Last year the British Virgin Islands Financial Services Commission released for public consultation the draft Securities and Investment Business Act. Although SIBA is still in the consultation phase at the time of writing, its anticipated scope is now clear and it is expected to have limited impact on the BVI hedge fund industry.
The primary purposes of SIBA will be to create a regulatory framework for the provision of certain types of investment business from the BVI (or by a BVI business company) and the public offering of securities in the BVI, and an offence of ‘insider dealing’ to tackle potential market abuse from occurring in the jurisdiction. The legislation will also repeal the Mutual Funds Act, 1996 (as amended), replacing it with SIBA and related regulations (including the Mutual Funds Regulations).
The new legislation is expected to bring various key changes to the mutual funds law. First, SIBA and the accompanying Mutual Funds Regulations will codify certain matters that have been accepted practice for several years.
For example, a private or professional fund would be expected to submit its offering document with its application for recognition, to have two directors (with a minimum of one individual acting as a director), and to provide notification to the BVI FSC of certain changes, including changes to its investment manager, administrator, custodian, board of directors, constitutional documents or offering documents.
Secondly, private and professional funds (in addition to public funds) will be required to prepare annual audited financial statements and file them with the regulator. In practice, most funds already have their financial statements audited. The requirement to file them is commonplace in most jurisdictions and is unlikely to concern most BVI open-ended funds.
Finally, the minimum investment amount for each investor in a professional fund will be USD100,000 (subject to certain exemptions, such as investments by the manager and the manager’s employees). Professional funds that currently accept or can accept investments of less than USD100,000 will need to take advice on their position to ensure that they do not breach the new minimum restriction once it has been enacted.
The Mutual Funds Act requires persons providing investment management or administrative services to open-ended funds from within the BVI to be licensed, subject to certain exceptions. SIBA will extend this requirement to cover custodians and investment advisors of open-ended funds.
Subject to certain exceptions, SIBA will prohibit securities from being offered to the public in the BVI unless the terms of the offer are contained in a prospectus approved by the regulator. In practice, there are very few public offers in the BVI so these provisions will have limited application. Some funds will need to update their disclosures to make it clear that they are not making offers to the public in the BVI.
Regarding market abuse, SIBA will bring in offences covering insider dealing, encouragement of insider dealing, disclosure of inside information, market manipulation and disclosure of misleading information. These provisions will have limited application to BVI investment funds since the offence would generally need to occur within the BVI.
The implementation date for SIBA is not yet known, but the legislation is expected to be enacted during the first half of 2010, with a transitional period to allow time to ensure compliance.
Richard May is a partner of Walkers and heads the investment funds team in the British Virgin Islands