British Virgin Islands: Provision Of Investment Management And/Or Administration Services To Mutual Funds

Introduction

The object of this memorandum is to provide clients of Walkers with general information on the approval process under the Mutual Funds Act, 1996 (the "Act") (as amended) in relation to an application for a licence to provide management and/or administration services to a mutual fund.

The comments in this memorandum relate solely to the application procedure in relation to a BVI business company incorporated under the laws of the British Virgin Islands (the "BVI").

Application procedure

The application procedure is straightforward and involves completing an application in the form prescribed by the Financial Services Commission (the "FSC"). Generally, the application process is designed to be streamlined and approval is usually obtained within several weeks of filing a completed application.

The basic test for eligibility is that the applicant must be judged to be a "fit and proper" person. Key elements of this test are the availability of adequate financial resources, a track record in the business proposed and demonstrable integrity and competence.

A restricted licence relates to the provision of management and/or administrative services to professional or private funds only and the provision of services will be restricted to specified funds. A restricted licence is not available in relation to public funds. While it is usual for the licence to relate to the provision of management or administrative services to one fund it is possible to have more than one fund listed on the restricted licence.

A general licence relates to the provision of management and/or administrative services to an unspecified number of all types of mutual funds.

The funds for which services are being provided need not be domiciled in the BVI and it is quite common to have a BVI manager or administrator providing services to a fund domiciled elsewhere.

There is a US$250.00 application fee and an annual US$500.00 licensing fee.

Structuring considerations

At the outset it is important to note that in usual circumstances, a person who provides only investment advice (that is, investment recommendations which carry no explicit or implied obligation of acceptance), whether to a mutual fund or to any other person, would not be regarded as falling within the definition of a "manager" in this context and would therefore fall outside the scope of the Act and licensing would not be required.

Where licensing is required, prior to the application being made all subscribed shares in the investment manager must be issued and fully paid. The minimum paid up capital is US$5,000.00 and the FSC will generally not issue a licence to a company that has the ability to issue bearer shares.

Each shareholder must supply a resume, reference and a police clearance certificate indicating no criminal convictions. As a result, it is not usual to have extensive shareholding.

The FSC generally expects that each manager/administrator has a minimum of two directors who have sufficient reputation and experience in the management and/or administration of mutual funds. Again, a resume, reference and police clearance certificate is required for each director.

If there are any sub-delegation agreements these must be supplied to the FSC as well as the offering documents for the relevant fund(s). Where these documents are not finalised it is possible to submit them to the FSC on the understanding that copies will be submitted immediately upon completion.

Additional documentation

In addition to the above noted materials, the following information should accompany each application:

1. a certified copy of the memorandum and articles of association of the manager/administrator;
2. a certified copy of the certificate of incorporation of the manager/administrator;
3. a directors' undertaking that the manager/administrator will not be redomiciled without consent of the FSC; and
4. an auditor's confirmation of appointment letter. (NB the requirement to appoint an auditor may not apply where the manager/administrator is only receiving fees or merely appointing other service providers).

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.