Continuing obligations for BVI private investment funds

Duties and obligations of a director of a Cayman Islands fund

This guide provides an overview of the powers, duties and obligations of a director of an exempted company incorporated under the Companies Act of the Cayman Islands (Companies Act) which is registered with the Cayman Islands Monetary Authority (CIMA) as a fund (Fund). This guide is limited to those Funds registered with CIMA under section 4(3) or 4(4)(a) of the Mutual Funds Act (a Mutual Fund) and those Funds registered with CIMA under the Private Funds Act (a Private Fund) as well as the law and practice of the Cayman Islands. Other duties, obligations and potential liabilities may also arise under the laws of other jurisdictions. There is no precise definition of a 'director' under Cayman Islands law. The directors of a Fund may be individuals or corporate bodies and they are the persons with ultimate responsibility for the management and conduct of the Fund's affairs. The first directors of a Fund (whether described as 'executive' or 'non-executive') are typically appointed by the initial subscribers to the Fund or otherwise in accordance with the articles of association of the Fund (Articles). The register of directors maintained by the Fund will be prima facie evidence of the identity of the directors from time to time. A person undertaking the activities of a director without being formally appointed may be found to be acting as a 'de facto director'. Also, if the duly appointed directors of a Fund are found to be acting in accordance with the directions or instructions of another person then that person may be found to be acting as a 'shadow director'. A person is not deemed to be a shadow director however by reason only that the directors act on advice given by such person in a professional capacity, so that an investment adviser of a Fund making recommendations to the directors as to the purchase or sale of investments should not usually constitute a shadow director. Executive directors, non-executive directors, shadow directors and de facto directors are all subject to the duties and obligations set out in this guide. When deciding whether or not to act as a director of a Fund, the following points should be considered: Who will be the other directors of the Fund? Will your fellow directors have the ability to work with you to properly coordinate the proper oversight and management of the Fund? Any other interests you may have in the overall structure of the Fund and its advisers or service providers. If you are a connected person (for example, a principal of the Fund's investment manager) you may want to consider either not sitting on the board of the Fund or making sure that you are in a minority position. These measures will reduce the potential for conflicts of interest to arise which could increase the risk of your actions later being challenged by the investors of the Fund as not being in accordance with your duties to the Fund. The expectations of the Fund's key investors. They may be comfortable with a board of directors comprised of connected persons or they may require the Fund to have one or more directors independent of the Fund's investment manager. This is something that you may wish to discuss further with the Fund's representatives and the Fund's current or proposed key investors before agreeing to accept any appointment as a director. You need to have sufficient and relevant knowledge and experience to discharge your duties as a director. It is up to you to acquire and maintain sufficient knowledge to enable you to carry out your role. You should use the Fund's professional advisers to provide advice on any areas or transactions of which you are unsure. In particular, you should ensure that you are able to properly read and understand the financial information relating to the Fund, including its financial statements. If there is anything that you do not understand, then you should promptly obtain professional advice. Whether the Fund has in place, or will be obtaining, any directors and officers ...

Establishing an Incubator or Approved Fund in the British Virgin Islands

These extremely popular and flexible funds are governed by the Securities and Investment Business (Incubator and Approved Funds) Regulations, Revised Edition 2020, as amended (the Regulations) and the Incubator and Approved Funds Guidelines. The British Virgin Islands (BVI) has often been described as the "home" of the emerging manager and these two fund products further reinforce that message. The incubator fund is aimed at start-up managers looking to establish a track record and test a strategy in the most cost- efficient manner. The approved fund is aimed at managers looking to establish a fund for a small, private and longer-term offering in a tested and respected funds jurisdiction. In order to qualify as an incubator or approved fund, a fund must fall within the requisite thresholds regarding (i) the number of investors, (ii) the maximum value of its net assets and (iii) the minimum initial contributions by each investor (incubator funds only). An approved fund is also required to appoint an administrator to ensure suitable oversight of its operations. The key features of incubator & approved funds Rapid approval times by the Financial Services Commission (the Commission) ensuring that the fund can be launched within a timescale that meets the manager's requirements Light regulation and minimal ongoing regulatory obligations Limited mandatory information to be contained in an offering document means that the fund can operate using a short-form term sheet, keeping legal costs and time associated with set-up to a minimum Stripped back requirements for mandatory functionaries to be appointed (other than the appointment of an administrator for an approved fund). The manager can therefore elect to only appoint functionaries they believe the fund requires from the outset No requirement to conduct an audit or file audited financial statements The incubator fund has a two-year validity period (with the possibility to extend this by a maximum of 12 months on application to the Commission), which gives the manager time to test their strategy and determine whether the fund is viable before committing to operate as a private, professional or approved fund Option to convert to a private or professional fund at a later date, should the fund outgrow the applicable restrictions Ability to commence business within two business days of lodging a complete application for approval with the Commission Criteria for the incubator & approved funds Number of investors: Incubator and approved funds must have no more than 20 investors. Once this limit is met, the Regulations allow a reasonable time to upgrade the fund to the next level, ensuring a smooth continuity of operation Minimum investment: For incubator funds only, each investor must be a "sophisticated private investor", which simply means that they were invited to invest in the fund and must make a minimum initial investment of US$20,000. There is no prescribed minimum investment amount for approved funds Total assets: The net assets of an incubator fund must not at any time exceed US$20 million. The net assets of an approved fund must not at any time exceed US$100 million Valuation policy: The fund is required to maintain a clear and comprehensive policy for the valuation of its assets (Fund Property) with procedures that are sufficient to ensure that the valuation policy is effectively implemented. The valuation policy shall: Be appropriate for the nature, size, complexity, structure and diversity of the fund and the Fund Property Be consistent with the provisions concerning valuation in its constitutional documents and term sheet/offering document Require valuations to be undertaken at least on an annual basis Include procedures for preparing reports on the valuation of the Fund Property Specify the mechanisms in place for disseminating valuation information and reports to investors Minimum investor disclosures: Each investor must be provided with a written warning (either in a pr...

