On Tuesday 16 June, the Financial Services Commission released drafts of the Securities and Investment Business Act, 2009 (“SIBA”) and the Mutual Funds Regulations, 2009 (the “MFR”) for public consultation.
To summarise, SIBA proposes the following:
- A new investment business licensing regime to regulate investment advisors, broker-dealers, market makers, custodians and operators of investment exchanges.
- Adoption of restrictions on, and regulation of, public issues of securities in a non-mutual funds context.
- Repeal of the Mutual Funds Act 1996 and replacement with Part III of SIBA and the MFR.
- Introduction of a market abuse regime which provides for offences of insider trading, circulating misleading information and marketing manipulation.
The FSC has asked industry participants to provide comments on, and suggested amendments to, this draft of SIBA and the MFR before 7 July 2009.
Part I – Investment Business regime
Any person carrying on “investment business” in or from within the BVI will be required to hold a licence, issued by the FSC, covering the relevant categories of investment business. Investment business is defined by reference to certain “investment activities” in relation to “investments”. These terms are set out in detail in Schedules 1 and 2 of SIBA. It is important to note that the scope of SIBA includes:
- any BVI Business Company which carries on investment business anywhere in the world even if the only link with the BVI is the location of its registered office; and
- any person who solicits a person in the BVI (including BVI companies) in order to offer the investment service.
Non-BVI persons should take note of this new legislation as it has the potential to capture cross-border business involving a BVI company or individual. That said, as a result of certain exclusions in SIBA, a non-BVI person providing investment services to a BVI Business Company whose only link with the BVI is the location of its registered office is unlikely to fall within the scope of the new regime.
Once licensed, firms will be required to implement a number of systems and controls for the operation of their businesses, in particular rules on corporate governance, the control of advertisements, approved persons regime, conduct of business rules and other administrative requirements. Further regulations are also due to be implemented in the forthcoming BVI Regulatory Code.
Part II – Public Issues of Securities
Part II of SIBA introduces a new regime for any company that wishes to issue securities to “the public” in the BVI. If within the scope of the new regime, the firm issuing securities will be required to register a prospectus with the FSC and to comply with a number of requirements to be set out in a forthcoming “Public Issuers Code”. The FSC has made it clear to us that this regime is not intended to be extra-territorial i.e. an “international” BVI Business Company will not be restricted from offering its securities outside of the BVI. The FSC has also indicated that foreign issuers should not be restricted from offering securities to “international” BVI Business Companies. We believe further work is required on the drafting (some of which is likely to be in secondary legislation) but, on this basis, we believe that very few issues of securities will fall within the scope of the new regime.
Issues of securities by mutual funds registered or recognised under SIBA do not fall within the new public issuer regime. In addition a number of exclusions exist where the offer is made to “Qualified Investors” (which includes listed companies, FSC regulated entities, persons having a close connection with the issuer and professional investors).
Part III – Mutual Funds
The Mutual Funds Act, 1996 is to be repealed and replaced with Part III of SIBA and the MFR.
The general structure and landscape of the BVI mutual funds industry is to remain with the categories of public, private and professional funds being retained. Investment managers and fund administrators will be licensed under Part I of SIBA. Many of the proposed changes codify current FSC practice but particular points to note are as follows:
- A general audit requirement for private and professional funds although funds may apply to be exempt from this requirement.
- The minimum initial investment for professional fund of $100,000 will apply to all investors other than certain exempt investors (primarily functionaries and their employees) rather than applying to a majority of investors as is currently required.
- All funds and licensed managers and administrators will be required to have an authorised representative unless it has a “significant management presence” in the BVI.
- General requirement for private and professional funds to have an offering document and to appoint a manager, administrator and custodian (note that the FSC may exempt the fund from all of these requirements other than the requirement to have an administrator).
- A requirement to notify the FSC of various matters including changes of directors and functionaries and updates to offering documents.
Part V – Market abuse
SIBA will introduce criminal offences in the BVI for persons conducting insider dealing, market manipulation and misleading statements.
Insider dealing occurs, in summary, where an insider, 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 his employment).
A person commits the offences of misleading information and market manipulation, in summary, where he makes a statement, promise, forecast he knows to be deceptive, dishonestly conceals any material facts or recklessly makes a statement which is misleading, false or deceptive. Fines of up to $50,000 and prison terms of up to three years may be levied on persons found guilty of these new crimes.