BVI Securities and Investment Business Act, 2010

Deadline for compliance is the 31st December 2010

On 17th May 2010 the Mutual Funds Act 1996 of the British Virgin Islands was repealed and replaced with the Securities and Investment Business Act, 2010 ("SIBA") and the Mutual Fund Regulations 2010 (the "Regulations"). SIBA was designed to bring the BVI into full compliance with international best practices, to fulfill its international obligations including those undertaken on admission to IOSCO in 2007, and to demonstrate a commitment to regulation appropriate for an OECD white-listed financial centre.

With respect to private and professional mutual funds SIBA has essentially codified existing practices already undertaken by BVI funds. Most of SIBA's provisions will not affect current operations of BVI private and professional funds. However certain amendments will need to be made to the offering documentation and memorandum and articles of association of private and professional funds which amendments are set out at 1 and 2 below.

Professional and private funds should also make sure that they comply with the director, auditor, functionary and custodian requirements set out at 3, 4, 5 and 6 below. Whilst most professional and private funds are probably already in compliance with these requirements we suggest that they be checked nevertheless.

The deadline for compliance with SIBA by BVI professional and private funds has been pushed back from its original date to 31 December 2010.

1. Private and professional fund investment warning

(i) Investment warning in offering document

The offering document for both professional and private funds must include in a prominent place an investment warning. Where a private or professional fund does not issue an offering document the investment warning must be provided to each investor in a separate document.

(ii) The Investment warning must indicate that:

  1. a) The fund has been established as a private or professional fund;
  2. b) In the case of a private fund, the fund is suitable for private investors only and that the fund is limited to 50 investors or any invitation to subscribe for interests in the fund may be made on a “private basis”* only;
  3. c) In the case of a professional fund, the fund is suitable for professional investors and with respect to each investor, a minimum initial investment of US$100,000 ( or such larger sum as may apply with respect to the fund) is required;

*In the past the Commission has stated that the making of invitations to as many as 300 persons might be considered an offering on a "private basis" if it can be demonstrated that the person made the invitations to specified persons and had no deliberate intention of making invitations to other persons.

  1. d) The fund is not subject to supervision by the BVI Financial Services Commission (the “Commission”) or by a regulator outside the BVI and that the requirements considered necessary for the protection of investors that apply to public funds do not apply to private or professional funds;
  2. e) An investor in private or professional fund is solely responsible for determining whether the fund is suitable for his investment need; and
  3. f) Investment in private or professional fund may present a greater risk to an investor than investment in a public fund.

(iii) Investment warning acknowledgement in subscription documents

Subscription documents need to contain a written acknowledgement by the subscriber that he has received, understood and accepted the investment warning.

2. Professional fund minimum investment & disclosure in constitutional documents

(i) change of minimum initial investment.

The minimum initial investment required for a professional fund has changed from:

 “ the initial investment in respect the majority of investors is not less than US$100,00”; to

“ the initial investment of each investor, other than ‘exempted investors’*, will be not less that US$100,000 or its equivalent in another currency.

With respect to professional funds in existence prior to SIBA coming into force, the minimum initial investment requirements of each investor does not have retrospective effect. In addition, language can be inserted into the constitutional documents of such professional funds to ensure that investors are fully advised as to the non-retrospective nature of this requirement.

(ii) professional investor disclosure in constitutional documents

 SIBA requires that the constitutional documents of existing professional funds be amended to disclose the fact that only professional investors+ may invest in professional funds.

+A “professional investor” is a person whose ordinary business involves, whether for that person’s own account or for the account of others, the acquisition or disposal or property of the same kind as the fund, or who has signed a declaration that he, whether individually or jointly with his spouse, has a net worth in excess of US$1,000,000 or its equivalent in another currency, and that he consents to being treated as a professional investor.

*An “exempted investor” with respect to a fund includes the manager, administrator, promoter or underwriter of the fund, and employee of the manager or promoter of the fund such other class or description of persons as the Commission may, by notice published in the Gazette, specify as exempted investors.

3. Directors requirements

Private and professional funds must have at least two directors, at least one of whom must be an individual.

Where a private fund or professional fund breaches the requirement to have at least two directors, the fund must notify the Commission in writing immediately.

4. Auditor requirements private and professional funds

Under SIBA private and professional funds must appoint an approved auditor for the purpose of auditing their financial statements. Private and professional funds must also prepare financial statements for each financial year that comply with one of the international accounting standards. They must also provide a copy of the audited financial statements to the Commission within six months after the financial year and relating to such extended period, not exceeding 15 months, as the Commission may approve in writing.

5. Functionaries

Professional and private funds must have (1) a fund manager; (2) a fund administrator; (3) a custodian and (4) an authorized representative.

The Commission may, on written application made by, or on behalf of, a private or professional fund, exempt the fund from the requirements to appoint a custodian or a fund manager. An application for such an exemption can be made together with the application for recognition a BVI mutual fund or at any subsequent time.

No person should be appointed as a functionary of a private fund or s professional fund unless at least seven day’s prior notification of the proposed appointment has been given to the Commission, although the Commission may agree to accept a shorter notice period.

6. Custodian

The custodian of a private fund or a professional fund must be a person who is functionally independent from the fund manager and the fund administrator.

In Circumstances where the Company acting as custodian is the same company as the fund manager or fund administrator, the fund in question can request the approval of the Commission for such a company to act as custodian. The company must have systems and controls in place
to ensure that the persons fulfilling the custodial role are functionally independent from the persons fulfilling the fund management or fund administrator roles.

If you have any queries please contact:

Antony Spencer
antony.spencer@lyntonspencer.com
Direct: +1 284 494 3361
Cell   : +1 284 542 7714
www.lyntonspencer.com