A new “regulation light” fund manager regime for the British Virgin Islands (BVI) is one step closer to launch with the publication on 1 November of the final form of the Investment Business (Approved Manager) Regulations, 2012 (“Regulations”).
The Approved Manager regime seeks to strike the right balance of flexibility and effective regulation taking into account the relative risk profile of the business carried on. The regime achieves this and will prove to be an attractive option for fund managers seeking to commence business quickly and in a cost effective manner.
But before the regulations can come into force some simple amendments are to be made to the Securities and Investment Business Act (“SIBA”) and the Approved Manager Guidelines and a template Application Form must be published by the Financial Services Commission. All this is in progress and the new regime is expected to go live in the coming weeks.
The new regime will offer a welcome alternative to fund managers and advisors domiciled or doing business in the BVI who are currently otherwise required to hold a full licence under Part I of SIBA. The new Approved Manager regime provides for eligible fund managers and advisors to submit a simple and short application to the Commission and then automatically commence business seven days later (unless the Commission raises an objection during that period). This contrasts to the current position where it will typically take the Financial Services Commission a minimum of four weeks to process an application for a Part I licence.
Under the Regulations, an Approved Manager can act as the investment manager or investment advisor to any number of private or professional funds recognised under SIBA as well as any number of closed-ended funds domiciled in the BVI which have the key characteristics of a private or professional fund. The Approved Manager can also act for non-BVI feeder funds into BVI master funds. The key restriction is that aggregate assets under management of all of the open ended funds can not exceed $400 million and the capital commitments of all of the closed ended funds cannot exceed an amount to be specified in the Guidelines. As closed ended funds are considered to expose the jurisdiction to a lower level of regulatory risk the Guidelines are widely expected to provide for the capital commitment restriction for closed ended funds to be significantly higher than $400 million.
While an Approved Manager will not be restricted to any material extent on the way it carries on business, the regime has been intentionally crafted to be a “licensing regime” rather than an entirely exempted activity. The Commission will have powers at its disposal to take enforcement action against the Approved Manager should it determine it is necessary to do so in order to discharge its function as a regulator.
An Approved Manager will be subject to a small number of ongoing obligations. The key obligations are as follows:
• An Approved Manager must have at least two directors at all times, one of whom shall be an individual.
• An Approved Manager is required to have an authorised representative regulated in the BVI.
• An Approved Manager is required to notify the Commission of any change to any of the information provided by the Approved Manager pursuant to its application for approval within 14 days.
• An Approved Manager shall notify the Commission of any matter in relation to it or its conduct, which has or is likely to have a material impact or significant regulatory impact with respect to the Approved Manager or its business.
• An Approved Manager is required to prepare and submit financial statements to the Commission. However, there is no audit requirement.
• An Approved Manager will be required to submit an annual return statement to the Commission by 31 January of each year containing summary details of the business it is carrying on.
More than 2,400 investment funds are registered in the British Virgin Islands making it the second largest domicile of offshore investment funds. The BVI is known for effective and well respected regulation while regulatory fees are significantly lower than competitor jurisdictions.
Ross Munro is global head of investment funds at Harneys. Munro is also chairman of the British Virgin Islands' Securities, Investment Business and Mutual Funds Advisory Committee (SIBAC) which has worked closely with the Financial Services Commission in the development of the new regime. Tim Bridges, based in Hong Kong, is an experienced Cayman Islands and BVI lawyer having qualified in Cayman in 2000 and in the BVI in 2007.