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Legal Updates

Developments in law or practice in our jurisdictions

BVI launches approved manager regime for fund managers

Authors:
Publication Date:
6 December 2012

Tune in on 28 February 2013 for a webinar on the BVI's new Approved Manager regime, presented by Harneys' funds experts. Learn more.


A new "regulation light" fund manager regime for the BVI came into effect on 10 December 2012. The Investment Business (Approved Manager) Regulations, 2012 ("Regulations") were published last month (see our earlier bulletin) but this week the Financial Services Commission has published the Approved Investment Managers Guidelines (the "Guidelines").

“The Approved Manager regime seeks to strike the right balance of flexibility and effective regulation taking into account the relative risk profile of the business carried on. I believe that the regime achieves this and will prove to be an attractive option for fund managers seeking to commence business quickly and in a cost effective manner,” said Ross Munro, global head of investment funds at Harneys. Munro is also chairman of the Securities, Investment Business and Mutual Funds Advisory Committee (SIBAC) which has worked closely with the Financial Services Commission in the development of the new regime.

The new regime offers a welcome alternative to fund managers and advisers domiciled or doing business in the BVI who are currently otherwise required to hold a full licence under Part I of SIBA. The new Approved Manager regime provides for eligible fund managers and advisers to submit a simple and short application to the Commission and then commence business 7 days later without having to wait for formal approval (the Commission may raise an objection during the 7 day period should it see anything in the application which it particularly takes objection to but it is not expected that this power will be used often). This contrasts to the current position where it will typically take the Financial Services Commission a minimum of four weeks to process an application for a Part I licence.

Under the Regulations, an Approved Manager can act as the investment manager or investment advisor to any number of private or professional funds recognised under SIBA (which may include 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. The 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 can not exceed US$400 million and the capital commitments of all of the closed ended funds cannot exceed US$1,000 million. 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.

The new regime is also cost effective. The application fee is just US$1,000 and the maintenance fee payable annually thereafter is just US$1,500.

While an Approved Manager will not be restricted to any material extent on the way it carries on business, the regime has been intentionally crafted to be a "licensing regime" rather than an entirely exempted activity. The Commission will have powers at its disposal to take enforcement action against the Approved Manager should it determine it is necessary to do so in order to discharge its function as a regulator. The approved manager regime bears scrutiny with 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")). The regulatory fees payable by an Approved Manager are significantly lower for an Approved Manager (both for the initial application and on an annual basis thereafter). In addition, an Approved Manager may act as manager or adviser to private funds and closed-ended funds that have the characteristics of private funds. Such funds only have restrictions on the number of investors and no restrictions on the sophistication or net worth of the investors whereas a Cayman Islands exempt manager may, broadly speaking, only act for funds which fall within the definitions of "sophisticated investor" or "high net worth person" under SIBL. This makes the regime ideal for managers of funds with less than fifty investors, especially start ups and family funds, for example.

An Approved Manager will be subject to a small number of ongoing obligations. The key obligations are as follows:

More than 2,400 investment funds are registered in the British Virgin Islands making it the second largest domicile of offshore investment funds. The BVI is known for effective and well respected regulation while regulatory fees are significantly lower than competitor jurisdictions. Harneys has the largest investment funds and regulatory practice in the BVI having assisted more clients in establishing funds than any other law firm in the territory.

Harneys has published a more detailed guide to the new Approved Manager regime which is available here. If you have any queries please contact Ross Munro or Philip Graham in the British Virgin Islands or Timothy Bridges in Hong Kong.