The Investment Business (Approved Managers) Regulations, 2012 (the Approved Manager Regulations) provides an attractive "regulatory light" option for qualifying investment managers and advisors. The application process under the Approved Manager Regulations is generally quick and straightforward making it an appealing and popular option for both start-up and existing qualifying investment managers and advisors.

Who is eligible to act as an approved investment manager (an Approved Manager)?

BVI business companies and BVI limited partnerships who wish to undertake Approved Business (as defined below) are eligible to apply to the BVI Financial Services Commission (the FSC) for approval to act as an Approved Manager.

What business may be undertaken by an Approved Manager?

An Approved Manager may act as investment manager or investment advisor to either:

  1. BVI private or professional funds (as defined under the BVI Securities and Investment Business Act, 2010 (as amended) (SIBA)) and their qualifying feeder funds and affiliates with less than US$400 million assets under management;
  2. Closed-ended funds from either the BVI or a "recognised jurisdiction1", which have the characteristics of a private or professional fund, and their qualifying feeder funds and affiliates with less than US$1 billion of assets under management; or
  3. Open-ended funds incorporated, formed or organised in a "recognised jurisdiction" which have equivalent characteristics to a private or professional fund with less than US$400 million assets under management

(together the Approved Business).

The guidelines to the Approved Manager Regulations provide that a closed-ended fund has the characteristics of:

  1. a professional fund, if its constitutional documents specify that (a) fund interests will only be issued to "professional investors2"; and (b) the initial investment of each investor, other than an "exempted investor3", is not less than one hundred thousand US dollars or its equivalent in any other currency; and
  2. a private fund, if its constitutional documents specify that (a) the fund is not authorised to have more than fifty investors or (b) the invitation to subscribe for, or purchase fund interests in the fund must be made on a private basis.

Application process

An applicant who wishes to apply to the FSC for approval to act as an Approved Manager (the Applicant) must lodge a completed application form and supporting documents

with the FSC at least seven days prior to the date it intends to commence Approved Business, unless the FSC accepts a shorter period in writing. The Applicant is then permitted to commence Approved Business for a period of up to thirty days which can be extended for an additional thirty day period either on application to the FSC or at the FSC's own volition. In the event the FSC does not grant approval during this time, the Applicant must cease carrying on Approved Business at the end of the initial or extended period as the case may be.

The application form is straightforward and must be accompanied by the following supporting documents and application fee (currently US$1,000):

  1. a copy of the Applicant's constitutional documents;
  2. the details of each director or general partner and senior officer of the Applicant;
  3. the details of each person who owns or holds an interest in the Applicant;
  4. a written declaration by the Applicant that each director, general partner, senior officer and each person who holds at least a ten percent (10%) interest in the Applicant (as applicable) is "fit and proper" in accordance with the Regulatory Code, 2009;
  5. the number and details of each fund the Applicant intends to act for upon commencement of Approved Business (each, a Fund) (including the name, address and place of incorporation or registration of the Fund);
  6. the date on which the Applicant intends to commence Approved Business;
  7. a copy of the investment advisory or investment management agreement between the Applicant and each Fund;
  8. a written confirmation as to which individual(s) will be carrying out the day-to-day investment business functions of the Applicant;
  9. a written confirmation as to whether or not the Applicant has delegated or intends to delegate any of its Approved Business functions. If so, the application must outline the functions that have been delegated or that the Applicant intends to delegate and provide a copy of the agreement relating to the delegation;
  10. a written confirmation from the Applicant's legal practitioner that the legal practitioner has agreed to act for the Applicant; and
  11. a written declaration by the Applicant's authorised representative or legal practitioner that the application for approval as an investment manager is complete and meets the application requirements of the Approved Manager Regulations.

A successful applicant will be issued with a Certificate of Approval to act as an Approved Manager and registered in the register of approved investment managers by the FSC. It will then be obliged to pay the annual licence fee (currently US$1,500) at the time of approval and then, going forward, on an annual basis.

