The BVI Securities and Investment Business Act, 2010 (“SIBA”) and its associated legislation requires most persons regulated under SIBA to prepare financial statements and for such statements to be audited. This guide provides a summary of the requirements for regulated persons as well as auditors.

The accounting and audit requirements vary depending on whether the regulated person is:

  • an investment business licensee (including investment managers, administrators, arrangers, advisors, dealers and custodians);
  • a recognised private fund or professional fund; or
  • a registered public fund.

We deal with each in turn:

A: INVESTMENT BUSINESS LICENSEE (A “LICENSEE”)

Sections 68 to 80 of SIBA apply to only a “relevant licensee”, defined as a Licensee which is a BVI undertaking. A Licensee which is not a BVI undertaking is not subject to these sections save that section 80 enables the Financial Services Commission (the “Commission”) to require, by written notice, a non-BVI undertaking Licensee to appoint an auditor and to submit financial statements to the Commission. As the vast majority of Licensees are BVI undertakings, the following sets out the requirements for a “relevant licensee”.

A1. Must a Licensee prepare financial statements?

Yes. Section 70 of SIBA requires that a Licensee prepare financial statements for each financial year which comply with prescribed accounting standards. See paragraph A7 below for more detail of the form and content of the financial statements.

A2. Must a Licensee appoint an auditor?

Yes. Section 75(1) requires a Licensee to appoint and at all times have an auditor for the purposes of auditing its financial statements. If an existing auditor ceases to act for any reason, a Licensee has two months to appoint a replacement (section 75(8)). See paragraph A5 below for the requirements for the auditor and paragraphs A4 and A6 below for the process of appointment.

A3. Is a Licensee required to submit its financial statements to the Commission and, if so, in what form and when?

Yes, subject to the following paragraph. Section 71 requires a Licensee to submit the financial statements to the Commission within 6 months of the end of the financial year to which they relate and such financial statements must be accompanied by an auditor’s report, a director’s certificate in the approved form and a report on the affairs of the Licensee to the members of the Licensee. The Commission has published the “approved form” of the Director’s certificate which must be adopted (see Annex 2).

The Commission may, on the application of a Licensee and payment of a $500 fee, extend the deadline for submitting the financial statements in respect of a specific financial year by up to six months.

The first financial year of a Licensee is the period from the date of incorporation up until the next financial year end date specified in the application made to the Commission. Subsequent financial years are 12 months from the end of the previous financial year. However, the Commission may, on the application of a Licensee, direct that a specific financial year of a Licensee may be such different period not exceeding 18 months.

A Licensee may apply to the Commission for an exemption from the requirement to prepare and submit audited financial statements for a financial year under the Financial Services (Miscellaneous Exemptions) Regulations, 2010. An application for an exemption may only be made where the Licensee has not conducted any business activity in respect of its licence for that year or where the Licensee has conducted a business activity in respect of its licence for that year but forms the view that it has good reason for it not to be required to prepare and submit audited financial statements. Any such application must be made within specified periods and is only available on a year by year basis. It is important to note that there is no exemption available from the requirement to appoint an auditor.

A4. How does a Licensee appoint an auditor?

A Licensee may not appoint an auditor unless the auditor is qualified to act as the auditor (as prescribed by the Regulatory Code, 2009 (the “Regulatory Code”)), the auditor has consented to act and the appointment has been approved by the Commission prior to the appointment.

Prior approval is not required for the reappointment of an auditor appointed in respect of the previous financial year (unless the Commission has revoked its approval of that auditor).

The prior approval of the Commission is not required for a fund manager, fund administrator or fund advisor to appoint an auditor provided the Licensee gives not less than 14 days prior notice to the Commission of the intention to appoint and during such period the Commission does not object to the appointment. Such an auditor must still meet the qualifications under the Regulatory Code and consent to act.

The Licensee and the auditor must take reasonable steps to satisfy themselves that the auditor is independent of the Licensee and that the auditor has no conflict of interests with the Licensee. A Licensee may not appoint an auditor which it knows or ought to have known has a conflict of interest with the Licensee.

