OVERVIEW OF BRITISH VIRGIN ISLANDS MUTUAL FUNDS
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Investment Company

Unlike a mutual funds, this would not be regulated by the BVI Financial Services Commission (FSC), and would be subject only to the applicable laws of the BVI Business Companies Act, 2004 (as amended). Therefore, the director(s) would have complete flexibility in deciding what information is provided to potential investors, and in what form. There would be no limit on the number of investors, or any minimum investment requirement. However, shareholders would not have the option to redeem, unless the director(s) decided to carry out redemption at any time(s).

Closed-ended funds are not regulated by the BVI Securities and Investment Business Act, 2010 (as amended) (“the Act”).

Mutual Fund

If the company will be open-ended, it will be deemed to be a mutual funds under the Act and it will be required to be regulated by the FSC. The fund will need to register, be approved or to be recognised by the FSC. There are five main types of mutual funds, distinguished by the Act:

  • Private funds
    1. the constitutional documents has restricted the maximum number of its investors to fifty (50) or an invitation to subscribe for shares shall be made on a private basis only. Need to provide explanation in the application of the method of making such invitation and indication of how many invitations will be made; and
    2. no legislative requirement for a minimum initial investment sum
  • Professional funds
    1. the shares of which are made available only to professional investors, and
    2. the initial investment of each investor shall be not less than US$100,000.
    3. A "professional investor" is any person, who qualifies under any one of the two possible criteria: (i) a professional investor is one whose ordinary business involves, basically, investment business similar to the kind of the fund itself, or (ii) a professional investor is also one who has declared his net worth to exceed USD1.0 million and has consented in writing to be treated as a professional investor.

A copy of the offering document must be submitted together with the application. If the Private/Professional funds have no offering document, it must explain why no offering document is to be issued, how relevant information concerning the fund and any invitation or offer will be provided to investors / potential investors.

  • Public funds
    1. a mutual fund which is not a private fund, professional fund, approved fund or incubator fund, a public fund is simply one that offers its investment shares to general public; and
    2. the fund must be registered, must publish a prospectus including the information required by the Act and must also produce and distribute audited annual financial statements.

As opposed to "registration" of the public funds, required by the Act, the procedure prescribed for professional and private funds is called "recognition". It is much simpler than the one prescribed for the public funds. The recognition of a private or professional fund in BVI requires completion of the relevant application, provision of the proofs or documents that supposedly qualify the fund as private or professional, provision of details of the fund itself, as well as the details of its managers, administrators, custodians and other professionals involved (as the case may be) and their place(s) of business. At recognition of a private or professional fund, most of the attention of the BVI Registrar will be centered towards particulars of the managers, administrators and other professional parties involved with the fund.

  • Incubator Fund
    • available for offerings to "sophisticated private investors" only (for these purposes, to be a "sophisticated private investor" a person must be invited to invest and the amount of his or her minimum initial investment shall not be less than US$ 20,000);
    • maximum of 20 investors;
    • aggregate maximum investments in the Fund not exceeding US$ 20 million (or its equivalent in another currency);
    • "Incubator Fund" approval status limited to two (2) years (with a possible further 12 month extension available at the discretion of the FSC, provided such application for an extension is filed at least one month prior to the expiration of the two year period) (defined in the Regulations as the "period of validity"), following which the incubator fund must either (i) convert into a private fund; professional fund; or approved fund or (ii) cease operating as a fund;
    • simplified licensing process;
    • fast track time to market in that an incubator fund may commence business two business days following receipt by the FSC of the licence application;
    • offering document/ prospectus not mandatory and if no offering document is prepared, the regulatory requirement is that investors must each be given a written investment warning;
    • audit of financial statements not mandatory; and
    • no mandatory service providers.
  • Approved Fund
    • maximum of 20 investors;
    • aggregate maximum investments not exceeding US$ 100 million (or its equivalent in another currency);
    • simplified licensing process;
    • fast track time to market in that an approved fund may commence business two business days following receipt by the FSC of the licence application;
    • offering document/ prospectus not mandatory and if no offering document is prepared, the regulatory requirement is that investors must each be given a written investment warning;
    • audit of financial statements not mandatory; and
    • other than a requirement to have a fund administrator, no other mandatory service providers.

