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Securities and investment business regulations in the British Virgin Islands

Contributed by O'Neal Webster
08 May, 2012

Contributed by O'Neal Webster [www.onealwebster.com]

It has been almost two years since the Securities and Investment Business Act, 2010 (‘SIBA’) in the British Virgin Islands (‘BVI’) was established – coming into effect on May 17th 2010. The BVI is the world’s largest offshore corporate domicile, and is known for its corporate flexibility, global acceptance and compliance with international standards. SIBA, along with its related regulations, continues to demonstrate the BVI’s commitment to appropriate and relevant regulations for BVI companies doing business globally.

SIBA’s primary objectives is to regulate persons carrying out investment business in, from or within the BVI, as well as regulate the public issuance of securities in a non-mutual funds context to persons located in the BVI. It has abolished the Mutual Funds Act, 1996, which has been replaced with Part III of SIBA and the Mutual Funds Regulations (‘MFR’) – the latter also coming into effect on May 17th 2010. Lastly, it has introduced a new market abuse regime covering insider dealing and market manipulation.

However, it should be noted that SIBA and the MFR have not made any substantial changes to the mutual funds regime in the BVI.

Investment Business

SIBA regulates investment business in, from or within the BVI. It makes sure that no person can carry out investment business of any kind, unless they are licensed by the BVI Financial Services Commission (‘FSC’) to do so. The types of activity that constitute an ‘investment business’ are broadly defined in Schedule 1 of SIBA as:

  • Dealing in investments
  • Arranging investment deals
  • Managing investments
  • Providing investment advice
  • Providing custodial services with respect to investments
  • Providing administrative services with respect to investments
  • Operating an investment exchange

Schedule 2 of SIBA provides for the exemption of certain types of investment activities from constituting investment business. It also excuses certain persons conducting investment business, from being required to hold an investment business licence under SIBA.

More importantly, SIBA covers any BVI company carrying out investment business anywhere in the world, and any person soliciting a person (including a BVI entity) in the BVI, in order to offer a service constituting an investment business.

For the purposes of SIBA, ‘investments’ are defined as including shares; interests in a partnership or fund; debentures; bonds; other debt instruments and derivatives; and other interests relating to such investments.

Once licensed, licensees are then required to implement a number of systems and controls for their business operation. These include requirements relating to the appointment and removal of directors; capital resources; changes to ownership structures; insurance; corporate governance; segregation of client assets; advertising; and rules on corporate and other administrative necessities.

SIBA is of particular relevance to people such as stockbrokers, investment managers, investment advisors, custodians and administrators. In order to assess whether SIBA can be applied to a particular situation, careful analysis of the regulations and the company’s business model is required.

Investment Funds

As of May 17 2010, the Mutual Funds Act 1996 was abolished and replaced with Part III of SIBA, the MFR and the Public Funds Code. Notwithstanding the introduction of SIBA, the fundamental structure of the BVI mutual funds regime has not changed. In fact, in many instances SIBA has merely codified existing FSC policies. This has been extremely beneficial to persons already familiar with doing business in the BVI.

Public Issues of Securities

Part II of SIBA introduced a new regime to regulate any person who wishes to offer issues of securities to ‘the public’ in the BVI. However, it does not include securities issued by mutual funds or offers to ‘qualified investors’ (which includes listed companies, FSC regulated entities, and persons having a close connection with the issuer and professional investors). Public offers that come within Part II of SIBA, must be based on a prospectus registered with the FSC, and comply with such requirements as prescribed by the FSC.

Public issuers have an ongoing obligation to register any amendments or supplements to a registered prospectus with the FSC, and are required to make available a copy to every person who received the original version.

Market Abuse

SIBA also introduced criminal offences for BVI based individuals who carry out insider dealing, market manipulation, or make misleading statements relating to their investment business. These provisions have been put in place to bring the BVI in line with internationally accepted standards for the prevention of market abuse and similar financial crimes. To elaborate, insider dealing occurs where an insider – being a person in receipt of ‘inside information’ – deals in price-affected securities (or encourages another person to deal, or discloses the inside information to another person otherwise than in the course of employment). Committing the offences of misleading information and market manipulation, is when an individual makes a statement, promise or forecast he knows to be deceptive, dishonestly conceals any material facts, or recklessly makes a statement that is misleading, false or deceptive.

Going Forward

Since SIBA was incepted, several companies have already been registered in the various licence categories, but as with any new legislation, it is anticipated that there will be some changes in the future, to improve and refine some areas – namely, the current licence application process, and the introduction of possible further exemptions for niche or specialised areas.

Christopher Simpson
Counsel, Corporate Finance
O’Neal Webster
Telephone: 1 284 494 5808
Fax: 1 284 494 5811

The article is for informational purposes only and should not be construed as legal advice.
For further information please contact Christopher Simpson (csimpson@onealwebster.com).


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