The Securities and Investment Business Act, 2010 (“SIBA”) came into force in May 2010. It heralded the biggest change to the BVI investment funds legislative framework since the Mutual Funds Act, 1996 came into force. Various transitional arrangements meant that the full impact of SIBA was not immediately felt. Some of those transitional arrangements still apply but the vast majority of SIBA is now fully in force. How has the industry reacted to the changes? This article considers the impact of the new legislation after 12 months and provides a reminder of some of the more important changes.
The story of SIBA for investment funds has been very much business as usual. The changes have not met any noticeable resistance from industry users and indeed have been welcomed for providing clarity in certain areas. That is not entirely surprising given that many of the new provisions merely codified existing practice by the Financial Services Commission. For example, the Commission had for many years required new funds to have a minimum of two directors. SIBA made that a requirement for all funds.
Closed ended funds remain outside of the scope of direct regulation (although most managers and advisers to closed ended funds now require a SIBA licence).
The regime for private and professional funds is simple and easy to understand. Despite the more detailed application procedure, the Commission is turning around new applications quickly and well within its published target of 3 business days. In the case of professional funds, the increase of the period during which a fund can carry on business before being recognized from 14 to 21 days has proven popular. In a world where fund managers need to be able to move quickly to secure investor commitments the ability to launch a new fund in a matter of days is very welcome.
See here for our quick guide summary to the ongoing obligations of private and professional funds. A small number of reminders relevant to private and professional funds:
- SIBA requires that a private or professional fund give the Commission not less than 7 days prior notice of the appointment of a new “functionary”. While the appointment of a new manager, administrator, custodian or auditor is a relatively unusual event, the definition of functionary includes prime brokers. Notice must also be given within 7 days of a functionary ceasing to act together with the reasons for the resignation or removal.
- The audit requirements for private and professional funds have been the source of some confusion. No approval of the auditor is required although the auditor must meet certain criteria – any BVI, Cayman, US, UK or Canadian firm of auditors is likely to meet such criteria.
- Any changes to the offering document require to be filed with the Commission within 14 days of the change.
- All private and professional funds should now have appointed an auditor unless an exemption has been granted by the Commission. However, the requirement to prepare and file audited financial statements for funds recognized prior to 17 May 2010 only applies to the financial year commencing after 17 May 2010. For funds with a 31 December year end, this means that the 2011 financial statement must be audited and filed no later than 30 June 2012. There is no requirement for such a fund to file its 2010 financial statements.
- All funds are required to have an authorized representative and to comply with the BVI’s anti-money laundering regime.
Public funds have seen greater change following the introduction of the Public Funds Code, 2010. On 30 June 2011, the provision requiring registration of the prospectus of a public fund that wishes to invite subscriptions for its fund interests comes into force. The Code required various disclosures to be made in the prospectus of a public fund. See here for our introductory guide on the Public Funds Code and here for our quick guide summary to the ongoing obligations of a public fund.
SIBA dramatically increased the scope of regulated activity to include a much wider variety of investment management and administration activities as well as bringing many dealers, arrangers, investment advisers and custodians into scope for the first time. Previously only managers and administrators of open ended investment funds were subject to a licensing requirement under the now repealed Mutual Funds Act, 1996. Transitional arrangements provided that persons carrying on relevant business before 17 May 2010 could carry on that business provided that they apply for a SIBA licence by 30 December 2010 and the transitional arrangements continue until a licence is granted or the application is rejected or withdrawn.
Inevitably, a large number of licence applications were made at the last minute in December 2010 – some put together in short order. That in turn led to a log jam at the Commission which is only now completely clearing. Fortunately, applicants have been able to carry on business as normal while the applications are processed. New applications (where the transitional provisions do not apply) are being given priority as the Commission recognizes that such applicants cannot commence business until a licence is granted. The Commission is also recognizing that fund manager applications can be processed much quicker than, say, an application for a broker-dealer licence. Complete applications for a manager licence can be processed in as little as four weeks.
Again, a small number of reminders relevant to SIBA Licensees:
- A licensee is only authorized to carry out the categories or sub-categories of investment business specified on the licence. We encourage a regular review of the business activities to ensure that the engagement of a new client or the introduction of a new product has not taken the licensee outside of the scope of the existing licence. Depending on the nature of the new activity, extensions can be obtained quickly.
- The prior approval of the Commission is required to carry on business through a branch or representative office outside the BVI (there is no transitional provision applicable to Mutual Funds Act licensees who are required to obtain the consent of the Commission for any existing operations outside of the BVI).
- The prior approval of the Commission is required to appoint a new director, senior officer or compliance officer. Prior approval is also required for any change in the significant interests in a licensee (broadly, this means a 10% or greater interest).
- The Regulatory Code, 2009 has now been extended to SIBA licensees and has been in force since 31 March 2011. See here for our general overview of the Regulatory Code.
- Audited financial statements must be filed with the Commission within six months of the year end. An exemption from the audit requirement may be applied for when a licensee has not carried on business during the relevant financial year or when a licensee “forms good reason” for it not to be so required.
As mentioned above, the financial services regulatory net was cast much wider under SIBA than it had been previously to include foreign exchange broking / dealing activity. One sector in particular has developed significantly in light of the new regime. A number of FX businesses have applied for and been granted a SIBA license and the BVI is establishing itself as a jurisdiction of choice for the FX industry. They have been attracted by the BVI’s comprehensive yet reasonable regulatory framework.