Changes to the regime for closed-end funds in the British Virgin Islands
A new regulatory regime for closed-end funds has been implemented in the British Virgin Islands (the “BVI”). The BVI government introduced the Securities and Investment Business (Amendment) Act, 2019 (“SIBA Amendment”) accompanied with the Private Investment Funds Regulations, 2019 (“PIF Regulations”), which introduces a new category of fund requiring regulation, being a ‘private investment fund’. Until now closed-end funds were unregulated.
To be recognized as a private investment fund (i) the fund must be lawfully established (this can be in the BVI or elsewhere), (ii) certain particulars must be specified in its constitutional documents (for example that it is not authorized to have more than 50 investors and that the initial investment cannot be less than USD 100,000) and (iii) the fund must satisfy such other criteria as specified in the PIF Regulations and it needs to be in compliance with the SIBA Amendment and the PIF Regulations.
An application to the Financial Services Commission (the “FSC”) for recognition of a private investment fund needs to be in the approved form (specifying the fund’s BVI address, the details of the fund’s directors etc.) accompanied by the fund’s constitutional documents, certificate of incorporation (or equivalent), offering document and valuation policy.
Ongoing requirements for private investment funds are:
- Appointed persons, authorised representative and directors: it needs to have at all times appointed persons who are responsible for undertaking the management, the valuation and the safekeeping of the fund property. The fund also needs to have an authorised representative in the BVI. In case the fund is structured as a company, it needs to have at least two directors;
- Offering documents: its offering terms must contain the regulatory disclosures required by the PIF Regulations;
- Valuation: a clear and comprehensive policy for the valuation of fund property must be maintained, which must be followed by the appointed person responsible for the valuation of fund property;
- Financial records: it must maintain financial records that are sufficient (i) to show and explain its transactions and that enable to determine its financial position and (ii) to prepare the required financial statements.
Further to this, the fund has to prepare audited financial statements each year. The audited financial statements need to be filed with the FSC 6 months after the financial year end.
The FSC needs to be informed in case of certain key changes, such as a change of director, material changes to the fund’s business, amendments to the fund’s offering documents, constitutional documents or valuation policy etc. This notification needs to be provided within 14 days after making the changes.
For existing closed-end funds, there is a transitional period of 6 months during which such funds will be required to put in place all changes necessary for them to come into compliance with the new regulatory regime and to apply to the FSC to become recognized as a private investment fund. The transitional period ends on July 1, 2020. New funds that fall within the definition of a private investment fund will be required to submit an application for recognition as a private investment fund within 14 days of commencing business.