Continuing obligations for BVI private investment funds

As a recognised fund, your private investment fund (PIF) is regulated by the British Virgin Islands (BVI) Financial Services Commission (the FSC). This note provides a quick reference to your PIF's ongoing BVI obligations. PIFs are recognised under the Securities and Investment Business Act, Revised Edition and are subject to the Private Investment Fund Regulations, Revised Edition 2020. A PIF must At all times have at least two directors, at least one of whom must be an individualAppoint an appropriately qualified and independent individual as Money Laundering Reporting Officer (MLRO) for the fund who may, in practice, be a person provided by one of the functionaries to the fund (see below for more detail on anti-money laundering obligations), or otherwise outsourcedAppoint a Foreign Account Tax Compliance Act (FATCA) Responsible Officer and a principal point of contact for the BVI International Tax Authority (ITA)(see below for more detail on obligations under FATCA and CRS)Have an "appointed person" designated as having responsibility for undertaking each of (i) the management of fund property; (ii) the valuation of fund property; and (iii) the safekeeping of fund property (including the segregation of fund property) On the happening of certain events, a PIF is required to notify the FSC. The table below summarises these notification requirements and the timeframe for providing notice. There are various reporting and payment deadlines for a PIF throughout the year. A PIF is required to maintain a valuation policy setting out the applicable procedures for the valuation of fund property, the preparation of reports on the valuation and setting out the mechanisms for sharing valuation information with investors (Valuation Policy). A PIF must ensure that the person appointed as its valuation "appointed person" values fund property in accordance with the valuation policy. A PIF should also have a safekeeping policy and adequate arrangements in place for the safekeeping of fund property (Safekeeping Policy). On an annual basis, a PIF should review its Valuation Policy and Safekeeping Policy to ensure compliance with BVI legislation. A PIF must maintain records that are sufficient to show and explain its transactions, to enable its financial position to be determined with reasonable accuracy at any time, to enable it to prepare financial statements and make returns and, if applicable, to enable its financial statements to be audited. A PIF must prepare financial statements for each financial year that comply with: The International Financial Reporting Standards, promulgated by the International Accounting Standards BoardUK generally accepted accounting principles (GAAP)US GAAPCanadian GAAP; orInternationally recognised and generally accepted accounting standards equivalent to the accounting standards referred to above The BVI anti-money laundering (AML) regime applies to all funds as they are classified as "relevant persons" under the Anti-Money Laundering Regulations, Revised Edition 2020. In addition to appointing an appropriately qualified and independent individual as MLRO (as mentioned above), a fund will be required to: Put in place investor on-boarding procedures which address typical "know your client" requirements.Put in place and maintain a written and effective system of internal controls which provides appropriate policies, processes and procedures for forestalling and preventing money laundering and countering the financing of terrorism (the Manual). The Manual should be reviewed annually to ensure compliance with AML regime in the BVI.Report suspicious transactions to the Financial Investigation Agency (FIA) in the BVIReport the identity of its appointed MLRO to the FIA The BVI rules do provide for funds to outsource all and any of these obligations to functionaries based outside of the BVI, such as an administrator or investment manager. Any outsourcing must, however, be documented in writing. PIFs are required to...

Guide to the British Virgin Islands approved manager regime (BVI)

