Structure and definitions in the Act

SIBA is structured into six main parts, each addressing distinct areas of investment regulation. The preliminary provisions include foundational definitions and clarifications, with detailed interpretations of terms such as “investment business”, “investment activity”, “licensee”, and “public interest”. The definitions underscore the Act’s emphasis on delineating scope and applicability to a range of activities and participants, from mutual funds to directors of investment entities.

Regulation of investment businesses

Part I addresses the regulation of investment businesses, introducing licensing as a legal requirement for any entity intending to conduct such activities in or from the BVI. Notably, it emphasises prohibiting unauthorised business, setting stringent compliance standards for anyone seeking to operate within this jurisdiction. Licences are categorised into several classes, reflecting the nature of permissible activities – including acting as principal, arranging, managing and acting as a custodian. Applicants must demonstrate financial soundness, adequate resources, and the requisite expertise. Provisions for maintaining capital resources, appointing directors and senior officers, and obtaining prior approvals for significant structural changes form crucial safeguards under this section.

Public offerings of securities

Part II governs public offerings of securities, establishing the groundwork for transparency and investor protection. It requires issuers to register prospectuses, ensuring they disclose pertinent information and comply with specified content requirements. This part delineates rules for controlling securities offerings, including exemptions for certain cases. SIBA further empowers the FSC to suspend or terminate non-compliant offers and introduces mechanisms for compensation in cases involving misleading advertisements or defective prospectuses.

Regulation of mutual funds

Part III deals expansively with mutual funds, classifying them as public, private, professional, or recognised foreign funds. Registration or recognition is mandatory for funds seeking to operate legally, and managers and administrators must also comply with licensing provisions. SIBA mandates financial record-keeping, the preparation of audited financial statements, and adherence to governance standards. It also sets investor eligibility thresholds and prohibits unauthorised fund promotion. Recognised foreign funds must exhibit compliance with comparable regulatory standards in their countries of origin, ensuring cross-jurisdictional consistency in investor protections.

Private investment funds

Part IIIA, introduced in later amendments, focuses on private investment funds. These funds, though organised similarly to mutual funds, cater to a limited class of investors, promoting portfolio diversification. Stringent requirements ensure conformity with constitutional documents and limit investor participation to professional and qualified individuals. This section also prescribes specific guidelines regarding the registration process, investor access thresholds, and ongoing compliance obligations.

Administrative provisions

Part IV provides overarching administrative provisions applicable across licensees and funds. It mandates the appointment of a certified authorised representative for entities without significant local management presence, facilitating communication with the FSC. Furthermore, this part entails requirements related to the preparation, submission, and audit of financial statements for governance oversight and public accountability.

Market abuse and criminal liabilities

Part V, which addresses market abuse, imposes criminal liabilities on insider trading and market manipulation. It defines key concepts like “inside information” and “professional intermediary” while prescribing substantial penalties for individuals and entities engaged in such misconduct. This section underscores the jurisdiction’s commitment to fostering transparency and fairness within its financial markets.

Miscellaneous provisions and adaptability

Finally, Part VI contains miscellaneous provisions, allowing for the creation of additional regulations, refinements to penalties, and codification of reporting obligations. These measures enhance flexibility to adapt the legislative framework in response to evolving market conditions and enforcement challenges. The inclusion of schedules categorising investments, defining qualified investors, and outlining transitional provisions further illustrates SIBA’s methodical approach to regulation.

Summary of the Act’s Impact

Overall, SIBA forms a bedrock of financial regulation in the British Virgin Islands, characterised by robust licensing protocols, governance requirements, actionable investor protections, and clear enforcement mechanisms. Its detailed provisions establish the territory as a reputable jurisdiction for conducting investment business activities while safeguarding market confidence and compliance.

Introduction to the 2023 amendment

The Securities and Investment Business (Amendment) Act, 2023,  introduces a series of refinements to the principal Securities and Investment Business Act, building upon its regulatory framework to address evolving market dynamics. Enacted on 20 March 2023 and gazetted on 21 March 2023, the amendment emphasises enhanced oversight of ownership structures within the investment business ecosystem by defining and incorporating the concept of “controlling interest”.

Definition of controlling and significant interests

The definition of “controlling interest” was added to clarify when an individual, by ownership or influence, impacts a licensee’s operations or governance. It encompasses numerous scenarios, including holding more than 50 per cent of a licensee’s voting rights, retaining significant influence that does not reach the majority threshold, or exerting authority through indirect control or directives to directors or senior officers. Additionally, the definition of “significant interest” was revised to establish a concrete threshold of 10 per cent or more in voting rights, distributions, or the power to appoint or remove directors.

Application of amendments to licensing and ownership

The amendment applies these clarifications to several pivotal sections of SIBA. Section 6, which governs the licensing and scrutiny of applicants, now considers both significant and controlling interests in determining an applicant’s eligibility. Similarly, Section 11, related to acquisitions and disposals of such interests, incorporates the nuanced oversight of controlling interests, ensuring that any transactions are subject to the Commission’s approval. This extension applies consistently through subsections one to five of Section 11, reinforcing comprehensive regulatory coverage.

Alignment of certifications with new classifications

Section 64, addressing certifications for authorised representatives, was amended to align with these new classifications of interest. Collectively, these changes bolster the FSC’s ability to oversee ownership structures rigorously, ensuring that controlling or influential parties within licensee organisations uphold compliance and contribute positively to the integrity of the financial market.

Impact of the 2023 amendment

By expanding its regulatory scope and refining the governance standards, the Securities and Investment Business (Amendment) Act, 2023,  augments the SIBA’s framework, creating a more resilient and transparent investment business environment in the British Virgin Islands. These targeted amendments align closely with the jurisdiction’s overarching goals of maintaining financial stability, fostering investor trust, and upholding market soundness.

Further reading

• BVI Securities and Investment Business Act (consolidated as at 1 January 2020)
• 2023 Amendments