The Securities and Investment Business Act 2010 (SIBA) has been recently amended by the Securities and Investment Business (Amendment) Act 2019 (the SIBA Amendment). The SIBA Amendment came into force on 31 December 2019 subject to various transitional provisions. A copy of the SIBA Amendment can be found here.
The principal focus of the SIBA Amendment is the introduction of a new type of recognised collective closed-end investment vehicle called the Private Investment Fund (PIF).
What is a PIF?
A PIF is a new category of fund and is defined as a company, partnership, unit trust or any other body which:
(a) collects and pools investor funds for the purposes of collective investment and diversification of portfolio risk; and
(b) issues fund interests, which entitle the holder to receive an amount computed by reference to the value of a proportionate interest in the whole or in a part of the net assets of the company, partnership, unit trust or other body.
The definition of a PIF is different from the pre-existing definition of an open-ended ‘mutual fund’ under SIBA. To the extent that an entity does not meet both limbs (a) and (b) above, it will not be considered to be a PIF and will not be subject to regulations in the BVI.
Application for recognition as a PIF
The FSC will recognise a PIF once an application is submitted for recognition and the applicant PIF is able to satisfy the following conditions:
(a) the applicant is lawfully incorporated, registered, formed or organised under the laws of the BVI or a country outside of the BVI;
(b) the constitutional documents of the applicant specify that one of the following applies:
(i) the applicant is not authorised to have more than 50 investors;
(ii) an invitation to subscribe for or purchase fund interests shall be made on a private basis only; or
(iii) the fund interests shall be issued only to professional investors with a minimum initial investment (other than for exempted investors) as may be prescribed in the Private Investment Fund Regulations 2019 (the PIF Regulations), a copy of which can be found here);
(c) the applicant meets the criteria specified in the PIF Regulations; and
(d) on recognition, the applicant will be compliant with the SIBA Amendment, the PIF Regulations and any practice directions applicable to it.
Obligations of a PIF
A PIF will need to, among other things:
(a) operate in accordance with any restrictions on numbers or types of investors or in the offering of interests as may be prescribed in its constitutional documents;
(b) in most cases, offer fund interests using an offering document or a term sheet;
(c) have not less than two directors, at least one of whom shall be an individual;
(d) in most cases, appoint three “appointed persons” who will take individual responsibility for managing, valuing and safekeeping the fund property;
(e) maintain a clear and comprehensive policy for the valuation of fund property with procedures that are sufficient to ensure that the valuation policy is effectively implemented;
(f) appoint an authorised representative;
(g) prepare and submit audited financial statements within 6 months of the end of the financial year end subject to any extension or exemption; and
(h) comply with the various notification requirements in the PIF Regulations.
One of the other points to note is that the Anti-Money Laundering Regulations 2008 (the AMLR) were amended by the Anti-Money Laundering (Amendment) Regulations 2019 (AMLR Amendment) effective 31 December 2019 to include a PIF into the definition of ‘relevant person’ under the AMLR which will therefore require all PIFs to have in place adequate and sufficient anti-money laundering policies in the same manner as a traditional regulated fund. A copy of the AMLR Amendment can be found here.
There is also a focus on the independence of the fund management responsibilities of a PIF from the conduct of the valuation process.
Existing entities have until 1 July 2020 to become compliant with the SIBA Amendment and the associated PIF Regulations.
Amendments to the Mutual Funds Regulations 2010 (the MFR)
The MFR were amended by the Mutual Funds (Amendment) Regulations 2019 (the Amended MFR Regulations), a copy of which can be found here and the Securities and Investment Business (Incubator and Approved Funds) Regulations 2015 were also amended by the Securities and Investment Business (Incubator and Approved Funds) (Amendment) Regulations 2019 (the Amended Incubator and Approved Funds Regulations), a copy of which can be found here.
Both sets of regulations came into force on 31 December 2019 and an existing incubator, approved, private, professional or public fund will have until 1 July 2020 to ensure they are in compliance with the Amended MFR Regulations or Amended Incubator and Approved Funds Regulations (as appropriate).
The Amended MFR Regulations and Amended Incubator and Approved Funds Regulations primarily deal with the introduction of provisions relating to:
(a) defining the fund property as the assets of the fund;
(b) the maintenance of a clear and comprehensive policy for the valuation of fund property with procedures that are sufficient to ensure that the valuation policy is effectively implemented;
(c) ensuring that its administrator or such other person having responsibility for the valuation of fund property, values fund property in accordance with the valuation policy;
(d) ensuring that the valuation policy and procedures of a private or professional fund should:
(i) be appropriate for the nature, size, complexity, structure and diversity of the fund and fund property;
(ii) be consistent with the provisions concerning valuation contained in its constitutional documents and offering document;
(iii) require valuations to be undertaken at least on an annual basis;
(iv) include procedures for preparing reports on the valuation of fund property; and
(v) specify the mechanisms in place for disseminating valuation information and reports to investors;
(e) ensuring that the fund’s manager, or such other person having responsibility for the investment function, is independent from the fund’s administrator, or such other person having responsibility for the valuation process, or where this is not possible, ensure that any conflicts are managed, disclosed and monitored appropriately; and
(f) ensuring that arrangements are in place for the safekeeping (and segregation where necessary) of the fund property.
Amendments to the ‘foreign funds’ regime
The Mutual Funds (Foreign Funds) Regulations 2019 (the Foreign Funds Regulations) came into force on 31 December 2019. Existing foreign funds i.e. a mutual fund that, immediately before the coming into force of the Foreign Funds Regulations, was recognised as a recognised foreign fund will have until 1 July 2020 to comply with the Foreign Funds Regulations. A copy of the Foreign Funds Regulations can be found here.
The Foreign Funds Regulations improves the regulation of foreign funds under SIBA to ensure consistency of approach and largely addresses the issues we have summarised above for BVI fund structures.
We will be providing further guides on all of these structures in due course, but in the meantime please do get in contact if you would like to discuss this further with the persons listed below.