This guide provides an overview of the British Virgin Islands' Approved Manager regime. The regime came into effect on 10 December 2012 with the Investment Business (Approved Managers) Regulations, Revised Edition 2020 (the Regulations) and the Approved Investment Managers Guidelines (the Guidelines). It introduces a less onerous regulatory regime for BVI domiciled investment managers and investment advisers and compliments the more heavily regulated investment business licensing regime under Part I of the Securities and Investment Business Act, Revised Edition 2020 (SIBA). The key features of the new regime are: For eligible managers and advisors, an alternative to licensing under Part I of SIBA The applicant must be a BVI company or limited partnership Application form provides for self-certification of "fit and proper" status of the applicant The approved manager can commence business seven days after filing a short and simple application with the Financial Services Commission (the Commission) pending formal approval The approved manager can act as manager or advisor to any number of incubator, approved, private or professional funds recognised under SIBA, as well as funds domiciled outside of the BVI in a Recognised Jurisdiction (as defined below) and closed ended funds domiciled in the BVI or in a Recognised Jurisdiction, if they have the key characteristics of a private or professional fund The approved manager is subject to caps of (i) aggregate assets under management of US$400 million for open ended funds and (ii) aggregate capital commitments of US$1 billion for closed ended funds Annual return and unaudited financial statements to be filed with the Commission No capital adequacy or professional indemnity insurance requirements and no requirement to appoint a compliance officer. The Regulatory Code does not apply At this point in time, a Recognised Jurisdiction for these purposes means: Argentina, Australia, Bahamas, Bermuda, Belgium, Brazil, Canada, Cayman Islands, Chile, China, Curacao, Denmark, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hong Kong, Ireland, Isle of Man, Italy, Japan, Jersey, Luxembourg, Malta, Mexico, Netherlands, New Zealand, Norway, Panama, Portugal, Singapore, Spain, South Africa, Sweden, Switzerland, United Kingdom and the United States of America. Criteria for approved managers An approved manager may carry on business (defined as "relevant business" in the Regulations) as an investment manager or investment adviser to: 1. One or more incubator, approved, private or professional funds recognised under SIBA (or funds domiciled outside the BVI but in a Recognised Jurisdiction) 2. One or more closed ended funds which are domiciled in the BVI and have certain key characteristics of a private or professional fund 3. One or more open ended or closed ended funds which are domiciled in a Recognised Jurisdiction and have certain characteristics of a private or professional fund 4. One or more non-BVI funds (open ended or closed ended) investing a substantial part of its assets in a fund described in (a), (b) or (c) above 5. One or more persons who are affiliated (as defined in the Guidelines) to a fund described in (a) or (b) above 6. Such other person(s) as the Commission may approve on a case by case basis (the most common application under this section being for the purposes of providing some form of management advice to "managed accounts") Application process - timeframe An applicant must submit its application in the prescribed form to the Commission at least seven days prior to the intended date of commencement of the "relevant business". After the expiry of the seven day period (or such shorter period as the Commission may approve), the applicant may commence and carry on "relevant business" for a period of up to 30 days (such period being extendable for a further period of 30 days by the Commission). During this 30 day (or extended) period, the applicant will be deemed to have be...

Data protection for investment funds domiciled in the British Virgin Islands

The Virgin Islands Data Protection Act 2021 (the Act) is now in force. The Act imposes a number of obligations upon investment funds in relation to the processing of personal data that they will inevitably collect as part of the investor onboarding procedure. In order to ensure compliance with the Act, investment funds should: Provide investors with a privacy notice Update their offering and subscription documentation Revisit service agreements with third parties, most importantly, the fund administrator Overview The Act governs how a data controller may process, use and retain personal data. Anyone who falls within the definition of a data controller" (of which an investment fund domiciled in the BVI clearly does) must now comply with the seven principles in the Act in relation to any personal data processed by the fund. Where a data controller engages a third party (such as an administrator or investment manager) to process personal data on its behalf (defined in the Act as a data processor), the data controller must ensure the data processor has appropriate safeguards in place in respect of the personal data. In addition to governing how a data controller processes, uses and retains personal data, the Act also sets out the rights of individuals to control their personal data and implements a series of offences and enforcement measures designed to ensure compliance. The Act is broadly designed to reflect the General Data Protection Regulation (GDPR) and the Cayman Islands Data Protection Act (both of with which many clients will already be familiar), however there are a number of differences that you should be aware of. Application of the Act to investment funds Any investment fund structured as a BVI company or partnership, or any foreign company registered in the BVI that acts as a general partner of an investment fund will be subject to the Act and will be a data controller. Investors in a BVI investment fund will routinely provide certain personal identifying information to the investment fund such as their name, address, date of birth, bank details etc and this is to be regarded as "personal data". Although the persons whose data is gathered under the Act ("data subjects") have to be natural individuals, the Act will still apply in connection with corporate investors who provide personal data for their beneficial owners, directors, employees and members. The individual to which the personal data relates does not need to be in the BVI or a citizen of the BVI in order for the Act to apply. What must an investment fund do to comply with the Act? As a data controller, an investment fund must ensure that it complies with the seven data protection principles contained in the Act. See our guide BVI introduces data protection regime for further information. In practical terms, an investment fund can demonstrate compliance with the data protection principles by taking the following actions: Send a privacy notice to existing investors, whether as a separate document or part of an update to the offering document Update subscription documents to include a privacy notice for new investors as well as obtain certain acknowledgements, representations and warranties Update offering documents Update agreements with any third parties that would be regarded as a data processor on the basis that they process personal data on behalf of the data controller Privacy notices If the investment fund is already subject to GDPR then it may have already adopted a GDPR compliant privacy notice. If that is the case, then a few amendments to the privacy notice to reflect the Act are all that are needed. If the investment fund has not yet adopted a privacy notice, then it should prepare one in order to communicate the required information to its investors and we would be happy to assist with this drafting where required. In either case, the privacy notice should be sent to existing investors and/or made available on an investor or fund administration ...