Renewal of Approved Manager status and annual fees

Approved Manager status may be renewed annually, subject to (i) payment of the annual licence fee (currently US$1,500); and (ii) submission of an annual return in the approved form, each by 31 January in each calendar year.

The annual return is required to:

  1. state that the Approved Manager is not in breach of the requirements of the Approved Manager Regulations;
  2. confirm that each director, general partner, senior officer and Significant Owner is "fit and proper" in accordance with the Regulatory Code, 2009; and
  3. provide, as at 31 December of the previous year, details of (i) each Fund for which it provides services; (ii) the assets under management of each Fund; (iii) the number of investors in each Fund; and (iv) any significant complaints received by the Approved Manager.

Where the FSC is required or considers it necessary to comply with any reporting obligation, it may require an Approved Manager to provide the FSC with such further information as the FSC may consider fit.

Restrictions on an Approved Manager

An Approved Manager is subject to various restrictions, particularly in relation to the business it undertakes and assets under management.

An Approved Manager may only undertake Approved Business. In the event an Approved Manager manages both open-ended and closed-ended funds, the Approved Manager's aggregated assets under management for open-ended and closed-ended funds shall be segregated and treated separately for the purpose of the calculating the statutory limitations on assets under management.

If an Approved Manager ceases to qualify as such under the Approved Manager Regulations, it shall not take on any new business and immediately notify the FSC that it is no longer qualified to act as an Approved Manager. It then has a period of three months within which to cease carrying on Approved Business.

In addition, where an Approved Manager has assets under management in excess of the permitted statutory limitations, it must notify the FSC within seven of exceeding such amount. It shall then cease to qualify as an Approved Manager, unless within three months of the date it ceased to qualify as an Approved Manager:

  1. it no longer exceeds the statutory limitations;
  2. it submits an application to obtain a full licence as a investment manager under SIBA; or
  3. the FSC provides written approval that he may continue to act as an Approved Manager.

On-going obligations of an Approved Manager

Change in information - An Approved Manager must notify the FSC within fourteen days of the change of any information submitted with the original application form, providing details of the change and a written declaration as to whether or not the change complies with the requirements of the Approved Manager Regulations. An Approved Manager must also notify the FSC of any matter which has or is likely to have a "material impact" or a "significant regulatory impact" on the Approved Manager or the Approved Manager's conduct of Approved Business.

Authorised Representative and number of directors - An Approved Manager is at all times required to have a BVI authorised representative and, if it is a corporate entity, at least two directors (at least one of whom must be an individual). In the case of an Approved Manager constituted as a limited partnership, the partnership must, at all times, have at least one general partner.

Financial statements - An Approved Manager is required to prepare unaudited financial statements which comply with prescribed accounting standards and give a fair and true view of the matters to which they relate. Such financial statements must be signed by a director (or general partner, in the case of a partnership) and must be accompanied by a director's certificate and a report on the affairs of the Approved Manager made in respect of the relevant financial year. The financial statements and supporting documents must be submitted to the FSC within six months of the end of the financial year to which they relate. In limited circumstances, it is possible to apply for and gain an exemption from the requirement to submit financial statements.

Footnotes

1 A list of recognised jurisdictions is set out in the Securities and Investment Business (Recognised Jurisdictions) Notice, 2010 (the Notice), Please click here for a link to the Notice.

2 A "professional investor" is defined under SIBA as a person (a) whose ordinary business involves, whether for that person's own account or the account of others, the acquisition or disposal of property of the same kind as the property, or a substantial part of the property of the fund; or (b) who has signed a declaration that he, whether individually or jointly with his spouse, has net worth in excess of US$1 million, or its currency equivalent, and that he consents to being treated as a professional investor.

3 An "exempted investor" is defined under the Mutual Funds Regulations, 2010 (as amended) each of the following persons or entities with respect to a professional fund (i) each of the manger, administrator, promoter or underwriter of the fund; (ii) any employee of the manager or promoter of the fund; and/or (iii) such other class or description of persons as the FSC may, by notice published in the British Virgin Islands Gazette, specify as exempted investors.

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.