As opposed to "registration" of the public funds and recognition of professional and private funds, both these funds must be "approved" by the FSC in an even simpler process. The approval of an incubator or approved fund in BVI requires completion of the relevant application, provision of the term sheet and also the details of the directors of the fund.

BVI Business Company as an open ended fund

Typically an open ended fund would have a small number of management (ordinary) shares, held by or on behalf of the promoters, the remainder of the shares being issued in one of more classes of redeemable participating shares. Redeemable shares are normally given a nominal par value and are issued at a fairly substantial premium. Different classes of shares may be issued to investors to distinguish between interests in different strategies undertaken by the fund and/or to allow for different redemption rights and fee levels. Series of shares within each class of redeemable shares are commonly issued to allow for differences in fee apportionment caused by the timing of investments in shares in the same class, among other matters. Different classes of shares may be denominated in different currencies. A BVI Business Company must at all times have at least one shareholder.

A BVI Business Company which is recognised by the FSC as a private, professional, incubator or approved fund, must at all times have at least two (2) directors, at least one of whom must be an individual. A public fund must at all times have two (2) individual directors.

Under the Act a registered or recognised fund must, at all times, have:

  1. an investment manager;
  2. an administrator; and
  3. a custodian who is functionally independent from the investment manager and the administrator.

It is possible, in certain circumstances, to apply for the fund to be exempted from the requirement of having an investment manager and/or a custodian.

Common functions:-

  • an investment manager undertakes day to day management of the investments of the fund;
  • an administrator who administers the accounts of the fund, undertakes anti-money laundering compliance on behalf of the fund and commonly calculates the net asset value of the fund. The administrator commonly acts as registrar and transfer agent for the fund;
  • a custodian holds the assets of the fund for safe keeping and should be able to demonstrate its ability to segregate clients funds from its own etc. Hence, custodian must meet the fit and proper criteria for the FSC and able to demonstrate sufficient independence from the Fund Manager / Administrator.

Each mutual fund is also required to appoint an authorised representative in the BVI. The authorised representative’s role is limited to liaising between the fund and the FSC.

Anti-money laundering compliance

All registered and recognised funds are required to comply with the Anti-Money Laundering and Terrorist Financing Code of Practice, 2008 (as amended by the Anti-money Laundering and Terrorist Financing (Amendment) Code of Practice, 2009, and subsequent amendments thereto) (the "Code"). It is usual for funds to delegate their compliance obligations to the fund’s administrator,

Audit requirements

Private, professional and public funds are required to appoint and at all times have an auditor for the purposes of auditing its financial statements, although there is no requirement to have a local audit sign-off

The fund must provide a copy of its audited financial statements to the FSC within six months of its financial year end. The requirement to appoint an auditor and submit annual accounts is subject to a case by case exemption that the FSC may grant.

Annual Returns for Funds

All Funds are subject to an annual reporting regime under which a mutual fund annual return ("MFAR") must be submitted to the FSC. The reporting period for the MFAR is every calendar year, ending on 31 December. Funds will be required to submit the MFAR within six months of the end of each reporting period, i.e. on or before 30 June.

BVI APPROVED INVESTMENT MANAGERS

All investment/fund managers, advisers and administrators of mutual funds with a presence in the BVI or using a BVI Business Company will be required to be licensed under the Act. The Act prescribes several general conditions that must be met by any such licensee. In particular, the FSC must be satisfied that the applicant "is a fit and proper person" to be engaged in the proposed fund management or administration business. The applicant is also required to have "adequate knowledge, expertise, resources and facilities necessary for the nature and scope of the business proposed." The Approved Investment Manager Company must at all times have at least two (2) directors, at least one of whom must be an individual. It must also ensure that an authorised representative in the BVI be appointed.

The approved investment manager is limited to having no more than US$400 million aggregate assets under management in respect of open-ended funds, and in case of closed-ended funds, no more than US$1 billion in aggregate capital commitments. Where an investment manager manages both open-ended fund and closed-ended fund, the aggregate assets under management in relation to the open ended fund and the amount prescribed for the closed- ended fund must be segregated and treated separately.

