Regulation, licensing and registrationPrincipal regulatory bodies
What are the principal regulatory bodies that would have authority over a private equity fund and its manager in your jurisdiction, and what are the regulators’ audit and inspection rights and managers’ regulatory reporting requirements to investors or regulators?Principal regulations
Prior to 2020, closed-ended funds were not regulated in the British Virgin Islands (BVI). On 31 December 2019, the BVI amended the Securities and Investment Business Act 2010 (SIBA) to bring ‘private investment funds’ into the scope of the regulatory regime. Private investment funds are defined as companies, partnerships, unit trusts or any other BVI bodies that:
- collect and pool investor funds for the purpose of collective investment and diversification of portfolio risk; and
- issue fund interests, which entitle the holder to receive an amount computed by reference to the value of a proportionate interest in the whole or in part of the assets of the entity.
For the purposes of this chapter, we have assumed that private equity funds will hold diversified assets and fall within the definition of private investment funds for the purposes of SIBA. Closed-ended entities that do not fall within the above definition will not be regulated under BVI law.
SIBA is the primary legislation regulating funds in the BVI and is monitored by the Financial Services Commission (FSC). SIBA is supplemented by regulations, including the Private Investment Funds Regulations and the Financial Services Commission (Securities and Investment Business Fees) Regulations 2010 (as amended).
Further regulations apply to open-ended funds. As private equity funds are typically closed-ended, this chapter focuses on closed-ended structures only.
As a BVI entity, a fund (whether open- or closed-ended), if structured as a company, will be registered with the BVI Registry of Corporate Affairs and its corporate affairs will be governed by the BVI Business Companies Act 2004 (as amended). BVI entities structured as an limited partnership (LP) will be registered with the BVI Registrar of Limited Partnerships and its corporate affairs will be governed by the Limited Partnership Act 2017 (the LP Act).
Regulator’s audit and inspection rights
The FSC is entitled to inspect the premises, business and assets of a BVI-recognised closed-ended fund, whether inside or outside of the BVI, in order to monitor compliance with applicable compliance legislation. The FSC may, upon request by such authority and subject to certain conditions, allow a foreign regulatory authority to participate in such inspections.
Fund and manager’s reporting requirements
Closed-ended funds are required to file audited financial statements with the FSC within six months after the financial year end (unless an extension not exceeding 15 months is approved by the FSC, or the fund has obtained an exemption from the requirement to produce audited accounts).
Where the manager is regulated in the BVI, there are additional reporting requirements.Governmental requirements
What are the governmental approval, licensing or registration requirements applicable to a private equity fund in your jurisdiction? Does it make a difference whether there are significant investment activities in your jurisdiction?
Private investment funds incorporated in the BVI, or operating in or from within the BVI, may only carry on business if either:
- they are recognised by the FSC under SIBA; or
- they are exempt from the requirement to obtain recognition, as a result of an order published in the BVI Gazette.
As at the time of writing, no orders had been published exempting any funds, or class of funds, from the requirement to obtain recognition.
The FSC will recognise a fund as a private investment fund if:
- the fund is lawfully incorporated, registered, formed or organised (whether in the BVI or elsewhere);
- the constitutional documents of the funds specify that either it:
- is authorised to have no more than 50 investors;
- invites investors to subscribe for, or purchase, fund interests on a private basis only; or
- only issues fund interests to professional investors, each with a minimum initial investment of US$100,000;
- the fund meets the criteria specified in the Private Investment Fund Regulations (PIF Regulations);
- on recognition, the fund will be compliant with SIBA, the PIF Regulations and any practice directions applicable to the fund (of which, as at the time of writing, there is none); and
- recognising the fund will not be against the public interest.
The FSC may impose any conditions to the recognition of a particular fund as it considers appropriate.