A Licensee may engage a BVI auditor only if the auditor meets the minimum professional indemnity insurance requirements set out in section 61 of the Regulatory Code.

A Licensee must provide notice of the appointment of an auditor to the Commission within 14 days.

A5. Who is qualified under the Regulatory Code to act as an auditor of a Licensee?

In contrast to some other jurisdictions, an auditor to a Licensee is not required to be BVI resident.

The auditor may be an individual, partnership or corporate entity. An individual auditor, or the majority of partners or owners in the case of firms, must be members of “recognised professional bodies” and eligible to be appointed as an auditor under the rules of that professional body.

The recognised professional bodies are:

  • the Institute of Chartered Accountants in England and Wales;
  • the Association of Chartered Certified Accountants (ACCA);
  • the Institute of Chartered Accountants of Scotland;
  • the Institute of Chartered Accountants in Ireland;
  • the Canadian Institute of Chartered Accountants; and
  • the American Institute of Certified Public Accountants.

The FSC may recognise other professional bodies on a case by case basis.

Further, if the Commission has approved an auditor of a Licensee which was previously licensed under the Mutual Funds Act, 1996 (now repealed by SIBA) but which does not qualify under the above criteria by virtue of the auditor being a member of a professional body which is not recognised above then such professional body will be deemed to be recognised for the purposes of that auditor only.

A6. What criteria does the Commission apply for the approval of an auditor and how is an application made?

Section 75(4) provides that the Commission will not approve the appointment of an auditor unless it is satisfied that it has sufficient experience and is competent to audit the financial statements of Licensee. The Regulatory Code requires that the Commission only approve the appointment of an auditor if it is satisfied that the auditor meets its fit and proper criteria.

An application for the approval for the appointment of an auditor to a Licensee must be made using Form B-1 and must be made by the Licensee (rather than the auditor). Form B-1 requires disclosure of detailed information about the auditor and requires the Licensee to submit a number of supporting documents (such as references and resumes). The Commission has published a list of “approved auditors” for the purposes of section 75(3)(b) – see paragraph C5 below with respect to Public Funds. Where the auditor is on the list of “approved auditors” or has been approved as an auditor of another Licensee, the Commission will not generally require supporting documents to be submitted but an application on Form B-1 must still be made for approval to be the auditor of a specific Licensee.

A7. What requirements are there as to the form and content of the financial statements of a Licensee?

The financial statements of a Licensee must comprise:

  • a statement of the financial position of the Licensee as at the last date of the financial year;
  • a statement of the financial performance of the Licensee in relation to the financial year;
  • a statement of cash flows for the Licensee in relation to the financial year; and
  • such statement relating to the prospects for the business of the Licensee as may be required by the accounting standards in accordance with which the financial statements are prepared;

together with any notes or other documents relating to the above matters.

The financial statements must be prepared in accordance with IFRS, US GAAP, UK GAAP, Canadian GAAP or such other accounting standards that may be approved by the Commission on a case by case basis.

When filed with the Commission, the financial statements must be accompanied by an auditor’s report, a director’s certificate in the approved form (see Annex 2) and a report on the affairs of the Licensee to the members of the Licensee.

A8. What obligations does the auditor have under SIBA?

Section 77(1) of SIBA requires an auditor of a Licensee to immediately report to the Commission any information relating to the affairs of the Licensee that it has obtained in the course of acting as its auditor that, in the auditor’s opinion, suggests that:

  • the Licensee is insolvent or is likely to become insolvent or is likely to be unable to meet its obligations as they fall due;
  • the Licensee is in breach of the financial resources requirement in SIBA;
  • the Licensee has significant weaknesses in its internal controls which render it vulnerable to significant risks or exposures that have the potential to jeopardise the Licensee’s financial viability;
  • a criminal offence has been or is being committed by the Licensee or in connection with the business of the Licensee; or
  • serious breaches of SIBA, the Regulatory Code or the Anti-Money Laundering regime have occurred in respect of the Licensee or in connection with the business of the Licensee.

