BRITISH VIRGIN ISLANDS: LAW OF OFFSHORE

On this Page:

- BRITISH VIRGIN ISLANDS TABLE OF STATUTES
- BRITISH VIRGIN ISLANDS TRUST LAW
- BRITISH VIRGIN ISLANDS BANKING LAW
- BRITISH VIRGIN ISLANDS INSURANCE LAW
- BRITISH VIRGIN ISLANDS MUTUAL FUND LAW

British Virgin Islands Table of Statutes

This is a non-exhaustive list of the main British Virgin Islands statutes affecting offshore and non-resident business. The statutes are listed in alphabetical order – click on the statute for a fuller description of the statute, the legal regime it forms part of, or in some cases the text of the law.

Anti-Money Laundering Code of Practice (2008)
Banks and Trust Companies Act 1990
British Virgin Islands Trustee Act
BVI Business Companies Act, 2004
Companies Act 1963
Financial Services (International Co-operation) Act 2000
Financial Services Commission Act 2001
Financial Services Commission (Amendment) Act of 2004
Financing and Money Services Act, 2009
Hotel Aid Ordinance
Insurance Act 1994
Insurance Regulations 1995
International Business Companies Act 1984
International Business Companies (Amendment) Act 1990
International Business Companies (Amendment) Act 2002
International Business Companies (Amendment) Acts of 2003 and 2004
Limited Partnerships Act 1996
Mutual Funds Act 1996
Pioneer Services and Enterprise Ordinance
Property (Miscellaneous Provisions) Act, 2003
Public Funds (Sub-Class) Regulations 1997
Securities and Investment Business Act 2010
Trustee Amendment Act 1993
Trustee (Amendment) Act, 2003
Trustee Ordinance 1961
Virgin Islands Special Trusts Act, 2003

The British Virgin Islands (BVI) Government established an independent regulatory body - the Financial Services Commission (FSC) - on 1 January 2002.

The formation of the FSC saw the division of the marketing and regulatory functions within the BVI offshore financial services centre. In practical terms the formation of the FSC means maintenance of the clear regulatory standards set out in previous legislation such as the Anti-Money Laundering Code of Practice (2000) and the Financial Services (International Co-operation) Act 2000. The FSC's primary functions include:

• Protecting consumers by ensuring that all firms, individuals etc. authorised to provide financial services in and from the BVI are competent and financially sound;
• Promoting improvements in public understanding of the benefits and risks associated with financial products;
• Instigating and pursuing action, including the imposition of fines, and issuing "cease and desist" orders;
• Monitoring, detecting and preventing financial crime, as well as assisting in the prosecution of crime;
• Pursuing these objectives in a way that is economic and efficient and which ensures that costs and restrictions on firms are proportionate to the benefits of regulation;
• Facilitating innovation in Financial Services in the jurisdiction;
• The new FSC ensures that all BVI companies comply with the same standards. The regulator is required to do more than simply administer and enforce the law, it is relied upon to provide guidance within the financial services industry.

2004 saw the official launch of the Financial Investigation Agency, marking what the government hopes is an important step towards curbing financial crime. The agency was enacted by the Legislature on December 30, 2003 and will function as a specialist investigative law enforcement arm of government. Its primary focus will be to investigate the BVI financial services industry and support the BVI mutual legal assistance regimes.

Highlighting the agency’s launch as an example of the territory’s dedication to upholding international initiatives to combat financial crime, Chief Minister Orlando Smith commented: “This commitment is the foundation of our entire financial industry and, I can assure you, it will always be a top priority for this Government”.

The FIA took over the role formerly carried out by the Royal Virgin Islands Police Force.

In 2008, the BVI updated its anti-money laundering and terrorist financing regime with the issuance of a new code of practice on 20th February, in accordance with powers granted under Section 27 of the BVI Proceeds of Criminal Conduct Act, 1997.

The Code replaces the Guidance Notes on the Prevention of Money Laundering, issued in 1999, and mandates that relevant businesses and professionals must take particular measures to prevent, deter and tackle money laundering and terrorist financing.

