Isle of Man: The Investment Business (Approved Managers) Regulations, 2012 - The Regulation Of Investment Advisers And Investment Managers In The BVI

Last Updated: 12 June 2013
Article by Peter Chemaly

First there was the Mutual Funds Act . . .

The regulation of mutual funds (collective investment schemes) and fund managers and administrators in the BVI commenced with the Mutual Funds Act, 1996 (as amended; the "Mutual Funds Act") which came into force on January 2 1998.

The Mutual Funds Act and its associated regulations and guidelines was mainly concerned with defining what constitutes a mutual fund, classifying funds into one of three categories (private, professional or public), and setting out the different requirements applicable to each.

But it also required all mutual fund managers or administrators operating in or from the BVI to be licensed by the Financial Services Commission (FSC). The usual requirements (including "fit and proper person" and "adequate knowledge, expertise, resources and facilities") were prescribed in general terms in the Act; a detailed exposition was left to the FSC's guidelines.

The Mutual Funds Actwas much criticisedat the time. It was felt that the degree of regulation that it introduced in relation to mutual funds, although relatively light, would have a deleterious effect on the industry in the BVI. Now, 15 years on, this can be seen not to have been the case, as evidenced by the number of mutual funds domiciled in the jurisdiction.

And then SIBA . . .

The Securities and Investment Business Act, 2010 (SIBA) came into effect on May 17 2010. It was amended by the Securities and Investment Business (Amendment) Act, 2012.

SIBA extends regulation to a number of previously unregulated financial activities. Part II provides for the regulation of public issues of securities to persons located in the BVI; and Part IV introduces a new market abuse regime covering insider dealing and market manipulation.

In relation to mutual funds, Part III replaces the Mutual Funds Act, which it repealed.

Finally, Part I deals with the licensing of persons carrying on investment business in or from within the BVI. Section 5 provides for the FSC, on application, to issue various categories of investment business licence, as specified in Schedule 3, namely:-

  • Category 1: Dealing in Investments.

Sub-category A: Dealing as Agent.

Sub-category B: Dealing as Principal.

  • Category 2: Arranging Deals in Investments.
  • Category 3: Investment Management.

Sub-category A: Managing Segregated Portfolios (Excluding Mutual Funds).

Sub-category B: Managing Mutual Funds.

Sub-category C: Managing Pension Schemes.

Sub-category D: Managing Insurance Products.

Sub-category E: Managing Other Types of Investment.

  • Category 4: Investment Advice.

Sub-category A: Investment Advice (Excluding Mutual Funds).

Sub-category B: Investment Advice (Mutual Funds).

  • Category 5: Custody of Investments.

Sub-category A: Custody of Investments (Excluding Mutual Funds).

Sub-category B: Custody of Investments (Mutual Funds).

  • Category 6: Administration of Investments.

Sub-category A: Administration of Investments (Excluding Mutual Funds).

Sub-category B: Administration of Investments (Mutual Funds).

  • Category 7: Operating an Investment Exchange.

And now the Approved Managers Regulations . . .

The Investment Business (Approved Managers) Regulations, 2012 (the "Approved Managers Regulations") came into effect on 10 December 2012. They create a new category of regulated person: the approved investment manager ("Approved Manager").

The Approved Managers Regulations were made under SIBA as amended in 2012.

In many respects, the Approved Managers Regulations and SIBA overlap. But the advantage of becoming an Approved Manager is that the application procedure is simpler and the continuing obligations are less onerous.

The Approved Managers Regulations

General

The Approved Managers Regulations apply to BVI business companies and to limited partnerships registered under the Partnership Act, 1996.

An Approved Manager:-

  • Must not carry on any other business except "Approved Manager" business.
  • Must have at least two directors, one of whom must be an individual, and an authorised representative.
  • Is exempt from the requirement to appoint a compliance officer and establish and maintain a compliance procedures manual.

An Approved Manager may act as an investment adviser or investment manager to:-

  • A private fund or professional fund.
  • A BVI closed ended fund (whether a company, a partnership or a trust) which has the characteristics of a private or professional fund.
  • A person who is affiliated to a fund structure as above.
  • Other persons approved by the FSC on a case by case basis.
  • A non-BVI person (whether a company, a partnership or a trust) which has equivalent characteristics to a private fund, professional fund or a closed-ended fund and invests all or a substantial part of its assets in a private fund, a professional fund or a BVI closed ended fund which has the characteristics of a private or professional fund.

An Approved Manager is not, unless otherwise required by the FSC, restricted as to the number of persons it may act for.

However, where an Approved Manager has assets under management exceeding:

  • in relation to mutual funds, US$400 - million; or
  • in relation to closed-ended funds, US$1 - billion,

or its equivalent in each case in any other currency, it will cease to qualify as an Approved Manager.

An Approved Manager may carry out any of the above investment business functions; and the requirement which would otherwise apply to hold an investment business licence under SIBA in respect of Category 3 B: Investment Management (Mutual Funds), Category 3 E: Managing Other Types of Investment or Category 4 B: Investment Advice (Mutual Funds) is superseded. Furthermore, the Regulatory Code, 2009 does not apply to its activities.