B: PRIVATE AND PROFESSIONAL FUNDS (A “RECOGNISED FUND”)

B1. Must a Recognised Fund prepare financial statements?

Yes. Regulation 10(1)(a) of the Mutual Funds Regulations, 2010 require a Recognised Fund to prepare financial statements for each financial year. See paragraph B5 below for more details of the form and content of the financial statements. In addition, section 59 of SIBA requires a Recognised Fund to maintain records that are sufficient:

  • to show and explain its transactions;
  • at any time, to enable its financial position to be determined with reasonable accuracy;
  • to enable it to prepare financial statements and make such annual returns as it is required to prepare and make under SIBA and the Mutual Funds Regulations, 2010; and
  • if applicable, to enable its financial statements to be audited in accordance with SIBA.

B2. Must a Recognised Fund appoint an auditor?

Yes, subject to the following paragraph. Regulation 10(1)(b) of the Mutual Funds Regulations, 2010 requires that a Recognised Fund appoint and at all times have an auditor for the purposes of auditing its financial statements.

However, the Commission may, on written application, exempt a Recognised Fund from the requirement to appoint an auditor. In a presentation to the private sector on 16 March 2011, the Commission stated that the following criteria are used to determine whether a Recognised Fund should be granted an exemption:

  • the size of the Recognised Fund and its current circumstances;
  • the investment strategy, objectives and the complexity of the Recognised Fund;
  • the compliance culture of the Recognised Fund;
  • the competence of third party service providers to the Recognised Fund; and/or
  • the nature of the relationship between investors in the Recognised Fund and its principals (e.g. is it a family fund?).

No fee is payable to make an application for an exemption or on grant of the exemption.

B3. Is a Recognised Fund required to submit its financial statements to the Commission?

Yes, Regulation 10(4) of the Mutual Funds Regulations, 2010 requires a Recognised Fund to submit its audited financial statements to the Commission within six months after the financial year end. The Commission may grant an extension of up to nine months when it is satisfied that a further extension is justified by exceptional circumstances. Although not explicitly stated, the requirement to file audited financial statements under Regulation 10(4) must logically not apply to a Recognised Fund which has been exempted from the requirement to appoint an auditor.

The initial financial year end of a Recognised Fund is stated to the Commission when a fund applies to the Commission for recognition as a fund. There is no explicit provision dealing with the change of a financial year end of a Recognised Fund (section 68 of SIBA does not apply to a Recognised Fund) but we would expect that the Commission would not object to a Recognised Fund extending a financial year to a period not exceeding eighteen months.

A Recognised Fund may apply to the Commission for an exemption from the requirement to prepare and submit audited financial statements for a financial year under the Financial Services (Miscellaneous Exemptions) Regulations, 2010.

B4. How does a Recognised Fund appoint an auditor?

A Recognised Fund may only appoint an auditor that is qualified to act as an auditor under the Regulatory Code.

The Regulatory Code only specifies the qualifications for auditors of SIBA licensees (see paragraph A5 above). As the Regulatory Code does not expressly specify qualifications for auditors of Recognised Funds, there has been some confusion as to whether the qualifications for auditors of Licensees also apply to auditors of Recognised Funds. In its Industry Circular dated 22 December 2011 (see paragraph B5 below) the Commission indicated that the auditor of a Recognised Fund was not subject to any specific qualifications provided that the financial statements were prepared to specific accounting standards and the audit undertaken to specific standards. However, in any event, the Commission also announced that for the then current financial year (i.e. any financial period of not more than 12 months ending on or after 22 December 2011), the existing auditor of a Recognised Fund will be treated as qualifying to act as auditors for and in respect of private and professional funds.

Notice of the appointment of an auditor must be made to the Commission within 14 days (Regulation 11(1)(a)). Further, notice of an auditor ceasing to act must also be made to the Commission within 14 days (Regulation 11(1)(b)). The Commission will require that the reasons for the auditor ceasing to act be provided.

