I wanted to write a post on the continuing obligations for BVI funds because if you are thinking of launching a fund in the BVI, knowing what your obligations will be is essential. My challenge was how to do it without boring you all to tears. I think I have managed to capture the obligations in five key headings so, hopefully, I can hold your attention for just long enough!
1. Appoint certain service providers and to give notice to the FSC if they change
All BVI funds are required to appoint an authorised representative in the BVI to liaise with the Financial Services Commission (FSC). In addition, they are generally required to appoint an investment manager, an administrator, a custodian and an auditor. Funds will often choose to appoint investment advisors and prime brokers in addition to the service providers that are required.
One of the key advantages of the incubator and approved fund (and the main reason that they are cheaper to operate) is that, other than the authorised representative, they are not required to appoint a long list of service providers unless they chose to. An incubator fund can operate without any service providers and an approved fund is only required to appoint an administrator.
Private and professional funds have some flexibility to apply for exemptions from the requirements to appoint an investment manager, custodian or auditor if they satisfy certain criteria.
The FSC wants to know who is acting for the fund at any time and so there are various notification requirements in relation to the appointment of or the ceasing to act of any service provider. Public funds are required to obtain prior approval and private and professional funds are required to give seven days’ prior notice before any functionary (i.e. an investment manager, administrator, investment advisor, custodian or prime broker) can be appointed. In addition, all funds must notify the FSC immediately if their authorised representative ceases to act for any reason.
2. Have at least two directors and certain other officers
All BVI funds are required to have at least two directors. For a public fund, all directors must be individuals whereas for all other funds, at least one must be an individual. The FSC needs to be notified within 14 days of any changes to directors and public funds must give prior notice to the FSC before appointing a director. A BVI fund will also need a Money Laundering Reporting Officer and a FATCA Responsible Officer.
3. Notify the FSC if the terms of the fund’s offering change
Any changes to the offering documents or constitutional documents of the fund must be notified to the FSC within 14 days so that the FSC is aware of the current terms on which the fund interests are offered. Public funds are required to give 21 days’ prior notice.
Although incubator and approved funds are not required to have offering documents (other than an investment warning and investment strategy) they must notify of any changes to the investment warning and investment strategy within 14 days of the change. If they do have offering documents, they will have formed part of the application for approval of the fund and any changes to that must be notified within 14 days of the change.
In addition, all funds are under a general duty to keep the FSC updated in relation to any material events such as the suspension of redemptions or becoming subject to legal or regulatory proceedings.
4. Prepare and file financial statements and annual returns
All BVI funds are required to keep financial records and to prepare financial statements and file them with the FSC within six months of the end of their financial year, subject to extensions and exemptions which may be granted in certain limited circumstances. Public, private and professional funds must have their financial statements audited and the audited statements must be filed, whereas incubator and approved funds can submit unaudited financial statements.
All BVI funds are required to file annual returns containing information such as the value and type of assets under management and aggregate numbers of subscriptions and redemptions. As the fund with the lowest level of regulatory supervision, the Incubator fund is required to report more frequently to the FSC, on a semi-annual basis.
5. Comply with FATCA and CRS Reporting
The BVI has passed legislation and guidance to implement the requirements of the US Foreign Account Tax Compliance Act (US FATCA), a similar tax sharing agreement with the UK (UK FATCA) and the OECD’s Common Reporting Standards (CRS). These require BVI funds to register with the BVI International Tax Authority and to identify and report certain US and UK accounts under US and UK FATCA and to report information on the holders of reportable accounts which are tax resident in reportable jurisdictions under CRS.
The author of this post is no longer with Harneys. For more information on this topic, please reach out to the author listed above.