- BVI has issued regulations to supplement existing legislation regulating BVI funds and fund managers in preparation for the European Securities and Markets Authority ("ESMA") to advise the European Commission on whether the EU Alternative Investment Fund Managers' Directive ("AIFMD") passport should be extended to BVI entities
- The new regulations permit BVI open and closed ended funds and BVI fund managers to opt-in to be regulated to an EU equivalent standard to allow them to obtain an AIFMD passport
- This would allow a BVI fund to be marketed in the EU, and a BVI fund manager to market and manage funds in the EU, on a pan-EU basis
BVI, a key international domicile for investment funds, has introduced new regulations (the "AIFMD Regulations") under its Securities and Investment Business Act, 2010 ("SIBA"). The purpose is to position BVI to receive a favourable assessment from ESMA, when it advises the European Commission on whether the AIFMD passport may be extended to BVI.
The AIFMD aims to harmonise the regulation of alternative investment fund managers which manage and market alternative investment funds in the EU. Under the current situation, non-EU fund managers and funds comply with each EU country's national regime when they manage or market funds in that country, with non-EU fund managers largely precluded from marketing non-EU funds into the EU other than under the national private placement regimes ("NPPRs"). The extension of the AIFMD passport, which is currently only available to EU entities, would allow a BVI fund to be marketed in the EU, and a BVI fund manager to market and manage funds in the EU, on a pan-EU basis, subject to compliance with the AIFMD regime.
Under the terms of the AIFMD, ESMA was required to give an opinion to the European Commission as to whether non-EU countries would be able to take part in the AIFMD EU passport regime. Following a decision by ESMA, that it was in the best interests of the countries which were the subject of the advice that assessments were completed on a country-by-country basis, ESMA has already reviewed 12 non-EU jurisdictions, and has concluded that there are no significant obstacles to the extension of the AIFMD passport to Canada, Japan, Switzerland, Jersey and Guernsey.
When it comes to issue its advice on BVI, ESMA will assess the BVI's regulatory regime and levels of supervisory cooperation with EU regulators, with a view to getting comfortable that they present no significant monitoring of systemic risk. It is expected that the introduction of the AIFMD Regulations should assist ESMA with making a positive assessment.
SIBA has been supplemented primarily to provide a legal framework to enable a new or existing fund to become approved as an 'EU Qualified BVI AIF" and for a fund manager to become approved as an "EU Qualified BVI AIFM".
The 'EU Qualified BVI AIF" concept relates to both BVI domiciled open- and closed-ended funds (noting that SIBA has historically only sought to regulate open ended funds) which are either (a) managed by an EEA-based manager, or (b) marketed to investors in EEA jurisdictions in accordance with local law requirements.
An "EU Qualified BVI AIFM" means a BVI entity or a foreign entity registered in BVI whose regular business is managing one of more AIFs to which the AIFMD Regulations apply.
The AIFMD Regulations also extend the enforcement powers of the BVI Financial Service Commission (the "FSC") with respect to 'EU Qualified BVI AIFMs". These provisions are key to ensuring that the FSC is able not only to give full effect to its enforcement obligations, in relation to EU Qualified BVI AIFMs, but also to enhance compliance with its information sharing obligations, imposed under the memoranda of understanding the FSC has in place with various EEA regulators.
The AIFMD Regulations require EU Qualified BVI AIFMs, to comply with obligations intended to reflect those applicable to EU managers authorised under the AIFMD.
Adopting an 'opt-in' approach is intended to smooth the transition from marketing of funds based on the current EU NPPRs to full compliance in order to market using an AIFMD passport, and thus it is anticipated that managers that intend to continue to market BVI funds into the EU under the NPPRs will not opt in, whereas managers seeking to apply for an AIFMD passport will opt in. It is expected that the NPPRs will co-exist with the passport regime until at least 2018.
The AIFMD Regulations are an important step to ensure that BVI will be considered in the best possible light by ESMA when it ultimately gives its advice to the European Commission.
Clients who view the EU as an important source of capital may wish to consider opting-in to the new BVI regime in order to gain access to the EU passport as soon as it becomes available. Walkers' attorneys can assist with explaining the AIFMD Regulations and also more generally the compliance obligations arising under the AIFMD passport regime.
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.