In a statement accompanying the announcement of the new code, the FSC explained that:

"To protect its integrity and reputation as a well-regulated international finance centre, the BVI has adapted to the changing global environment and taken necessary measures to deter and confront financial crime.

"This enhanced and improved regulatory regime complements the BVI’s current robust international cooperation framework and effectively provides a sufficient check against the activities of persons involved in financial crimes."

The BVI’s current legislative arsenal of protection from financial crime now includes the Drug Trafficking Offences Act, 1992, Proceeds of Criminal Conduct Act, 1997, Anti-Money Laundering Regulations, 2008, Anti-Money Laundering and Terrorist Financing Code of Practice, 2008 and the Non-financial Business (Designation) Notice, 2008.

In December 2008, the British Virgin Islands received praise in a Caribbean Financial Action Task Force Evaluation Report.

The report concluded that the BVI is largely compliant with the FATF 40+9 Recommendations and that, as a territory, it has maintained a robust public policy commitment to ensuring that it plays its part in the global fight against money laundering and the financing of terrorism.

According to the BVI Financial Services Commission, the CFATF report highlighted the efforts undertaken by the BVI since the last CFATF mutual evaluation of the Territory in 2002 to ensure compliance with established Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) principles and the Territory’s commitment to the establishment of standards in legal, law enforcement, regulatory and international cooperation matters.

The British Virgin Islands Financial Services Commission (FSC) has published details of its Approved Persons Regime, which entered into force on March 2, 2009, following approval by the Board of Commissioners on January 20 of that year.

The guidelines, which were published by the FSC on February 18, 2009, are designed to assist the regulator in "the consideration and approval of applications for the appointment of senior officers, including applications relating to the approval of actuaries, auditors and other independent officers pursuant to any financial services legislation."

The guidelines also outline senior officer duties and responsibilities and incorporate a set of rules governing the process and procedure for the approval of senior officers of a regulated person and actuaries, auditors and other independent officers.

According to the guidelines, a suitable candidate for a senior officer position must be "qualified and have appropriate experience." In order to be appointed as a senior officer, a candidate must also demonstrate "a high level of competence and integrity." Additionally, before granting approval of an application for a senior officer, the Commission must be satisfied that the candidate is "fit and proper" in accordance with the criteria established in the Commission’s 'Guidance Notes on Fit and Proper Test.'

The introduction to the guidelines states:

"The Commission exercises judgement and discretion in assessing fitness and propriety and takes into account all relevant matters including honesty, integrity, reputation, competence, expertise, experience, capability and financial soundness. These criteria have equal application to the consideration of applications for the approval of actuaries, auditors and other independent officers, whose qualifications and experience are generally covered under their respective applicable financial services legislation."

In January, 2010, the Financial Services Commission announced the coming into force of the Financing and Money Services Act, 2009, which lays a legislative framework for the licensing, regulating and supervision of persons who engage in the provision of money or value transfer services. The Act will bring the BVI into full compliance with the Financial Action Task Force’s Recommendation 23, which inter alia requires that natural and legal persons who provide money or value transfer services or money or currency-changing services should be licensed or registered.

The Financing and Money Services Act establishes a transition period of six months from the date the Act comes into force for existing business to make the required application for licensing to the Commission. The Commission is urging all persons with business activities that now fall within the ambit of the Act to contact the Commission as the commencement of the regime for licensing makes it an offence to carry on those activities without a license.

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British Virgin Islands Trust Law

BVI Trusts are formed under the Trust Ordinance 1961 (based on the English Trustee Act 1925), as updated and amended by the Trustee Amendment Act 1993.

Since the 1993 Act, there is no requirement for registration of trusts in the BVI, and there is no public disclosure of information regarding trusts. Trust duty of $50 is payable on each trust instrument, which is achieved by buying and affixing stamps, creating no record.

