The British Virgin Islands (BVI) is the world’s second largest offshore investment funds domicile with approximately 2,500 registered funds and growing. BVI funds are governed by the Securities and Investment Business Act, 2010 (Siba) and the Mutual Fund Regulations, 2010 both successors to the renowned and highly successful Mutual Funds Act of 1996.
Types of funds available
There are three basic categories of funds under Siba, namely: private funds, professional funds and public funds.
Private funds are limited to 50 investors and can only invite new investors on a private basis. Professional funds are limited to professional investors as defined under Siba. A professional investor for the purposes of Siba is one with a net worth of at least $1m or one who is in the business of dealing in investments similar to those with which the fund is concerned. Public funds are essentially retail funds and are open to all members of the public.
Professional funds tend to be the most popular as they are open to a wider investor base than private funds but do not attract the same level of scrutiny as public funds would.
Types of fund vehicles
While BVI funds can also be set up as limited partnerships or unit trusts, the preferred corporate vehicle is that of the BVI business company. The BVI business company is a separate legal entity from the investing shareholders and is structured as a limited liability company. BVI business companies are regulated by the BVI Business Companies Act, 2004 which has tremendous flexibility and serves to enhance a fund manager’s ability to customise a fund to suit its needs.
Advantages of BVI funds
There are many advantages a BVI fund structure can bring to an arrangement and some of these advantages include:
- Modern legislation– Siba (2010), BVI Business Companies Act (2004), Insolvency Act (2003)
- Legal system based on English law
- A dedicated commercial court
- No requirement for local directors, functionaries or auditors (which may be a requirement in other jurisdictions and can be costly)
- Low cost – attractive to start up and medium size funds when compared to some other jurisdictions
- Efficiency – a private /professional fund can be established within two to five days if a proper application is submitted to the BVI Financial Services Commission (BVIFSC)
- Professional funds can commence trading up to 21 days before being recognised by the BVI FSC
- No restrictions on investment policies and strategies or on performance fees or other arrangements
- Tax neutrality
- Segregated portfolio company funds available
- Exemptions available from the requirement to have an investment manager, custodian or auditor in certain limited circumstances In addition, there is significant corporate flexibility. One example being the ability for directors to approve changes to a BVI fund’s constitution without the need for investor approval and at the same time, the fund’s constitution can be structured to include controls on borrowing, requirements for regular meetings of investors and other controls that investors may find appealing. A BVI fund can, therefore, be tailored to meet the exact needs of the type of investor or type of investment that a fund manager is targeting.
Under Siba. each fund must have an investment manager, administrator, custodian and auditor. However, there is no requirement that any of these fund service providers be resident in the BVI. A BVI fund can therefore be set up and run using service providers from just about anywhere in the world. What’s more, these service providers do not need the approval of the BVIFSC if featured on a list of recognised jurisdictions published by the BVIFSC. The approved list includes leading jurisdictions such as the US, UK, Brazil, China, Hong Kong, Singapore and Australia, as well as many other notable jurisdictions. The BVIFSC can also on a case
by case basis, exempt providers from other jurisdictions (once it is satisfied that those jurisdictions have a proper regulatory regime in place).
Approved fund managers regime –fast-track approval
The BVIFSC is finalising its Approved Manager Regulations, which are likely to involve a seven-day, fast-track approval process for new fund managers raising assets of less than a defined threshold. This regime will take away much of the current burden and timeframe for approval of a fund manager in the BVI. When the regulations are in place it will be possible to set up a BVI fund and fund manager within as little as one week.
As a jurisdiction, the BVI has always taken the steps necessary to comply with international requirements for compliance and regulation while respecting the needs of its users globally. Siba is a reflection of that principle, as it complies with International Organization of Securities Commissions (IOSCO) standards but still leaves flexibility for fund managers. A collateral advantage of this is that the BVI fund industry is unlikely to see any significant changes to the regulations requiring funds to change the way they are doing business, or result in additional costs to meet new compliance standards. Any changes we are currently seeing are only designed to further enhance the attractiveness of BVI funds to current and potential users globally.