B5. What requirements are there for the form and content of the financial statements of a Recognised Fund?

Regulation 10(1)(a) requires that the financial statements of a Recognised Fund be prepared in accordance with:

  • IFRS, UK GAAP, US GAAP or Canadian GAAP; or
  • internationally recognised and generally accepted accounting standards equivalent to the accounting standards referred to above.

The auditor of a Recognised Fund must audit the financial statements and prepare an audit report in accordance with the auditing standards specified or endorsed by the recognised professional body of which he is a member or such other recognised international auditing standards as may be approved by the Commission on a case by case basis.

Concern has been expressed by industry regarding the above requirements. In an attempt to address such concerns for the 2011 reporting season, the Commission issued an Industry Circular dated 22 December 2011. In the Circular, the Commission announced that for the then current financial year (i.e. any financial period of not more than 12 months ending on or after 22 December 2011), the existing auditor of a Recognised Fund will be treated as qualifying to act as auditors for and in respect of private and professional funds and, by extension, financial statements of such funds may be prepared to the accounting and auditing standards which such auditor elects to use even if such auditors and standards do not strictly comply with the requirements under the Regulations. This is an interim measure to deal with the 2011 financial year. The Commission stated in the Circular that further guidance would be provided during the course of 2012.

Regulation 10(3)(b) requires that the auditor certify the fund’s compliance with such obligations and matters as may be specified in SIBA and the Mutual Funds Regulations, 2010. There are currently no such obligations and matters.

B6. What requirements are there for a Recognised Fund that is registered as a Segregated Portfolio Company (“SPC”)?

The general audit requirements for Recognised Funds will also apply to a Recognised Fund that is an SPC. Under Regulation 5 of the Segregated Portfolio Companies Regulations, 2005 a Recognised Fund that is an SPC is required to have an auditor and to file audited financial statements with the Commission within six months of the end of its financial year.

However, notwithstanding this additional requirement, a Recognised Fund that is an SPC may apply to the Commission for an exemption from the requirement to prepare and submit audited financial statements for a financial year under the Financial Services (Miscellaneous Exemptions) Regulations, 2010.

B7. What obligations does the auditor have under SIBA?

The auditor of a Recognised Fund is not subject to any direct reporting requirements to the Commission in contrast to the auditor of a Licensee (see paragraph A8 above) or the auditor of a public fund (see paragraph C7 below).

C: PUBLIC FUNDS (A “PUBLIC FUND”)

C1. Must a Public Fund prepare financial statements?

Yes. Section 70 of SIBA requires that a Public Fund prepare financial statements for each financial year which comply with prescribed accounting standards. See paragraph C6 below for more detail of the form and content of the financial statements.

In addition, section 59 of SIBA requires a Public Fund to maintain records that are sufficient:

  • to show and explain its transactions;
  • at any time, to enable its financial position to be determined with reasonable accuracy;
  • to enable it to prepare financial statements and make such annual returns as it is required to prepare and make under SIBA and the Mutual Funds Regulations, 2010;
  • if applicable, to enable its financial statements to be audited in accordance with SIBA.

C2. Must a Public Fund appoint an auditor?

Yes. Section 75(1) requires a Public Fund to appoint and at all times have an auditor for the purposes of auditing its financial statements. If an existing auditor ceases to act for any reason, a Public Fund has two months to appoint a replacement (section 75(8)). See paragraph C5 below for the requirements for the auditor and paragraphs C4 and C6 below for the process of appointment.

C3. Is a Public Fund required to submit its financial statements to the Commission and in what form?

Yes, subject to the following paragraph. Section 71 requires a Public Fund to submit the financial statements to the Commission within 6 months of the end of the financial year to which they relate and such financial statements must be accompanied by an auditor’s report and a report on the affairs of the Public Fund to the investors of the Public Fund.

