This guide provides a brief overview of the British Virgin Islands (the “BVI”) Approved Investment Manager regime1 and its suitability and attractiveness for use with Separately Managed Account structures (“SMAs”).
Separately Managed Accounts (SMAs)
An SMA is an investment portfolio owned by a single investor (such as a HNW individual, family office, or institution) that is professionally managed under a bespoke investment management agreement. Unlike commingled vehicles (e.g., mutual funds or other pooled funds), the investor retains direct ownership of the underlying securities, allowing for customised mandates for investment guidelines/restrictions and risk limits (including leverage, concentration limits, ESG, cash needs, etc.), as well as tax management tailored to the investor's particular circumstances. Fees and expenses, including performance fees, are specific to the account rather than shared across investors. The investment manager implements the defined strategy, adheres to client guidelines and reports holdings and performance with full position-level transparency. Assets are typically held at a third-party custodian or prime broker. SMAs are often used to achieve specific exposures (e.g., equities, fixed income, or multi-asset), while preserving a degree of control and flexibility not available in pooled funds.
The global popularity of SMAs has grown significantly in recent years, and the BVI Approved Investment Manager product (“Approved Manager”) has proven very versatile and attractive for this purpose.
Attractiveness of the BVI Approved Investment Manager Regime
A BVI Approved Manager is a regulatory-light offshore investment management vehicle. They can be established very quickly and are inexpensive to set up and operate. They are regulated by the BVI Financial Services Commission (the “BVI FSC”) but are subject to only moderate levels of regulation (befitting smaller and start-up managers).
The provision of investment management or advisory services to SMAs (or to more traditional investment funds) in or from within the BVI generally requires prior regulatory approval from the BVI FSC. Such approval could take the form of either (i) an Approved Manager or (ii) a “full management licence” under the SIBA.
The Approved Manager option provides an attractive and more efficient and streamlined alternative to a “full management licence” under the SIBA but is subject to prescribed limits on maximum assets under management (“AuM”) as detailed below. Approved Managers have proven immensely popular amid the general global trend towards increased compliance costs and more onerous regulation. The significant time and cost savings derived from the Approved Manager regime's streamlined approach to establishing and maintaining a management company offshore in the BVI has been undoubtedly welcomed by global asset managers seeking a jurisdiction which is robust, secure and highly-regarded among professional and institutional investors.
Vehicle Types
An Approved Manager may be structured as either a BVI business company (a corporation) or a BVI limited partnership. An individual cannot be an Approved Manager.
Services That May be Provided
The Approved Manager regime was originally intended for use primarily with BVI regulated investment funds (and foreign investment funds formed in a “recognised jurisdiction”2 that have equivalent characteristics to a BVI regulated investment fund – such as Delaware and Cayman Islands funds).
However, an Approved Manager may also (upon approval by the BVI FSC) be used to manage or advise “such other person as the Commission [BVI FSC] may approve on a case by case basis upon application”. This general discretion has frequently been used for SMAs, and the BVI FSC is generally open and receptive to applications for use of Approved Managers with SMA structures.
Key Limitations
An Approved Manager may only manage or advise:
- Up to a maximum aggregate AuM of US$400 million for open-ended funds/accounts.
- Up to a maximum aggregate AuM of US$1 billion for closed-ended funds/accounts.
Key Functionaries
An Approved Manager must appoint:
- For a corporation: at least 2 directors, one of whom must be an individual. Ultimately, there must be at least 2 individual control persons (directly or indirectly) (“four eyes principle”). Local BVI-based directors are not mandatory.
- For a limited partnership: at least one general partner (which could be either a BVI entity or a foreign entity), which must be controlled (directly or indirectly) by at least 2 individuals (“four eyes principle”).
- An MLRO (Money Laundering Reporting Officer).
- A BVI Registered Agent/Office and Authorised Representative, services which Conyers can provide for its clients.
Application Process
The application process is straightforward. The application with the BVI FSC requires (among other items):
- Application form.
- Copies of various corporate documents.
- Various details for the directors or general partner, senior officers and underlying principals.
- CVs/resumes for the directors, senior officers and key portfolio managers.
- Various declarations of fitness and propriety.
- Copies of proposed investment management/advisory agreements (or draft template forms thereof).
- Details of any proposed outsourcing/delegations of investment functions.
- Copy of AML/CFT compliance manual.