Due to the Amendment Act, the regime for trusts in the BVI is very flexible. The following are some of the main features of BVI trust law:

• the proper law of a trust can be specified by the trust instrument; in the absence of a specified jurisdiction, a trust will be under BVI legislation if the trustee or the trust administration is situated in the BVI;
• trusts can migrate into and out of the BVI; but outwards migration is only possible if the 'receiving' jurisdiction recognizes the validity of the trust;
• purpose trusts are permitted in perpetuity and must have at least one BVI trustee (resident professional or equivalent);
• the perpetuity period can be set at 100 years, but 'lives in being' is still possible;
• 'wait and see' provisions are included as standard;
• 'protectors' are explicitly permitted, and their powers are clearly defined;
• forced heirship provisions are excluded;
• trustees may be given wide discretionary investment powers;
• BVI trusts are exempt from all taxation provided that there is no resident beneficiary and no BVI assets.

The Banks and Trust Companies Law 1990 introduced licensing for companies providing trust services. Trust licenses are as follows:

• A General Trust License permits services to be offered generally; the minimium paid-up capital is $250,000 and a deposit of $20,000 must be made as prescribed by the Governor; the annual license fee is $10,000.
• A Restricted Trust License restricts the provision of services to those undertakings specified in the license. There are no minimum capital or deposit requirements; the annual license fee is $300.

Amendments to the licensing legislation in 1995 incorporated 'gateways' which provide for the disclosure of information to the regulatory authorities and law enforcement agencies in other countries to assist the investigation of illegal or criminal activities. The BVI authorities however do not respond to 'fishing expedition' enquiries from other jurisdictions.

The BVI's trust regime was substantially updated in 2004 with three pieces of legislation.

The Virgin Islands Special Trusts Act, 2003 (VISTA)

The 'VISTA' law allows BVI trusts to exclude the so-called “prudent man of business rule” which has traditionally made the trust an unattractive vehicle to hold long-term assets and requires trustees to monitor and intervene in the affairs of underlying companies. The Act enables a shareholder to establish a trust of his company that disengages the trustee from management responsibility and permits the company and its business to be retained as long as the directors think fit.

The legislation permits the entire removal of the trustee’s monitoring and intervention obligations (except to the extent that the settlor otherwise requires); permits the settlor to confer on the trustee a duty to intervene to resolve specific problems (eg a deadlocked board); and allows trust instruments to lay down rules for the appointment and removal of directors (so reducing the trustee’s ability to intervene in management by appointing directors of its own choice).

Some of the features of the new Act are as follows:

• The Act does not apply to BVI trusts generally: it only applies where there is a provision in the trust instrument directing the Act to apply.
• Where the new Act applies, designated shares will be held on “trust to retain” and the trustee’s duty to retain the shares as part of the trust fund will have precedence over any duty to preserve or enhance their value. The trustee will not therefore be liable for the consequences of holding (rather than disposing of) the shares.
• The Act specifies that, subject to any contrary provisions in the trust instrument, unless the trustee is acting on an “intervention call” (as defined in the Act), the trustee may not exercise its voting or other powers so as to interfere in the management or conduct of any business of the company; the management or conduct of the company’s business will be left to those appropriate to deal with it, namely its directors, whose fiduciary duties to the company remain intact, except to the extent that the trustee/shareholder is refrained qua trustee from exercising some of the powers of a shareholder.
• The new statute also provides that the trust instrument may include “office of director rules” specifying how the trustee must exercise its voting powers in relation to appointment, removal and remuneration of directors, and the trustee is generally required to follow these rules. Except in compliance with these rules, the trustee must generally take no steps to procure the appointment or removal of the company’s directors.
• The Act further provides that the trust instrument may specify that the trustee may intervene in the affairs of the company in specified circumstances, ie when required to do so by an “intervention call” by a beneficiary, an object of a discretionary power of appointment, a parent or guardian of either of them, the Attorney General (in relation to charitable trusts), the enforcer (in relation to purpose trusts) or other specified persons.
• The Act specifies that (unless the trust instrument provides otherwise) the trustee is permitted to dispose of designated shares in the management or administration of the trust fund, but can only do so with the consent of the directors of the company (and that of such persons as are specified in the trust instrument).
• The new statute contains provisions enabling beneficiaries, directors and others to apply to the court for enforcement of the terms of the Act and, on the application of a specified person, the court is empowered to authorise the trustee to sell designated shares where retaining them is no longer compatible with the wishes of the settlor.
• The Act is confined to shares in BVI International Business Companies and Companies Act companies.
• The trustee of a VISTA trust must be a company which holds a licence to undertake trust business under the Banks and Trust Companies Act, 1990.

