BVI Approved Investment Managers "regulation light"

On December 10, 2012, the BVI introduced a new ‘regulation light’ regime for the recognition and approval of Investment Managers and Advisers. The essence of the new regime is to adopt a risk‐based approach to certain elements of investment management business conducted in the BVI and to strike the right balance of flexibility and effective regulation, taking into account the relative risk, nature and complexity of the business carried on.

In practical terms, the outcome is an attractive alternative for investment managers and advisers conducting business in the BVI who are currently otherwise required to hold a full licence under Part I of the Securities & Investment Business Act (“SIBA”).

The new Approved Manager regime provides for eligible investment managers and advisers to submit a short application to the Commission, which permits the commencement of business 7 days later without the need for formal licence approval (noting that the Commission may raise an objection during the 7 day period). Under the alternative SIBA Part I licensing regime, the Financial Services Commission can typically take a minimum of four weeks to process an application for a licence.

As per the Investment Business (Approved Managers) Regulations, an Approved Manager may act as the investment manager or investment advisor to any number of private or professional funds recognised under SIBA (including funds domiciled outside of the BVI), as well as any number of closed ended funds domiciled in the BVI which have the key characteristics of a private or professional fund.

An Approved Manager can also act for non‐BVI feeder funds into BVI master funds. The key restriction is that aggregate assets under management of all of the open ended funds cannot exceed USD400 million and that the capital commitments of all of the closed ended funds cannot exceed USD1 billion. The higher threshold for closed ended funds is reflective of the risk based approach taken by the Commission in the development of the regime; closed ended funds are widely considered to expose interested parties to a lower level of regulatory risk.

While an Approved Manager will not be restricted to any material extent on the way it carries on business, it is important to note that the regime is a "licensing regime" rather than an entirely exempted activity. The Commission will continue have regulatory powers at its disposal to take enforcement action against an Approved Manager should it determine it to be necessary to do so.

The approved manager regime can be likened to the exempt manager regime in the Cayman Islands (or to describe it more accurately, registration as an excluded person to fall outside of the licensing requirement of the Cayman Islands Securities and Investment Business Law ("SIBL")). Significantly however the regulatory fees payable by a BVI Approved Manager are considerably lower than for a Cayman exempt entity (both for the initial application and on an annual basis thereafter). A BVI Approved Manager attracts only an initial application fee of USD1,000 and an annual approval fee thereafter of USD1,500.

Furthermore, a Cayman exempt entity cannot act as manager or adviser to private funds and closed ended funds in the same way a BVI Approved Manager can. Broadly speaking, a Cayman Islands exempt manager can only act for funds which fall within the definitions of "sophisticated investor" or "high net worth person" under SIBL. This makes the new BVI regime ideal for managers of funds with less than fifty investors, especially start ups and family funds, for example.

Aside from this, an Approved Manager will only be subject to a minimal number of ongoing obligations.

These include the following:

  • an Approved Manager must have at least two directors at all times, one of whom shall be an individual;
  • an Approved Manager is required to have an authorised representative regulated in the BVI;
  • an Approved Manager is required to notify the Commission of any change to any of the information provided by the Approved Manager pursuant to its application for approval within 14 days:
  • an Approved Manager shall notify the Commission of any matter in relation to it or its conduct, which has or is likely to have a material impact or significant regulatory impact with respect to the Approved Manager or its business;
  • an Approved Manager is required to prepare and submit financial statements to the Commission. However, there is no audit requirement; and
  • an Approved Manager will be required to submit an Annual Return to the Commission by 31 January of each year containing summary details of the business it is carrying on.

Folio firmly believes that this legislation achieves an appropriate balance between the need for effective regulation and commercial viability. With approximately 2,400 investment funds currently registered in the BVI, the Approved Manager regime is certain to prove to be an attractive option for fund managers seeking to commence business in both a time and cost effective manner.

Should you require any further information or assistance in this regard, please feel free to contact one of our Directors at your convenience;

William Harris – william@folioadmin.com
Daniel Cann – daniel@folioadmin.com
Calum McKenzie – calum@folioadmin.com

Folio has been providing investment business services and associated expertise to clients in the BVI since 2001. Our Directors and staff have a wealth of product and industry knowledge and will be able to assist in determining and offering the optimal solution for your requirements.