The Commission may, on the application of a Public Fund and payment of a $500 fee, extend the deadline for submitting the financial statements with respect to a financial year by up to six months.

The first financial year of a Public Fund is the period from the date of incorporation up until the next financial year end date specified in the application made to the Commission. Subsequent financial years are 12 months from the end of the previous financial year. However, the Commission may, on the application of a Public Fund, direct that a specific financial year of a Public Fund may be such different period not exceeding 18 months.

A Public Fund may apply to the Commission for an exemption from the requirement to prepare and submit audited financial statements for a financial year under the Financial Services (Miscellaneous Exemptions) Regulations, 2010 in the same circumstances as a Licensee (see paragraph A3 above).

C4. How does a Public Fund appoint an auditor?

A Public Fund may not appoint an auditor unless the auditor is qualified to act as an auditor (as prescribed by the Regulatory Code (see paragraph A5 above)), the auditor has consented to act and the auditor has been approved by the Commission to act as the auditor of Public Funds (see paragraph C5 below).

The Public Fund and the auditor must take reasonable steps to satisfy themselves that the auditor is independent of the Public Fund and that the auditor has no conflict of interests with the Public Fund. A Public Fund may not appoint an auditor which it knows or ought to have known has a conflict of interest with the Public Fund.

A Public Fund may engage a BVI auditor only if the auditor meets the minimum professional indemnity insurance requirements set out in section 61 of the Regulatory Code.

A Public Fund must provide notice of the appointment of an auditor to the Commission within 14 days.

C5. How does the Commission approve an auditor and how is an application made?

An application to be an approved auditor is made by the auditor using Form B-1. Form B-1 requires disclosure of detailed information about the auditor along with a number of supporting documents (such as references and resumes). Once an auditor has been approved as an auditor of Public Funds, it may be appointed as the auditor of any Public Fund without further approval or reference to the Commission. The firms listed in Annex 1 were approved by the Commission as of August 2011. However, the list of approved auditors has not been kept up to date and as such this list is likely to be non-exhaustive.

C6. What requirements are there for the form and content of the financial statements of a Public Fund?

The financial statements of a Public Fund must comprise:

  • a statement of the financial position of the Licensee as at the last date of the financial year;
  • a statement of the financial performance of the Licensee in relation to the financial year;
  • a statement of cash flows for the Licensee in relation to the financial year; and
  • such statement relating to the prospects for the business of the Licensee as may be required by the accounting standards in accordance with which the financial statements are prepared,

together with any notes or other documents relating to the above matters.

The financial statements must be prepared in accordance with IFRS, US GAAP, UK GAAP, Canadian GAAP or such other accounting standards that may be approved by the Commission on a case by case basis.

C7. What requirements are there for a Public Fund that is registered as a Segregated Portfolio Company (“SPC”)?

The general audit requirements for Public Funds will also apply to a Public Fund that is registered as an SPC. Under Regulation 5 of the Segregated Portfolio Companies Regulations, 2005 a Public Fund that is an SPC is required to have an auditor and to file audited financial statements with the Commission within six months of the end of its financial year.

However, notwithstanding this additional requirement, a Public Fund that is an SPC may apply to the Commission for an exemption from the requirement to prepare and submit audited financial statements for a financial year under the Financial Services (Miscellaneous Exemptions) Regulations, 2010 in the same circumstances as a Licensee (see paragraph A3 above).

C8. What obligations does the auditor have under SIBA?

Section 77(1) of SIBA requires an auditor of a Public Fund to immediately report to the Commission any information relating to the affairs of the Public Fund that it has obtained in the course of acting as its auditor that in the auditor’s opinion suggests that:

  • the Public Fund is insolvent or is likely to become insolvent or is likely to be unable to meet its obligations as they fall due;
  • a criminal offence has been or is being committed by the Public Fund or in connection with the business of the Public Fund; or
  • serious breaches of SIBA, the Regulatory Code or the Anti-Money Laundering regime have occurred in respect of the Public Fund or in connection with the business of the Public Fund.