However, an Approved Manager is a regulated person and is subject to FSC enforcement action.

Complements SIBA

It is clear that the effect of the Approved Managers Regulations is to complement rather than to replace in whole or in part the licensing provisions of Part I of SIBA. For example, an Approved Manager may not act as an investment adviser or investment manager to a public fund or a recognised foreign fund. But an Approved Manager may carry out investment business functions which do not relate to mutual funds. For example, it may act as an investment adviser or investment manager to a BVI closed ended fund which has the characteristics of a private or professional fund.

A person may apply to be licensed as an investment manager or investment adviser under Part I of SIBA instead of being approved as an investment manager under the Approved Managers Regulations. Indeed, where the FSC considers it to be in the public interest, it may require an Approved Manager to do so.

Furthermore, where an Approved Manager ceases to qualify as such under the Approved Managers Regulations, it may apply to the FSC to be licensed to carry on investment business under Part I of SIBA. This applies in particular where an Approved Manager has ceased to qualify by virtue of exceeding the prescribed assets under management limitations; in effect, such an Approved Manager can then graduate to the more regulated investment business licensing regime under Part I of SIBA.

Finally, it may be worth noting that the investment business functions which may be carried out by an Approved Manager do not extend to other categories and sub-categories of investment business as set out in Schedule 3 of SIBA. In short, if a particular investment business function is not one which is covered by the Approved Managers Regulations, it may not be undertaken by an Approved Manager. For example, an Approved Manager may not act as custodian of investments for a private fund or a professional fund: this function continues to require a Category 5 A licence under Part I of SIBA.

Application Process and Fees

Applications must be submitted to the FSC in the prescribed form at least seven days prior to commencing business. The applicant may, however, trade for up to thirty days from the date of submission of the application, extendable for a further thirty days by the FSC, either on its own volition or on application by the applicant.

The above provision allows an applicant to commence business without delay. But this advantage has an attendant risk: if the FSC refuses approval, the applicant must cease carrying on business immediately.

The application must include certain prescribed information and documentation, including:-

  • A copy of the applicant's constitutional documents.
  • Details in the prescribed form of each director or general partner and senior officer of the applicant and of each person who owns or holds a significant interest in the applicant.
  • A "fit and proper" declaration in the prescribed form by the applicant relating to each of the persons above.
  • The funds that the applicant intends to act for upon commencement of business - number and prescribed details (name, address and place of incorporation or registration).
  • Copies of investment advisory or investment management agreements.
  • Confirmation in the prescribed form of the individual who will be carrying out the day-to-day investment business functions of the applicant.
  • Whether or not the applicant has delegated or intends to delegate any of its business functions. If so, an outline of the delegated functions and the identity of the delegate must be provided as well as a copy of the delegation agreement.
  • A declaration in the form of a letter addressed to the FSC by the applicant's authorised representative or legal practitioner to the effect that the application is complete and meets the application requirements of the Approved Managers Regulations.

The prescribed application fee must accompany the application. As at May 2013, the fee is US$1,000. The annual renewal fee is US$1,500.

If the FSC is satisfied that the applicant is fit and proper, will be in compliance with the Approved Managers Regulations upon approval, and approval of the application is not against the public interest, it may approve the applicant as an approved investment manager.

Conversely, if the FSC, in dealing with an application, forms the view that the applicant is not fit and proper or, if approved, will not be in compliance with the Approved Managers Regulations or that it is not in the public interest to approve the application, it may deny the application. The FSC must provide the applicant with reasons for its decision.

Notifications, Financial Statements, Annual Return

An Approved Manager must within fourteen days notify any change in the above details to the FSC in the prescribed form.

Furthermore, the FSC must be notified of any matter concerning the Approved Manager or its conduct of a relevant business which has or is likely to have a material impact or a significant regulatory impact with respect to the Approved Manager or the relevant business.

An Approved Manager is generally required to prepare and submit financial statements in accordance with SIBA. However, the financial statements need not be audited and an auditor need not be appointed.

An Approved Manager must by no later than January 31 each year file with the FSC an annual return in the prescribed form, including details of:-

  • Its directors and senior officers and shareholders with a significant interest in it.
  • The persons for which it provides services.
  • The assets under management of each person for which it acts.
  • The number of investors in each person for which it acts.
  • Any significant complaints received by it.

Ceasing to be an Approved Manager

Where an Approved Manager ceases to qualify as such, it must not take on any new business and must submit a notification to the FSC within seven days. It will have three months (which the FSC may extend by a further three months) to cease carrying on relevant business or to submit an application to be licensed to carry on investment business under Part I of SIBA.

Where an Approved Manager exceeds the prescribed assets under management limitations, the FSC may allow it to continue to function as an Approved Manager having regard to any risk that may be associated with it or any of the persons for which it acts.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.