Save as set out above, there are no additional licensing requirements where the fund invests within the BVI, save that:
- any non-belonger entity that wishes to invest in land within the BVI must first obtain a landholding licence;
- any significant investment into businesses regulated by the FSC (for instance, investment, insurance or fiduciary businesses) will often require FSC approval; and
- businesses that operate physically within the BVI will, unless regulated by the FSC, require a trade licence and will be subject to any particular terms attached to that licence.
Is a private equity fund’s manager, or any of its officers, directors or control persons, required to register as an investment adviser in your jurisdiction?
Where fund managers, advisers, administrators or appointed persons are established outside the BVI, they (and their directors and officers) will not normally need to be registered or licensed in the BVI, provided that they have no physical presence in the BVI, and the fund has no presence in the BVI save for its registered office and agent.
Where a manager, adviser, administrator or appointed person is either BVI-incorporated or physically operates within the BVI, such persons will normally be required to obtain an investment business licence under SIBA. Licensees under SIBA are subject to requirements to, among other things, file audited financial statements and seek approval from the FSC for any change in its directors, officers or significant interest holders, for any business carried on outside the BVI and any establishment of a subsidiary.
For BVI-incorporated investment managers or advisers, an alternative option to SIBA licensing is to register as an approved manager under the BVI Investment Business (Approved Managers) Regulations, which impose lighter requirements (including no requirement to appoint an auditor). The approved manager regime is available for BVI-incorporated investment managers or advisers to closed-ended funds whose aggregate assets under management do not exceed US$1 billion (or its equivalent in another currency).
Registration under either SIBA or the approved manager regime will require payment of an initial application fee and recurring annual fee.Fund manager requirements
Are there any specific qualifications or other requirements imposed on a private equity fund’s manager, or any of its officers, directors or control persons, in your jurisdiction?
Fund managers established outside the BVI will not normally require registration or licensing in the BVI, provided they, and the funds they manage, have no physical presence in the BVI save for the fund’s registered office and agent. There are no specific qualifications or other requirements on such unlicensed managers.
Where managers are required to be licensed under SIBA or the approved manager regime, the FSC must find the licensee to be ‘fit and proper’ to carry out their roles, taking into account, among other things, their reputation, financial soundness, experience and past conduct. Licensees or approved managers must have at least two directors (neither of which are required to be based in the BVI) and must satisfy itself that its directors and officers are also ‘fit and proper’ for their roles. Managers licensed under SIBA, and who claim tax residency in the BVI, must further comply with economic substance requirements in the BVI, which require certain entities to show a suitable level of physical presence in the BVI for their core activities.
Where managers are licensed under SIBA, they are required to notify the FSC within 21 days of commencing to act as an investment manager of a closed- or open-ended fund.Political contributions
Describe any rules – or policies of public pension plans or other governmental entities – in your jurisdiction that restrict, or require disclosure of, political contributions by a private equity fund’s manager or investment adviser or their employees.
There are currently no specific rules in the BVI that restrict, or require disclosure of, political contributions by a fund manager, investment adviser or their employees. The Elections Acts 1994 (as amended) empowers the government to regulate the financing of election campaigns; however, to date no such regulations have been brought into force.Use of intermediaries and lobbyist registration
Describe any rules – or policies of public pension plans or other governmental entities – in your jurisdiction that restrict, or require disclosure by a private equity fund’s manager or investment adviser of, the engagement of placement agents, lobbyists or other intermediaries in the marketing of the fund to public pension plans and other governmental entities. Describe any rules that require a fund’s investment adviser or its employees and agents to register as lobbyists in the marketing of the fund to public pension plans and governmental entities.
There are currently no such rules applicable to BVI closed-ended funds.Bank participation
Describe any legal or regulatory developments emerging from the recent global financial crisis that specifically affect banks with respect to investing in or sponsoring private equity funds.
There have been no specific developments in the BVI following the global financial crisis aimed at regulating banks’ investment into, or sponsoring of, private equity funds. In general, non-BVI banks would need to have regard to any applicable overseas legislation that restricts investment in private equity funds.