The Trustee (Amendment) Act, 2003

This Act makes a substantial number of amendments to the Trustee Act, including the following:

• With a view to making BVI trusts significantly more attractive in the commercial context, including a new section (which will only apply if there is a statement to this effect in the trust instrument) which enables trustees to create various forms of charges of trust assets in favour of creditors.
• The Act repeals section 83 of the Trustee Act and replaces it with a new set of conflict of laws rules relating to trusts. The new section contains robust, comprehensive and carefully crafted provisions protecting BVI trusts (and dispositions to their trustees) against “forced heirship” claims, which also prevent foreign judgments based on such forced heirship claims from being recognised or enforced in the Territory.
• The BVI’s purpose trusts legislation has been comprehensively overhauled in the light of amendments which have been made to other offshore jurisdictions’ legislation, various commentaries which have been written by experts and some issues which have arisen in practice since this legislation was originally introduced.
• Section 92 of the Trustee Act, which deals with the payment of trust duty has been replaced by a comprehensive new section which makes it clear what documents are subject to trust duty and how this must be paid.
• Trusts which are exclusively charitable are now exempted from trust duty; but the section includes a modest increase in duty from $50 to $100.
• The Act includes a number of further sections dealing with charities, variation of trusts, illusory appointments, the power to compromise claims, flee clauses and the jurisdiction of the BVI’s courts.

Property (Miscellaneous Provisions) Act, 2003

This Act abolishes the requirement that deeds executed by individuals need to be sealed.

In July, 2005, the BVI said it would amend its trusts legislation so that special trust vehicles can hold shares in private trust companies (PTCs), thus broadening the appeal of the vehicles.

The Virgin Islands Special Trusts Act (VISTA), which came into effect in March 2004, allows trustees of VISTA trusts which hold a shareholding in a BVI International Business Company to disengage the trustee from management responsibilities.

It is anticipated that the legislation will be amended to enable applications for exemption from trust licensing to be made when an unremunerated PTC is not offering its services to the public.

"Once this amendment comes into effect, the BVI financial services industry expects a great deal of use will be made of Vista trusts as charitable or non-charitable purpose trusts to hold shares in PTCs," noted Christopher McKenzie, partner of law firm Walkers.

In July, 2010, the Financial Services Commission noted amendments to the Banks and Trust Companies Act, 1990, and the Companies Management Act, 1990.

Among the legislative amendments proposed, of particular note are powers to enable the Commission to review licenses granted in respect of trusts regulated in the British Virgin Islands. The move, the Commission said, is to be made to bring the territory’s regime in line with international best standards. The new provisions, the Commission said, would improve synergies between the Banks and Trusts Companies Act, 1990, and the Companies Management Act, 1990.

In particular, the amendment will allow the FSC to revoke and re-evaluate licenses granted in respect of trusts. Licenses could be altered on request or where certain factors initiate such a move, namely: changes in the activities of the licensee; competence; compliance culture; or other ‘relevant factors’. Other amendments to the Acts would review vesting provisions, to address the transfer, sale or disposition of any of a licensee’s operations.

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British Virgin Islands Banking Law

The British Virgin Islands banking sector, which has been limited to a small number of international banks as part of the BVI's determination to exclude money-laundering, is regulated under the Banks and Trust Companies Act 1990 (The Act).

Under The Act, banks are licensed in three categories:

• A General Banking License permits all forms of banking activity; the minimum paid-up capital must be $2m, and the bank must deposit $500,000 in a way prescribed by the Governor. The annual fee is $20,000.
• A Class 1 Restricted Banking License permits international business only; a licensee may not transact business with BVI residents, other than another licensee or an IBC; the minimum paid-up capital is $1m and $500,000 must be deposited as the Governor requires. The annual license fee is $16,000.
• A Class 2 Restricted Banking License permits the conduct of banking business only with counterparties named in the license; the minimum paid-up capital is $1m and $500,000 must be deposited as the Governor requires. The annual license fee is $16,000.

