At the very end of last year, the BVI Financial Services Commission (FSC) issued the final version of the Public Funds Code, 2010 (the Code) following industry consultation during Summer 2010. As the name suggests, the Code applies to all public funds registered in the BVI under the Securities and Investment Business Act, 2010 (SIBA). The Code has no impact on private and professional funds. As with SIBA itself, the Code is intended to adapt the BVI’s regulatory and supervisory environment to be attuned to the new standards called for by the likes of the G20, IMF and IOSCO. In particular, in drafting the Code, the FSC has considered IOSCO’s Principles for the Valuation of Hedge Fund Portfolios and AIMA’s Guide to Sound Practices for Hedge Fund Valuation.  

Harneys has taken an active role in both the public consultation process as well as an earlier confidential consultation. Harneys is by far the leading adviser to public funds registered in the BVI. It is estimated that the firm acts for approximately 60 per cent of all registered public funds.  

The Code comes into force on 31 March 2011 although existing public funds have until 30 June 2011 to update their prospectuses to comply with the Code and the relevant provisions of SIBA and the Mutual Funds Regulations, 2010.  

The Code has the force of law. Breach of the Code by a public fund may result in enforcement action being brought by the FSC but will not amount to an offence actionable in the courts.  

There follows a high level summary of the provisions of the Code.

High level Principles

The Code sets out four principles by which a public fund must conduct its business:  

  1. Integrity
  2. Management and Control
  3. Investors’ Interests
  4. Relationship with Commission

The Code is designed to give practical effect to the Principles. The Explanatory Notes provide that a public fund is responsible for applying the Principles to its particular circumstances which may require adopting higher standards than is set out in the remainder of the Code to avoid being in breach of the Principles.


The Code requires that a public fund prospectus shall not contain any matter that is “unfairly prejudicial to investors generally or to any class of investors”. The Explanatory Notes contain statements regarding the ability of a public fund to amend its terms without shareholder approval. Specific matters that must be set out in a prospectus are listed in Schedule 1 to the Code.

Corporate Governance

A public fund must apportion responsibilities clearly between its governing body (for a company, the board of directors) and its functionaries and establish appropriate, regularly reviewed systems and controls. A public fund must have an adequate number of directors who are capable of independent judgement, have sufficient knowledge to ensure that the board is able to fulfil its responsibilities and have sufficient time and commitment to undertake their duties. The Code confirms that the governing body has ultimate responsibility for the business and affairs of the public fund and for ensuring the effectiveness of its organisation.  

Policies and procedures

A public fund shall establish clearly documented policies, appropriate procedures, systems and controls which shall be effectively communicated to its functionaries. These shall include policies and procedures for the identification and management of conflicts of interest.

Segregation and safekeeping of Fund Property

The custodial agreement must provide for the appropriate segregation of fund property and the taking of adequate measures by the custodian to ensure safekeeping of the fund property. All fund property is required to be transferred to or taken under the control of the custodian as soon as reasonably practicable after it is acquired.

A public fund shall have appropriate, clearly documented, policies and procedures for the issue and redemption of fund interests consistent with those set out in its constitutional documents and the prospectus.

Valuation and Pricing

A public fund shall have appropriate, clearly documented policies and procedures for the valuation of fund property. The Code recognises that in most cases it will not be practicable to set out the entire valuation policy in the prospectus. The valuation policy shall be reviewed whenever anything occurs that affects its validity and otherwise annually. The Explanatory Notes set out a non exhaustive list of matters that are typically included in the valuation policy (where a fund’s policy does not contain such items the onus will be on the fund to justify the omission). The persons controlling a public fund’s investment function must be independent of those controlling the valuation process and there should be (where appropriate) segregation of responsibilities between the people responsible for the process of valuing the fund property and those responsible for calculating the NAV to ensure independence in the application of the valuation policy. Ordinarily these functions should be undertaken by the fund administrator or a third party independent valuation service provider. An affiliate of the manager can act as administrator if the group structure ensures functional independence. If the manager is involved in the valuation process this must be fully disclosed in the prospectus. Assets must be valued at market value and wherever practicable verified against a primary and secondary source. Hard to value assets may be valued using pricing models to determine a fair value subject to approval by the board. If the valuation policy permits price overrides these must be independently reviewed and reported. The extent of the information on valuation available to investors must be disclosed in the prospectus.

Record Keeping

A public fund is to keep adequate and orderly records readily retrievable in the BVI including a retention policy setting out the period of time, method of storage and means of accessing those records.

Relationship with, and Reporting to, the Commission

A public fund is to disclose to the Commission any matter that might reasonably be expected to have a “significant regulatory impact” including, without limitation, suspension of valuations, dealings or redemptions; any matter that could impact on the ability of the fund to continue to carry on business; any relevant incidence of fraud or other criminal activity. A list of additional matters requiring notification to the Commission is set out in Schedule 2 to the Code.

Disclosure to Investors

A public fund is to give notice to investors of any change to investors’ rights that investors are not required to approve. Whenever practicable, such notice should be given prior to the change.