Following the completion of an industry consultation, the Securities and Investment Business Act, 2010 ("SIBA") came into force in the British Virgin Islands ("BVI") on 17 May 2010. The enactment of SIBA represents an important step for the continued development and growing sophistication of the financial services sector within the BVI and this new statute will, going forward, represent the cornerstone for the regulation of much of the BVI's financial services industry.
Importantly on a global stage, SIBA ensures that the regulation of the BVI's financial services industry remains in tune with the evolving global regulatory standards, demonstrating the BVI's continued commitment to implement international best practice for financial services regulation. In addition, with SIBA, the BVI has a further modern and user friendly statute to complement the universally popular BVI Business Companies Act, 2004, Insolvency Act, 2003 and Virgin Islands Special Trusts Act, 2003. Taken together, this suit of popular statutes should ensure the continued popularity and growth of the BVI as a venue for the structuring of products for the private client industry for years to come.
Objectives of SIBA
SIBA has four principal 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 Mutual Funds Act, 1996 and replacing it by SIBA, the Mutual Funds Regulations and the Public Funds Code; and
- introduce a market abuse regime.
Dealing with each of these objectives in turn, the key features are as follows:
Any person carrying on activities constituting "investment business" in or from within the BVI involving "investments" will, under SIBA, be required to hold an investment business license specifically authorising that kind of investment business.
Importantly, the investment business provisions within SIBA are not intended to capture all BVI entities used for investment purposes and many structures utilised by family offices for facilitating the management of private wealth will not be caught by the new regulatory regime, since such entities' activities will likely fall outside the definition of activities constituting "investment business". Broadly speaking the intention is that entities whose business purposes effectively make them the "shopkeepers of investments" are caught by these new regulations and so required to be licensed under SIBA.
It should also be noted that where an entity's activities do constitute "investment business", certain investment activities are expressly excluded from constituting investment business ("excluded activities") and certain types of persons conducting investment business are expressly excluded from the requirement to hold an investment business license under SIBA ("excluded persons").
Significantly, the scope of SIBA will cover any BVI company carrying on investment business anywhere in the world and any person soliciting a person (including a BVI entity) in the BVI in order to offer a service constituting investment business. Therefore, the investment business provisions under SIBA will have application to both BVI entities conducting investment business outside the BVI and also BVI and non-BVI entities conducting investment business within the BVI, unless in either case, those activities constitute an "excluded activity" or the entity conducting the investment business qualifies as an "excluded person".
For BVI entities currently conducting business activities which are now caught by the investment business regime under SIBA, transitional provisions exist, which are due to expire on 31 December 2010, during which such entities are required to come into compliance with and become licensed by the Financial Services Commission under SIBA.
Public Issues of Securities
SIBA 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 the offer is contained within a "registered prospectus"; and 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.
Where an offer is deemed to be a public offer and so requiring the prospectus to be registered with the FSC, SIBA and the Public Issuers Code provide for prospectus content requirements and for public issues by BVI companies, certain provisions of the BVI Business Companies Act, 2004 are disapplied by Schedule 6 of SIBA.
However, it should be noted that the provisions in SIBA relating to public issues are not yet in force.
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 its secondary legislation, the Mutual Funds Regulations and the Public Funds Code. The framework for the regulation of BVI funds is not materially altered by SIBA and most of the popular concepts remain.
Significantly, the regulatory regime applicable to private and professional funds (the two categories of BVI funds applicable to approximately 2,700 of the 3,000 licensed BVI funds) is not substantially changed as a consequence of SIBA, with many of the "changes" merely representing the codification of existing regulatory policies operated by the Financial Services Commission, which have evolved over time in line with evolving international standards. The regulatory changes for such funds are therefore positive, as it provides certainty and enables greater regulatory transparency.
The regulatory regime applicable to public funds, which is a category of fund utilised for retail offerings by BVI funds (the category of BVI funds applicable to approximately 300 of the 3,000 licensed BVI funds) will be changing under SIBA, with most of the regulatory changes introduced by the proposed Public Funds Code (which whilst in draft, has just completed an industry consultation). Underpinning the Public Funds Code is the need for the regulation of BVI funds aimed at the retail market to be on a par with IOSCO Principles.
As with the investment business provisions, to facilitate the smooth transitioning of existing BVI funds into the new regulatory regime, transitional provisions exist under SIBA, which are due to expire on 31 December 2010, during which various of the changes brought about by the new regulatory regime are required to have been implemented.
SIBA provides for 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 and similar to accepted international standards and is therefore not worthy of further comment in this respect.
Overall, the regulatory changes brought about by the enactment of SIBA have been very much welcomed by the BVI financial services industry, as they are perceived to further strengthen the BVI's financial services platform, which should ensure the continued competitiveness of the BVI for the years to come.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.