Amendments to The Act in 1995 incorporated 'gateways' into the legislation which provide for the disclosure of information to the regulatory authorities and law enforcement agencies in other countries to assist the investigation of illegal or criminal activities. The BVI authorities however do not respond to 'fishing expedition' enquiries from other jurisdictions.

Banks are supervised by the Inspector of Banks, Trusts and Company, an official of the Financial Services Commission, which was created by the BVI Government as an independent regulatory body on 1 January 2002.

The establishment of the FSC followed recommendations published in 2000 by KPMG, which identified the key components of a well-run financial centre. The establishment of an independent regulatory authority satisfies these KPMG requirements.

The formation of the FSC saw the division of the marketing and regulatory functions within the BVI offshore financial services centre. In practical terms the formation of the FSC means maintenance of the clear regulatory standards set out in previous legislation such as the Anti-Money Laundering Code of Practice (2000) and the Financial Services (International Co-operation) Act 2000(subsequently updated with the issuance of a new Anti-Money Laundering Code of Practice in 2008).

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British Virgin Islands Insurance Law

The Insurance Act 1994 and the Insurance Regulations 1995 establish the regulatory and supervisory regime for insurance, including captives, in the BVI. Insurance licenses are issued by the Insurance Division of the Financial Services Commission, and distinguish between Long Term, General and 'Credit Life' insurance companies. Insurance professionals (agent, broker, adjuster, etc) need to have a Certificate of Authority issued by the FSC. Day-to-day supervision of the insurance sector is exercised by the Director of Insurance, an official of the Financial Services Commission.

The minimum paid-in capital required is $200,000 for Long Term business, $100,000 for General business, and $300,000 for both. 'Credit Life' companies require capital of $10,000.

The minimum solvency margin for Long Term business is $250,000. For General business the margin is calculated according to Net Premium Income (NPI): for NPI up to $1m, the margin is $100,000; for NPI between $1m and $5m, 20% of NPI; plus 10% of any NPI above $5m.

In considering the issue of a license, the authorities will take into account the demonstrated skills of the proposed management, and the viability of the business plan presented as part of the application. Applicants must either be already incorporated, or a Lloyds underwriter

Amendments to BVI insurance legislation in 1995 incorporated 'gateways' into the rules which provide for the disclosure of information to the regulatory authorities and law enforcement agencies in other countries to assist the investigation of illegal or criminal activities. The BVI authorities however do not respond to 'fishing expedition' enquiries from other jurisdictions.

Licensed insurers must maintain a principal office in the jurisdiction and must appoint an insurance manager resident in the BVI. Audited annual accounts have to be filed with the Commissioner within 3 months of the end of an accounting period.

The Insurance (Amendment) Act, 2002 makes provision for segregated portfolio companies. A segregated portfolio company (sometimes referred to as a protected cell company) is an entity that allows each portfolio or cell to have legal separation of assets. Thus, the assets and liabilities within a segregated portfolio would be segregated from the assets and liabilities of other segregated portfolios and those assets and liabilities of the company that are not held in any segregated portfolio. The creation of segregated portfolios is subject to the approval of the Financial Services Commission.

In January, 2010, the Financial Services Commission announced the coming into force of the Insurance Act, 2008. The new Insurance Act replaces the Insurance Act, 1994. The Insurance Regulations, 2009, which were gazetted on December 22 replace the Insurance Regulations, 1995. The Insurance Regulations were made by Cabinet, acting on the advice of and in consultation with the Commission, according to powers granted by section 82 of the Insurance Act, 2008.

The Insurance Regulations, 2009, provide more details for classifications for insurance business, maintenance of registers, and specifications for what constitutes public record.

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British Virgin Islands 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:

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.

Professional Funds: these are funds whose shares are made available only to professional investors, a majority of whom are initially investing not less than $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 $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 is being drafted pursuant to section 63(1) of the Securities and Investment Business Act, 2010 (SIBA).

When finalized, the Public Funds Code will codify rules surrounding the impending introduction of public funds in the island, regulated by the Commission.

The Commission has invited industry practitioners and other stakeholders to review, evaluate and comment on the proposed code, which is available on the Commission’s website, with a deadline of June 30, 2010.

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.

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