Perfectly reformed

The latest regulatory reform in the British Virgin Islands is part of the government’s efforts to bring the territory in line with other financial centres. Robert Briant and Anton Goldstein report

The regulatory landscape in the British Virgin Islands (BVI) has undergone significant changes since the beginning of the year. With the ink ­barely dry on the Regulatory Code and Financing and Money Services Act, the latest and most significant aspect of the BVI’s regulatory reform is the Securities and Investment Business Act (2010) (Siba.

Siba is widely anticipated to be brought into force in the next few weeks and is ­concerned with four broad pillars of ­regulation: the regulation of investment business, the public issues of securities, ­market abuse and hedge funds.

Investment business
The most significant change implemented by Siba is that it requires any person ­carrying on ’investment business’ in or from within the BVI to obtain a licence from the BVI Financial Services Commission (FSC). Most importantly, this licensing ­requirement extends to:

> all BVI companies that carry on ­investment business, even if the relevant company’s business activities occur ­entirely outside of the BVI; and

> all non-BVI persons who solicit individuals or companies in the BVI for the purpose of offering investment business services. Provided no solicitation occurs in the BVI itself, the licensing requirement will ­generally not apply to non-BVI persons who provide investment business services to BVI companies outside of the BVI.

‘Investment business’ is very widely defined by Siba and, broadly, will catch investment managers, investment advisors, administrators, custodians, market ­makers, brokers, dealers, market intermediaries and operators of investment exchanges.

When Siba comes into force, there will be a six-month grace period for those persons already carrying on investment business to apply for a licence. Once a licence has been granted, Siba imposes a number of ­continuing obligations on licensees. Most significantly, licensees will be required to maintain minimum capital resources, obtain the FSC’s prior approval for certain corporate actions or a change of control, comply with rules regarding client assets and appoint a licensed ’authorised representative’ in the BVI (who is responsible for liaising with the FSC on behalf of the licensee).

Public issue of securities
Siba also regulates the offering of securities to the public in the BVI, although the new rules are not expected to have widespread application. In particular:

> BVI companies will be able offer securities outside the BVI without restriction; and

> securities can be offered to BVI companies without restriction, provided such an offer is not sent into, or received in, the BVI.

Market abuse
Siba introduces new criminal offences ­relating to insider dealing, misleading ­statements and market manipulation. Broadly, the territorial scope of all of these offences is limited to conduct that occurs in the BVI.

Hedge funds
Although Siba replaces the existing legislation regulating hedge funds, it does not bring about any dramatic changes. Many of the ’new’ requirements introduced by Siba are already required in practice by the FSC. The key new requirements anticipated for private and professional funds (the most common type of hedge fund) are that they will be required to:
> appoint an auditor and submit audited financial statements to the FSC;
> have an authorised representative in the BVI to liaise with the FSC; and
> include a prescribed investment warning in their offering memoranda.

Misplaced concern
Regulatory reform is often accompanied by a degree of trepidation and wariness. ­However, much of the concern generated over Siba is misplaced.
The key change introduced by Siba is the licensing and supervisory regime for investment business. However, this simply brings the jurisdiction into line with other financial centres and, judging from experience with other financial services licensees in the BVI, there is every reason to think the FSC will administer the new regime efficiently and without undue interference with the day-to-day business activities of licensees.

It is also important to view Siba in a broader context. The driving force behind the recent regulatory reform is the government’s desire to bring the BVI’s regulatory regime into line with international best practice and to respond to various international initiatives directed at offshore ­jurisdictions. When coupled with the BVI’s expediency in entering into tax information exchange agreements (17 and counting) and the ­jurisdiction’s elevation to the Organisation for Economic Cooperation and Development ’white list’, the recent reform entirely demolishes the already erroneous categorisation of the BVI as a ’tax haven’.

Viewed in this light, Siba is the ­latest step in cementing the BVI’s position as a ­sophisticated and transparent offshore financial centre that has a crucial role to play in the structuring of international transactions.

Robert Briant is managing partner and Anton Goldstein is an associate at Conyers Dill & Pearman in the BVI