The new category of fund is to be called a “private investment fund” and is defined as a company, partnership, unit trust or any other body which:

  • collects and pools investor funds for the purpose of collective investment and diversification of portfolio risk; and
  • 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.

An entity which does not have the above characteristics will not be a private investment fund and will not be affected by the legislation.

The legislation will prohibit the promotion or operation of a private investment fund unless and until it has been “recognised” by the FSC (although there will be a 21-day grace period from the commencement of carrying on business for making the application for recognition, for private investment funds which are compliant in all respects except for recognition when they start business).

The FSC is able to recognise a private investment fund if it is satisfied that the following conditions are met:

  • the fund is lawfully incorporated, registered, formed or organized under the laws of the BVI or of a country outside the BVI; and
  • the constitutional documents of the fund specify that:
    1. The fund is not authorized to have more than 50 investors, or
    2. An invitation to subscribe for or purchase fund interests shall be made on a private basis only, or
    3. 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 Regulations (currently US$100,000); and
  • the fund meets such criteria as may be specified in the Regulations; and
  • on recognition, the fund will be compliant with the legislation, the Regulations, and any practice directions applicable to the fund; and
  • recognising the fund is not against the public interest.

A private investment fund will be obliged to operate in accordance with any restrictions on numbers or type of investors, or on the offering of interests, set out in its constitutional documents, and to maintain financial records.

The legislation sets out penalties for any person operating or promoting, or acting as administrator, custodian or manager for a private investment fund which has not been recognised.

There is a transitional period to 1 July 2020 during which existing closed-ended funds can make themselves compliant.

The legislation also includes a new provision requiring persons undertaking management functions for new fund entities (including mutual funds as well as private investment funds) to provide notifications to the FSC. This provision will come into force on 1 July 2020.

The principal impact of the legislation is to prohibit private investment funds from operating unless they have filed particulars with the FSC, and received recognition from the FSC. Recognition will only be forthcoming where the fund is limited to a small group of investors, or privately placed, or limited to professional investors. Since most closed-ended funds in BVI are likely to have self-imposed restrictions on eligible investors which comply with these restrictions, the legislation itself is unlikely, in our view, to cause any significant impact upon the private funds industry and we do not anticipate that any Regulations will impose any notable change to the way in which such funds currently operate.

The legislation arises as part of wider discussions with the EU in relation to the BVI’s economic substance regime. However, it does not impose any economic substance or reporting requirements. It should be noted that carrying on business as a fund (whether a mutual fund, private investment fund or otherwise) is not of itself a “relevant activity” falling within the BVI’s economic substance regime.

Share
Twitter LinkedIn Email Save as PDF
More News
21 Jan 2020 | News

The void filled: Constitutional vacuum in grandfathered bearer share companies

It is rare that a Court has the opportunity to put to rest a series of controversial issues in a sin...

16 Jan 2020 | News

Have a coffee on Appleby this Blue Monday #ThanksAppleby

After the success of last year’s campaign, Appleby has partnered with local coffee shops in six lo...

14 Jan 2020 | News

Appleby shortlisted as ‘International Law Firm of the Year’ in the Citywealth Magic Circle Awards 2020

Appleby has been shortlisted as ‘International Law Firm of the Year’ in the 2020 Citywealth Magi...

Contributors: Vincent Chan
6 Dec 2019 | News

Q&A with Jeff Kirk: Life at Appleby in the BVI

Office Managing Partner, Jeff Kirk, recently spoke to Legal 500 about life at Appleby and relocating...

26 Nov 2019 | News

BVI Securities and Investment Business (Amendment) Bill

The BVI has gazetted draft legislation which, if enacted, will introduce a supervisory regime for cl...

Contributors: Robert Varley
5 Nov 2019 | News

Positive Energy: Appleby comments on an active Energy and Natural Resources sector

Appleby has reported another strong year in the energy and natural resources sector and has acted on...

17 Oct 2019 | News

What are the key trends shaping the fund finance industry in Asia?

Recently, Corporate Partner Fiona Chan joined a panel of experts at the third annual APAC Fund Finan...

16 Oct 2019 | News

The Rules on Economic Substance in the British Virgin Islands.

The British Virgin Islands International Tax Authority (ITA) published the Rules on Economic Substan...