By Paul Waldron (pictured), Harneys BVI – The BVI approved manager product, first introduced in 2012, continues to be a popular choice with start-up and emerging managers all over the world. It was introduced as an alternative to the full investment management licence available under the Securities and Investment Business Act, 2010 (SIBA) in the BVI, which remains a robust product ideally suited to institutional managers.
However the application process and ongoing obligations were considered to be somewhat daunting for managers running a lower AUM, or without the experience and track record to meet the requirements. The process also took a number of months to complete and for managers wanting to put their capital to work quickly, the BVI needed an alternative product. In response to this, the Financial Services Commission (the FSC), alongside the Investment Funds Association in the BVI developed the approved manager as an investment management product tailored to the specific needs of start-up and smaller managers, with a suitably appropriate level of regulation and oversight. The interest was there immediately and as of September 2019, there were over 260 active approved managers and we expect this number to grow steadily.
The approved manager has a number of key attractions and advantages, as summarised below:
• Cost: The FSC charges an application fee of just USD1,000, plus an annual fee of USD1,500. Due to the simplified and streamlined application process associated legal fees are also relatively modest. When combined with the low annual registry fees payable for BVI companies this makes an approved manager very cost-effective to establish and maintain.
• Speed: The FSC approval process is designed to run in tandem with the fund approval process. A BVI approved manager can be incorporated and approved in as little as 1 – 2 weeks, and can commence business 7 days after submitting a short-form application to the FSC.
• Simplified application process: Applicants are required to submit a short application form to the FSC setting out the applicant’s basic details, submit a CV / resume for each director and senior officer, complete a ‘fit and proper’ declaration for each director and senior officer, provide basic details of the funds it proposes to act for and details of any proposed delegation of activities.
• Flexibility: Approved managers are not restricted to managing only BVI domiciled funds – they can also manage open-ended funds domiciled in other recognised jurisdictions, unregulated closed-ended funds (domiciled in the BVI or a recognised jurisdiction) and managed accounts within the applicable AUM limits (see below). The list of BVI recognised jurisdictions covers the usual established onshore financial centres (including China) plus the more established offshore financial centres.
• Reduced regulatory obligations: An Approved manager has no capital adequacy or professional indemnity insurance requirements and is not required to appoint a compliance officer or to have a compliance manual. There is no requirement for the directors to register with the FSC and no requirement to prepare audited financial statements. An approved manager is required to have a minimum of two directors (which need not be BVI residents) and a BVI authorised representative. As regards annual filings, an approved manager is only required to submit a short annual return, a director’s certificate and unaudited financial statements to the FSC.
• Generous AUM limits: An Approved manager can manage aggregate assets of up to USD400 million for open-ended funds and aggregate capital commitments of up to USD1 billion for closed-ended funds. The BVI takes the very justifiable approach that larger managers require a greater level of oversight due to the higher risks that are involved and must have a full SIBA investment management licence accordingly.
As can be seen, the FSC has carefully considered the requirements of start-up and emerging managers, whilst balancing the requirement for appropriate and prudent regulation. An approved manager is an attractive product for principals wherever they might be located in the world and regardless of the domicile(s) of their fund vehicles or managed account platform. As with any other offshore investment management product, Harneys will always recommend that managers also take local regulatory advice in their home jurisdiction when establishing an approved manager to ensure that they are also meeting the relevant licensing requirements.
Harneys is seeing strong interest in the approved manager product from across our wide network of offices, with a growing proportion of approved managers being used for non-BVI fund structures. This is particularly noticeable in Asia where BVI companies are already widely used and recognised. While Asian managers certainly domicile their investment funds in other offshore jurisdictions as well, they also tend to be familiar and comfortable with the BVI offering and the approved manager is a product that sits very nicely with their needs.
As the regulatory and cost burden increases for investment management solutions in other offshore jurisdictions, the attractions of the approved manager have become more obvious. The directors of an approved manager are not required to pay an annual fee or register with the FSC. Approved managers are not required to appoint multiple anti-money laundering officers or comply with onerous local data protection rules. Fees payable to the FSC and the BVI registry are considerably lower than those payable in other offshore jurisdictions. When combined with the competitive fees charged by BVI registered agents and law firms, the cost advantages of the approved manager become compelling. The FSC is also a responsive and progressive regulator and generally approves complete approved manager applications in one week or less.
The BVI approved manager is now a well tried and tested investment management solution. As knowledge of the product grows and the regulatory and cost burden increases in other offshore jurisdictions we anticipate that more and more start-up and smaller managers will look to use a BVI approved manager. When combined with other innovative BVI fund products such as the incubator and approved funds, the BVI should absolutely be the go-to jurisdiction for start-up and emerging managers.
Paul Waldron is a member of Harneys’ Investment Funds and Regulatory teams, practising the laws of the British Virgin Islands and the Cayman Islands. He advises on all aspects of offshore investment funds, including pre-formation strategy, regulatory compliance, operation and restructuring. Paul has over a decade of experience working in connection with all types of fund vehicles, including private equity and hedge funds, limited partnerships and start-ups.
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