all such information as investors would reasonably require and expect to find for the purpose of making an informed investment decision.
    • It must also contain a statement of investors’ rights.
  • Private funds are licensed only in cases where the constitutional documents of the fund specify that the fund is not authorized to have more than fifty investors OR an invitation to subscriptions to purchase an interest in the fund is only made on a private basis.
  • Professional funds are licensed on in cases where constitutional documents of the fund specify that the fund’s interests are only issued to professional investors AND the initial investment of each investor, other than exempted investors, is not less than US$100,000.
    • This is a change from the MF Act where the requirement was only that a majority of the investors into a professional fund were required to have its initial investment to be at least US$100,000.
    • Each investor must provide written confirmation that he or she is a professional investor within the meaning specified within SIBA.
  • All public, professional, private and recognized foreign funds are exempt from the payment of income tax under the Income Tax Ordinance and stamp duty under the Stamp Act, with the exception of a transfer of land situated in the BVI to or by the fund.

PROVISIONS OF GENERAL APPLICATION

  • The initial year-end for any licensee cannot be less than nine months nor more than fifteen months after the date of incorporation
  • All licensees under Schedule 2 of SIBA must submit audited financial statements, including all private and professional funds which were previously exempted from submission. The licenses available are listed on the previous page under Investment Business.
    • Audited financial statements must be accompanied by: (i) a directors’ certificate or trustee’s certificate; (ii) auditors report; (iii) a report on the affairs of the licensee or public fund made in respect of the relevant financial year; and (iv) any other documents as may be prescribed.
    • These documents must be submitted within six (6) months of the end of the financial year of the relevant licensee.
    • There is no prescribed set of financial reporting and auditing standards, as long as they are specified or endorsed by the recognised professional body of which the auditor is a member or such other recognised international standards as may be approved by the Commission
    • A private or professional fund shall submit to the Commission is audited financial statements within six months of the end of the financial year or such extended period not exceeding fifteen months, which is approved by the Commission.
  • A private or professional fund must, at all times, have an approved auditor for the purpose of preparing its financial statements. The Commission may, upon written application, waive the need for a private or professional fund to appoint an auditor.
    • An approved auditor means that the Commission has approved the auditor in writing prior to the appointment and if a approval is for a public fund, been approved to act as an auditor of public funds.
    • The Commission’s approval is not required if the auditor was the auditor appointed of the fund in the previous financial year and the Commission has not revoked the approval status of the auditor.
  • The custodian of a private or professional fund must be functionally independent of the fund’s investment manager and administrator.
  • No person shall be appointed as a functionary of a private or professional fund unless at least seven (7) days prior notification of the proposed appointment has been given to the Commission.

MARKET ABUSE

New to Investment Business Regulation in the BVI, SIBA has implemented a section dealing with market abuse to deal with infractions relating to market abuse to make the BVI’s regulations in line with the international standards. The market abuse standards deal with issues surrounding the protection of investors against matters of insider dealing. These standards give the Commission the authority to punish those guilty of insider dealing.