Digital markets, funding and payment servicesi Crowdfunding
The recent amendments to the FMSA appear designed to cover crowdfunding, and a Class F licence under FMSA would be required to the extent that the activity constitutes P2P, P2B or B2B lending or finance.ii Collective investment schemes
As noted above, mutual funds are regulated by the FSC under SIBA and the Mutual Fund Regulations 2010. In general, only open-ended funds are regulated. Closed-ended funds are not required to be registered, although other regulatory aspects (such as anti-money laundering/combating the financing of terrorism (AML/CFT) regulations) will still apply.
While there are three types of funds set out under the SIBA – public funds, private funds and professional funds – private and professional funds are by far the most popular.
A private fund is a fund whose constitutional documents specify that either:
- it will have no more than 50 investors; or
- the making of an invitation to subscribe for interests is to be made on a private basis; in other words, the invitation is made:
- to specified persons (however described) and is not calculated to result in shares becoming available to other persons or to a large number of investors; or
- by reason of a private or business connection between the person making the invitation and the investor.
A professional fund is a fund that is only available to professional investors (i.e., persons (1) whose ordinary business involves, whether for its own account or the account of others, the acquisition or disposal of property of the same kind as a substantial part of the property of the fund; or (2) whose net worth (whether individually or jointly with his or her spouse) exceeds US$1 million and who consents to being treated as a professional investor). A professional investor's initial investment must be at least US$100,000 or its equivalent in another currency.
Both a private fund and a professional fund are very similar from a regulatory and cost perspective. However, a professional fund can prove useful as it may carry on business for up to 21 days prior to being recognised by the FSC, provided that the application for recognition is submitted to the FSC within 14 days of the launch of the fund.
The recognition or registration procedure for funds with the FSC is relatively straightforward, requiring the submission of:
- evidence of the formation of the entity (i.e., copies of the certificate of incorporation and memorandum and articles of association for a company);
- a completed application form and offering document; and
- evidence of the type of fund, for instance, an extract of the subscription agreement showing the professional investor declaration referred to above.
Any private or professional fund that intends to make an offer of its interests or shares must include the prescribed investment warning in a prominent place in the offering document. The subscription agreements must include a written acknowledgement from any new investor that it has received, understood and accepted the investment warning. Professional funds should also include statements in their constitutional documents as to its professional fund status.
A private or professional fund must appoint a manager, an administrator and a custodian (although application may be made to the FSC to exempt a fund from appointing a manager or custodian). Such funds are also required to have two directors, but they need not be resident in BVI and appoint a local authorised representative who will accept service on behalf of the fund in the BVI.
Recently, two newer categories of funds have been introduced and are proving very popular in the start-up and initial fundraising stages. Incubator funds and approved funds were introduced in the BVI under the Securities and Investment Business (Incubator and Approved Funds) Regulations 2015.
An incubator fund has a minimum investment requirement of US$20,000, a cap on net assets of US$20 million and limit of 20 investors. An incubator fund does not need to appoint an administrator, custodian, investment manager or auditor.
An approved fund has a net assets cap of US$100 million and no more than 20 investors are permitted, but with no minimum investment criteria. An approved fund may operate without appointing a custodian, investment manager or auditor, but will need an administrator.
An incubator fund or approved fund can commence business two days from the date of receipt of a completed application by the FSC. An incubator fund has a limited life of two years, which can be extended for up to 12 months. An approved fund has no such limits. An incubator fund can convert to an approved fund, a private or professional fund, or may wind up at the end of its term.
Corporate mutual funds are the most common vehicle and are managed by their directors of which there should be a minimum of two. However, the day-to-day operations of a mutual fund will normally be delegated to other specialist professionals.Payment services
As noted previously, payment services would fall under the FMSA. Anyone seeking to operate a payment service ought to consider the obligations arising under the FMSA.