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BVI Mutual Funds

The British Virgin Islands, a British Overseas Territory since 1672, is the corporate domicile of more than 3,000 mutual funds. The attractiveness of the British Virgin Islands as a jurisdiction within or from with which to conduct mutual fund business is based on the territories history, the quality and diversity of the territories financial services, flexible legislation, low tax regime, commitment to privacy, integrity and stability.

British Virgin Islands funds are listed on several international stock exchanges, including the Bermuda, Zurich and Irish stock exchanges.

In the British Virgin Islands mutual fund investment business is governed by the Mutual Funds Act, 1996 (the “Act”) which is administered by the British Virgin Islands Financial Services Commission.

The Act provides for the regulation, authorisation and control of open ended mutual funds, their managers and administrators carrying on business in or from within the British Virgin Islands. 

A mutual fund is defined under the Act as a company incorporated, a partnership formed, a unit trust organized or other similar body formed or organized under the laws of the British Virgin Islands or of any other country or jurisdiction which (a) collects and pools investor funds for the purpose of collective investment, and (b) issues shares that entitle the holder to receive on demand or within a specified period after demand an amount computed by reference to the value of the proportionate interest in the whole or in a part of the net assets of the company, the partnership, the unit trust or other similar body, as the case may be, and includes (i) an umbrella fund whose shares are split into a number of different class funds or sub-funds, and (ii) a fund which has a single investor which is a mutual fund not registered or recognized under the Act.

There are three types of mutual funds that are regulated under the Act, namely private funds, professional funds and public funds:

  • A private fund is a mutual fund whose constitutional documents specify that it will have no more than 50 investors, OR that the making of an invitation to subscribe for or purchase shares issued by the mutual fund is to be made on a private bases. Additionally, a mutual fund may be designated as a private fund by the regulators of the Act.
  • A professional fund is a mutual fund the shares of which are made available only to professional investors  and the initial investment in which, in respect of the majority of each such investor, is not less than US$100,000 or its equivalent in any other currency, OR which is designated as a professional fund by the regulators of the Act.
  • A public fund is a mutual fund which is not a private fund or a professional fund.

The basis for recognition of a private or professional fund is a two-pronged test, whereby applicants must prove to a satisfactory level (a) that it is lawfully constituted, and (b) that it complies with the definition of a private/professional fund to become recognised under the Act.

The basis for the registration of a public fund is (a) proof that it is lawfully constituted, (b) that it complies with the definition of public fund to be registered under the Act.

The majority of the funds established in the British Virgin Islands fall into the category of either private or professional funds.
 
The Act provides for the licensing of persons who provide management or administrative services to mutual funds in or from within the British Virgin Islands:

BVI Fund Managers and Administrators

  • A fund manager is a person not being an officer or an employee of a person licenced under the Act or a mutual fund which has delegated management functions to a person licensed under the Act who (a) for valuable consideration, provides a mutual fund with management services alone or together with investment advice or administrative services, OR (b) is entitled to provide mutual funds (by whatever name called), such services or advice as provided herein before under the laws of a recognized country or jurisdiction.
  • A fund administrator is person who for valuable consideration provides a mutual fund with administrative services alone or together with accounting services.

The basis for the licensing of a mutual fund manager of administrator is the “fit and proper test”.

Fit and Proper Test

The mutual fund business is a supervised activity and the mutual funds Registry needs regular and timely information in order to exercise its on-going supervision of these funds. 

It follows that throughout the application process the Registrar will be evaluating whether sponsors or directors of fund and/or the fund manager, administrator and the key functionaries are “fit and proper” persons to undertake their respective areas of responsibilities.

To assist the Registrar in carrying out this function will require the following for each director:

  • Three personal references (two professional and one banking)
  • A police clearance certificate (in English), or alternatively where the director is from a jurisdiction which does not provide for the issuance of such certificates, a notarized affidavit confirming the absence of criminal conviction
  • A detailed resume

The “fit and proper” test though initially applied at the application stage is ongoing and is cumulatively applied with respect to the fund functionary throughout the life of the fund’s business activities. 

The onus will always be on the applicant, individual or licence holder to provide satisfactory evidence that he/she is and continues to be a “fit and proper” person.  Evidence merely of a minimum standard will not be sufficient, and it is preferred that persons supply evidence that displays that they meet a high standard.


Recognition, Registration and Licensing Pointers

In completing the applications for recognition, registration or licensing, the following points should be noted:

  • The number of investors that will be included in each fund and the proposed minimum investment must be expressly and clearly stated. This information will assist us to determine if the funds will be categorized as private or professional.
  • The functionaries of the fund (i.e. managers, administrators, investment adviser and custodian) are, whenever possible, to be domiciled in the British Virgin Islands or in a recognized jurisdiction. Where the functionaries of the fund are not domiciled in of the British Virgin Islands or a recognized jurisdiction, in order to act they must prove to the satisfaction of the Registrar of Mutual Funds, that they are subject to a prudent system of regulation in the functionary’s jurisdiction of domicile they may be considered “fit and proper” persons for licensing.
  • Establishing the identity of the beneficial owner of an applicant for recognition is a key element of the “fit and proper” test.
  • Bearer shares in the fund structure should be avoided. The ability for any entity in the fund structure to issue bearer shares is considered inconsistent with the disclosure and assessment of the beneficial owner of an applicant for licensing and will not be regarded favourably by the regulators.
  • As a matter of current regulatory practice, details of the proposed arrangements for the safekeeping of the fund’s assets will be required.
  • A draft of extract of the funds information memorandum will be required for our general review by the regulators. 

Fees

Where recognition or licence is granted on or before June 30 the fees payable are as follows:

  • US$350 for private or professional fund
  • US$500 for manager or administrator
  • US$1,000 for person or entity licenced as both manager and administrator

Where recognition or licence is granted on or after July 1 the fees payable are as follows:

  • US$175 for private or professional fund
  • US$250 for manager or administrator
  • US$500 for person or entity licenced as both manager and administrator

Recognition and licence fees are payable annually on or before March 31st as follows:

  • US$350 for private or professional fund
  • US$500 for manager or administrator
  • US$1,000 for person or entity licenced as both manager and administrator

An application fee of US$250 is payable in connection with an application for the licensing of fund managers and administrators. An application fee of US$350 is payable in connection with an application for recognition by a private or professional fund constituted outside of the British Virgin Islands.


Abacus Services

Abacus Trust and Management Services Limited (“ABACUS”) can assist you with establishing your public, private or professional funds and your managers or administrators. Our fees for such services are available upon request.

ABACUS does not provide fund management custodian or administrator services and therefore should not be listed as a functionary.

Auditing services are available through Meade Malone & Co., an affiliated company of ABACUS, whose address is Geneva Place, 2nd Floor, 333 Waterfront Drive, Road Town, Tortola, British Virgin Islands.


General

This document does not attempt to be exhaustive on all aspects of British Virgin Islands mutual funds. It should therefore be regarded as a basic guide and not a comprehensive checklist to the establishment of British Virgin Islands mutual funds and mutual fund managers and administrators.

It is our policy to recommend to clients that all documents surrounding fund applications be reviewed by a lawyer qualified to practice in the British Virgin Islands to ensure full compliance with the British Virgin Islands laws.

Please contact us directly at info@mwmabacus.com should you require more detailed information on private, professional and public funds or other specific issues

 

 
Last Revised: 10/9/2009

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