The Investment Manager must also perform only those functions specified in Regulations 9 of the Investment Business (Approved Managers) Regulations, 2012 as summarised below:-

  1. act as an investment adviser or investment manager to a private fund or professional fund;
  2. act as an investment adviser or investment manager to a closed-ended fund that is incorporated as a company, formed as a partnership or organized as a trust, under the laws of the Virgin Islands and has the characteristics of a private or professional fund;
  3. act as an investment adviser or investment manager to a person who is affiliated to a fund structure falling within paragraphs (a) or (b);
  4. act as an investment adviser or investment manager to such other person as the Commission may approve on a case by case basis upon application; and
  5. act as an investment manager or investment adviser to a person that -
    1. is incorporated as a company, formed as a partnership or organized as a trust, outside the Virgin Islands;
    2. has equivalent characteristics to a private fund, professional fund or a closed-ended fund; and
    3. invest all or a substantial part of its assets in one or more fund structures falling within paragraph (a) or (b).
Requirements to apply for a Mutual Fund / Investment Manager license in the BVI

The following is the listing of main information/documents required by the FSC from all applicants for a Mutual Fund license. The list below is not exhaustive; it is customary that during the review of the licence applications, the FSC would request further clarifications or statements from the applicants.

  1. Proposed names for the Fund and/or for the Investment Management company.
  2. Initial minimum size of the Fund at the commencement of operation.
  3. A BVI Business Company (BC) which is recognised by the FSC as a private of professional fund, must at all times have at least two (2) directors, at least one of whom must be an individual. Personal information and documents for each principal / director /manager of the Fund and the Management Company:
    • Clear certified copy of valid passport.
    • Personal resume (Curriculum Vitae), with emphasis on the professional experience.
    • One banker`s reference.
    • Two professional references.
    • Police clearance certificate (absence of criminal record).
  4. For each director, manager and controller of the fund: full business and professional background, including relevant experience, qualifications and any regulatory registrations.
  5. Identification and description of the proposed professional connections of the fund eg. Custodians, bankers, brokers, administrators, investment advisors, auditors, legal advisors.
  6. Description of the primary characteristics of the proposed fund eg:
    • Type of the Fund: public, private, professional?
    • Category of the Fund: open-ended, close-ended?
    • Limitations on advertising and marketing policy.
    • Limitations on number of investors.
    • Authorised share classifications.
    • Minimum subscription.
    • General rules for subscriptions and redemptions.
    • Limitations on minimum amount of investments ie. professional investors.
    • General description of who will be the prospective investors.
    • Restrictions on the geographical origin of investors, if any.
    • How shall investors be attracted, what services shall be offered?
    • Where will the actual place and location of business management be situated?
    • What managerial control procedures will be implemented?
    • Proposed structure of management fees.
    • Broad description of underlying investments (optional).
    • Restrictions to invest in any particular instruments, if any.
    • Proposed leverage.
    • Investment objectives and benchmarks that the fund will follow.
    • A broad description of the proposed investment strategies

In addition to the above, every applicant for a Mutual Fund Managers` license will also have to provide the following:

  1. Resources statement - description of the human resources and administrative facilities available to the applicant including details of the use of information technology. Also include details of any data security and back-up arrangements.
  2. Financial statements - if available, a copy of the applicant´s most recent audited accounts must be provided. If the Applicant is part of a group, the latest audited group accounts should also be provided.
  3. Business plan. This should include details of the following:
    • Brief resume of the applicant`s or the group`s history. A group structure chart showing the name and jurisdiction of all subsidiaries and the applicant will appear in the group. Indicate any regulatory authorities to which any group companies report. Include a brief description of the major sources of income for the group.
    • Business objectives of the applicant - include details of the types of services and products to be provided, the reason for establishing in the BVI, marketing strategy and marketing methods and markets to which services/products are to be offered.
    • Management and staff structure of the applicant: including a structure chart and a description of the responsibilities of each director and manager and a description of managerial control procedures and segregation of functions.
    • Projected financial position - a projected profit and loss account and balance sheet for the next two years, to be confirmed by the applicant`s auditor.

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