After much anticipation, 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 represent the cornerstone for the regulation of much of the BVI's financial services industry for a number of years to come.

Importantly on a global stage, SIBA should ensure that the Financial Services Commission's regulation of the BVI's financial services industry remains in tune with the evolving global regulatory standards, demonstrating the jurisdiction's continued commitment to implement international best practice for financial services regulation.

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 (which was the statute that had regulated the BVI's investment funds industry for more than a decade) 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:

Investment Business

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. For these purposes, "investments" are as follows:

  • shares, interests in a partnership or fund interests;
  • debentures, other debenture or loan stock, bonds, certificates of deposit and other instruments acknowledging indebtedness;
  • instruments giving entitlements to shares, interests or debentures;
  • certificates representing investments;
  • options;
  • futures;
  • contracts for differences;
  • long-term insurance contracts;
  • rights and interests in investments; and
  • such other things as maybe specified as investments in the Investment Business Regulations.

Activities constituting "investment business" are as follows:

  • dealing in investments;
  • arranging deals in investments;
  • managing investments;
  • providing investment advice;
  • providing custodial services with respect to investments;
  • providing administrative services with respect to investments; and
  • operating an investment exchange.

The investment business provisions within SIBA are not intended to capture all BVI entities used for investment purposes, rather to regulate those entities whose activities fall within the definition of "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.

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 or entity 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 (i) BVI entities conducting investment business outside the BVI; and also (ii) BVI and non-BVI entities conducting investment business within the BVI (unless those activities constitute an "excluded activity" or the entity conducting the investment business qualifies as an "excluded person").

Once licensed to conduct investment business, SIBA makes provision for various systems and controls for the operation of a licensee's business, covering corporate governance, advertisements and other administrative functions, these provisions, when taken with the amendments made to the BVI's Regulatory Code for SIBA, therefore now provide the platform for the regulation of investment business licensees within the BVI.

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 (i) the offer is contained within a "registered prospectus"; and (ii) 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, in order to safeguard the interests of investors. In addition, for public issues by BVI companies, certain provisions of the BVI Business Companies Act, 2004 are disapplied by Schedule 6 of SIBA.

As an ongoing obligation for public issuers, any amendments or supplements to a registered prospectus are also required to be registered with the FSC and a copy of all such amendments or supplements made available to every person who received a copy of the original prospectus.

In addition to the normal common law remedies available, SIBA also gives the Courts the powers to grant a compensation order in favour of subscribers who purchased securities offered pursuant to a public offer in reliance of a prospectus and suffered loss or damages as a consequence of any untrue or misleading statement contained within that prospectus or omission from that prospectus. Such orders may be made against the issuer; its directors; any guarantor of the issue; any person accepting responsibility for the prospectus; any promoter of the offer (including directors of the promoter); and any other person authorising the contents of the prospectus.

However, it should be noted that the provisions in SIBA relating to public issues for securities are not, at the time of going to print, in force.

Mutual Funds

SIBA has repealed the Mutual Funds Act, 1996 and introduced an updated and modernised statutory regime for the regulation of the BVI funds industry, through SIBA and its secondary legislation, the Mutual Funds Regulations, 2010 and the Public Funds Code, 2010. 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 regulated funds applicable to approximately 2,700 of the 3,000 licensed BVI funds, particularly hedge 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 international standards.

The regulatory regime applicable to public funds, which is a category of fund utilised for retail offerings by BVI funds (the category of fund applicable to approximately 300 of the 3,000 licensed BVI funds) is however changed under SIBA through the introduction of the Public Funds Code, 2010 which ensures that the regulation of retail funds remains in line with the International Organisation of Securities Commissions ("IOSCO") Principles for the regulation of retail funds, as far as is relevant and applicable to public funds.

In addition to the above, SIBA codifies many of the FSC's previous policies in relation to ongoing reporting obligations for funds recognised as either private or professional funds or registered as public funds and introduces certain content requirements for fund's offering memorandum, subscription documents and constitutional documents. As with the enactment of the investment business provisions noted above, the driver for many of these new regulatory changes is to facilitate the effective supervision of BVI funds by the Financial Services Commission and therefore the effective management of systemic risk.

The amendments made by SIBA to the BVI's funds regime have been welcomed by the BVI funds industry. Whilst they have maintained the popular concepts which have underpinned the historic success of BVI's fund industry over the last decade, they have also facilitated the provision of greater transparency now demanded by investors and financial institutions investing into or lending to BVI funds. Therefore, further strengthening of the BVI's funds offering.

Market Abuse

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.

But why is it important for the BVI to regulate its financial services industry?

As the world's most popular jurisdiction for the domicile of companies (as at 30 September 2010, being the date when the most recent statistics are available, there were 456,547 companies and 654 limited partnerships active and registered in the BVI), the BVI punches significantly above its weight within the global financial community. In the "new financial world" following the financial crisis, global regulatory bodies, led by the IMF are requiring that all participants on the top table of international fiannce, of which the BVI is one, have in place regulations to ensure the effective management of systemic risk within the global financial system. The enactment of SIBA therefore facilitates this for the BVI.

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