British Virgin Islands: Law of Offshore
Mutual Fund Law
All open-ended investment funds in the BVI are regulated under the Mutual Funds Act 1996. The Act came into force in January, 1998 and divides open-ended investment funds into a number of classes:
- Private Funds, being funds sold to no more than 50 investors on a private basis;
- Professional Funds, being funds sold to market professionals or individuals with net worth over $1m; and
- Public Funds, divided into 'ordinary' mutual funds sold to the general public and 'selective' mutual funds sold on a selective basis through intermediaries;
and applies differing levels of regulation to the three classes. All open-ended funds have to be 'recognised' or registered by the Investment Services Division of the Financial Services Commission. The Act also sets up a licensing regime for managers and administrators of mutual funds. Umbrella funds and funds of funds are both permitted. Closed-end funds are not covered by the Act.
The Act applies both to BVI funds and their administrators/managers, and to foreign funds distributed in the BVI and their local administrators or managers.
Private Funds: Offerings can be made to as many as 300 people as long as they were specifically targeted; more than 300 targets would probably breach the Act's definition of 'private'. Private funds have a statutory right to recognition; but they must be accepted as 'recognised' before commencing business.
Professional Funds: these are funds whose shares are made available only to professional investors, a majority of whom are initially investing not less than US$100,000 or currency equivalent. A professional investor is someone whose ordinary business involves transactions similar to the one being undertaken, whose net worth is at least US$1m or currency equivalent, and who has agreed to be treated as a professional investor. Professional funds also have a statutory right to recognition, but have 14 days after commencing business to obtain recognition.
Public Funds: these are funds which are neither private nor professional funds. Public funds must be registered, and may not make an offering to the public before they have published a prospectus which has been approved by their directors and which has been filed with the FSC. A public fund must have a custodian who is functionally independent of the fund's manager or administrator and must maintain accounting records and prepare audited financial statements yearly, keeping these records available to the FSC and all investors.
Selected Public Funds: The Public Funds (Sub-Class) Regulations 1997 defined a class of select public funds which are offered by a recognised investment provider under the BVI or another country's laws to individuals with whom the provider has a written agreement to offer an interest in the fund concerned. These funds benefit from a more flexible regulatory stance on the part of the FSC.
NB: This is an abbreviated statement of some of the main features of the BVI Mutual Funds Act and should not be used as the basis for making investment decisions, which require appropriate professional guidance.
In 2010, the Mutual Funds Act 1996 was replaced by Part Three of the Securities and Investment Business Act (SIBA), having largely the same effect. The new Act retains the same classification of funds. It is expected that Regulations will be issued under the new Act, which will include an audit requirement and the introduction of authorised representatives for funds without a significant presence on the BVI. Conyers Dill and Pearman said that hedge funds that are already recognized or registered under the Mutual Funds Act, 1996, need not take any action in respect of their existing licenses.
In June, 2010, the Financial Services Commission (FSC) sought industry input on the proposed Public Funds Code, which was being drafted pursuant to section 63(1) of the Securities and Investment Business Act, 2010 (SIBA).
When finalized, the Public Funds Code was to codify rules surrounding the impending introduction of public funds in the island, regulated by the Commission.
The Commission invited industry practitioners and other stakeholders to review, evaluate and comment on the proposed code, which was available on the Commission’s website, with a deadline of June 30, 2010.
With the review complete, the Financial Services Commission published the Public Funds Code 2010 in January, 2011. The Code came into force on 31 March 2011 and a transitional period for existing public funds to comply with the new regime ended on 30 June 2011.
The document codifies rules that will apply to Public Funds in such as areas as:
- Corporate governance;
- Policies and procedures;
- The segregation and safekeeping of Fund property;
- Valuation and pricing;
- Dealing and managing with functionaries;
- Record keeping;
- Relationship with, and reporting to, the Commission; and
- Disclosure to investors.