On May 17, 2010, the Securities and Investment Business Act, 2010 (SIBA) came into force in the British Virgin Islands. As well as introducing the regulation of new areas of business activity undertaken by BVI entities, one of the principal objectives of the new legislation is to update the regulation of BVI funds by repealing the Mutual Funds Act, 1996, the statute that has underpinned the regulation of the BVI fund industry for more than a decade, and introducing a new statutory regime in tune with evolving industry standards.
Going forward, Part III of SIBA and its underlying secondary legislation, the Mutual Funds Regulations, 2010 – and, for public funds, the Public Funds Code – will therefore be the legislation regulating the BVI fund industry.
But how will this change in regulatory regime affect the BVI fund industry? The regulatory regime applicable to private and professional funds (the two categories of regulated funds that represent the overwhelming majority of BVI funds, particularly hedge funds) is not substantially changed as a consequence of SIBA.
Many of the ‘changes’ merely representing the codification of existing regulatory policies operated by the BVI Financial Services Commission that have evolved over time. The regulatory changes for such funds are therefore positive, as SIBA will provide certainty and enable greater regulatory transparency.
The regulatory regime applicable to public funds, a category of fund used for retail offerings by BVI funds (for which currently approximately 300 of the 3,000 licensed BVI funds are registered) will be changing under SIBA.
Most of the regulatory changes are introduced through the proposed Public Funds Code, which is still in draft but has just completed an industry consultation. Underpinning the Public Funds Code is the need for the regulation of BVI funds aimed at the retail market to meet IOSCO Iosco principles.
To facilitate the smooth transition of existing funds into the new regulatory regime under SIBA and the Mutual Funds Regulations, transitional provisions exist during which various changes brought about by these new regulations are required to be implemented.
Consequently, for private and professional funds, the regulatory status quo has been maintained under SIBA, but some new regulatory obligations have been introduced, as well drafting changes required for existing funds’ offering documents and constitutional documents (which need to be made during the transitional period). The driver for these new regulatory obligations is to facilitate the supervision of BVI funds by the regulator, and therefore the effective management of systemic risk.
For public funds, the regulatory change is greater, although until the final version of the proposed Public Funds Code is published, the precise scope of the changes cannot be determined with complete certainty.
Overall, these are positive changes, which maintain the popular concepts of the BVI’s fund industry while making it more robust and in tune with the evolution of international regulatory standards.
Simon Schilder is a partner and head of the investment funds practice with Ogier in the British Virgin Islands