Securities and Investment Business Act, 2010

After much anticipation, the British Virgin Islands (BVI) enacted the Securities and Investment Business Act, 2010 on 12 April 2010 (SIBA). SIBA, which will come into force on 17 May 2010 with the exception of the provisions in Part II of SIBA relating to public issuers, which will come into force at a later date, takes into full account current and emerging international standards of regulation as they relate to the regulation and administration of investment funds (including hedge funds) and entities conducting investment or securities business. It represents an extremely important step for the ongoing development and growing sophistication of the financial services sector within the BVI. It also provides a user-friendly statute, in tune with the current regulatory environment, which will complement the BVI Business Companies Act, 2004 and the Insolvency Act, 2003.

SIBA has four principle objectives, being to:

• introduce an investment business licensing regime to regulate entities conducting “investment business” in or from within the BVI;
• adopt restrictions on and regulations for the making of “public issues of securities” into the BVI;
• update and modernise the regulation of the BVI investment funds industry, by repealing the current Mutual Funds Act, 1996 and replacing it with SIBA and the Mutual Funds Regulations, 2010; and
• introduce a market abuse regime.

The key features of SIBA are as follows:

Investment Business

Any person carrying out activities constituting “investment business” in or from within the BVI will be required to hold an investment business licence specifically authorising that kind of investment business, unless either those activities constitute an excluded activity or the entity conducting the investment business is an excluded person. The types of activity constituting investment business are as follows:

• dealing in investments;
• arranging deals in investments;
• managing investments;
• providing investment advice;
• providing custodial services with respect to investments;
• providing administrative services with respect to investments; and
• operating an investment exchange.

Significantly, the scope of SIBA will cover (i) any BVI company carrying on investment business anywhere in the world and (ii) any BVI or non-BVI entity conducting investment business in the BVI.

Once licensed to conduct investment business, SIBA makes provision for various systems and controls for the operation of a licensee’s business, covering corporate governance, advertisements and other administrative functions. A further regulatory regime will be implemented through the Regulatory Code, 2009 (the Regulatory Code) which came into force in the BVI on 1 February 2010 and is being amended to capture investment business licensees.

Public Issues of Securities

Another feature of SIBA is that it introduces provisions regulating the offering of securities into the BVI.

Under the public issues provisions, subject to limited exceptions, no security may be offered to the public in the BVI unless (i) the offer is contained within a “registered prospectus”; and (ii) the offer complies with the Public Issuers Code. For these purposes, an offer of securities to any person in the BVI or an offer received by a person in the BVI is an offer of securities to the public. Importantly, the mere receipt by a BVI company at its registered office of an offer of securities will not, in itself, be sufficient to make that offer constitute a public offer.

In addition to the normal common law remedies available, SIBA also gives the Courts the powers to grant a compensation order in favour of subscribers who purchased securities offered pursuant to a public offer in reliance of a prospectus and suffered loss or damages as a consequence of any untrue or misleading statement contained within that prospectus or omission from that prospectus.

Mutual Funds

SIBA repeals the Mutual Funds Act, 1996 and introduces an updated and modernised statutory regime for the regulation of the BVI funds industry, through SIBA and the Mutual Funds Regulations, 2010. The framework for the regulation of BVI funds is not materially altered by the enactment of SIBA and most of the popular concepts remain. Many of the legislative changes made under SIBA and the Mutual Funds Regulations, 2010 merely codify the existing FSC policy which has developed over recent years in line with evolving international standards.

Notable changes introduced by SIBA are as follows:

• a codification of the requirement for BVI funds to have at least two directors;
• a requirement for all BVI funds to appoint an authorised representative resident in the BVI (being an agent licensed by the FSC to provide authorised representative services);
• a change in the minimum initial investment which may be made by investors investing into professional funds, requiring, subject to limited exceptions, all investors to make an initial minimum investment of at least US$100,000 (the previous position under the Mutual Funds Act, 1996 was that a majority of the investors into professional funds were required to invest at least US$100,000);
• a change in the timeframe pursuant to which professional funds are able to commence business before receiving recognition from the FSC, enabling professional funds to commence business for up to 21 days before receiving FSC recognition, provided that the professional fund’s application for recognition is submitted to the FSC for consideration within 14 days of the launch date (the previous position under the Mutual Funds Act, 1996 was that a professional fund could commence business for up to 14 days before receiving FSC recognition); and
• a requirement for professional and private funds intending not to appoint either an investment manager, administrator or custodian to apply to the FSC for an exemption from the requirement to appoint such a functionary.

In addition to the above, SIBA codifies the current FSC policies in relation to ongoing reporting obligations for funds.

Market Abuse

SIBA introduces a market abuse regime which introduces prohibitions against insider dealing in the BVI. The market abuse regime introduced under SIBA is very much in line with accepted international standards.

Transitional Provisions

SIBA provides for transitional provisions which are applicable for existing BVI entities which are, on the date of it coming into force either currently licensed under the Mutual Funds Act, 1996 or currently carrying on business activities which constitute “investment business”. These transitional provisions will apply during the first six months following the enactment of SIBA, ending on 11 October 2010, and will enable such entities to come into compliance with SIBA during the transitional period without being in breach of the new regulatory regime, so facilitating the smooth transition of such entities into this regime.

Regulation

In 2010, the fundamental importance of lucid regulation governing the global financial services industry has never been more appropriate. Against this backdrop, the BVI has continued to develop its reputation as a leading financial centre for the facilitation of international business and finance. SIBA is a new addition to an existing robust and transparent regulatory regime and underlines the BVI’s significance as an integrated financial centre which plays an important role in the global economy.