- Details of MLRO (Money Laundering Reporting Officer) including their CV/resume.
For SMA structures, the BVI FSC will also require (i) details of the initial client(s) (if known), and/or (ii) details of the anticipated SMA client base (for any future clients) including anticipated number of clients, average AuM, geography/jurisdictions, qualifications (e.g. accredited or professional investors), and any marketing/promotion activities for sourcing clients, etc.
As the use of Approved Managers with SMA structures is in the BVI FSC's discretion, the regulator reserves the right to request additional information in connection with any application for approval as an Approved Manager.
Following approval as an Approved Manager and the onboarding of any new SMA clients from time to time thereafter (i.e. any new clients not identified in the initial licensing application), the Approved Manager must notify the BVI FSC within 14 days.
Economic Substance Requirements
Carrying on business as an Approved Manager is not, of itself, a “relevant activity” under the BVI Economic Substance (Companies and Limited Partnerships) Act (the “BVI Economic Substance Act”). (“Fund management business” is a “relevant activity” under the BVI Economic Substance Act but an Approved Manager would not meet the specific definition of “fund management business” for these purposes.)
Accordingly, unless an Approved Manager carries on some other category of “relevant activity” under the BVI Economic Substance Act (which would be uncommon in practice), it would not be subject to any substantive economic substance requirements in the BVI (for example, it should not be required to have a commercial office or any local directors or employees on the ground in the BVI). As a result, most Approved Managers may be operated entirely remotely from outside the BVI (subject to having a BVI Registered Agent/Office and Authorised Representative, services which Conyers can provide for its clients).
FATCA/CRS
A BVI Approved Manager should take into consideration the applicable registration and filing requirements under FATCA and CRS (and any relevant exemptions that may be available). For further details, please refer to our firm's publications titled “ Impact of FATCA on BVI Entities” and “ The British Virgin Islands and the Common Reporting Standard Issued by the Organisation for Economic Co-Operation and Development“.
Ongoing Reporting Requirements
An Approved Manager must comply with the following key reporting requirements:
- It must report to the BVI FSC any changes to the information submitted pursuant to its initial application, within 14 days of the change.
- In particular, as noted above, upon the onboarding of any new SMA clients from time to time (i.e. any new clients not identified in the initial licensing application), the Approved Manager must notify the BVI FSC within 14 days.
- It must promptly report to the BVI FSC any matter in relation to it or the conduct of its business which has or is likely to have a material impact or a significant regulatory impact with respect to it or its business.
- It must file with the BVI FSC an unaudited annual statistical return by 31 January each year (confirming that the manager and its senior team remain in compliance with the Approved Manager Regulations, along with details of clients and funds under management and any significant complaints received from clients).
- It must file with the BVI FSC an annual AML/CFT return by 31 March each year.
- FATCA/CRS reports (if required) are generally due for submission on the BVIFARS Portal by 31 May each year, and a CRS Compliance Form is due by 30 September each year.
It must file with the BVI FSC unaudited annual financial statements (prepared in accordance with prescribed accounting standards) with 6 months of the end of the financial year to which they relate.
FSC Fees
The current fees payable to the BVI FSC are cost-competitive and comprise:
- Upfront application fee of US$1,200.
- Annual licensing fee of US$1,800 p.a.
Timeframe
An application must be submitted to the BVI FSC at least 7 days prior to the intended launch date (unless the BVI FSC accepts a shorter period in its discretion). Subject to that, an applicant may then commence business immediately upon submission of the complete application for a provisional operating period of up to 30 days from the date of submission of the application, pending formal approval (or rejection) of the application by the BVI FSC. The said 30 day period may be extended for an additional period of up to 30 days (60 days in total) upon approval by the BVI FSC in its discretion.
Footnotes
1. The BVI Approved Investment Manager regime established under the BVI Investment Business (Approved Managers) Regulations (the “Approved Manager Regulations”) enacted under the BVI Securities and Investment Business Act (“SIBA”).
2. The list of “recognised jurisdictions” currently includes: Argentina, Australia, Bahamas, Bermuda, Belgium, Brazil, Canada, Cayman Islands, Chile, China, Curacao[i], Denmark, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hong Kong, Ireland, Isle of Man, Italy, Japan, Jersey, Luxembourg, Malta, Mexico, Netherlands, New Zealand, Norway, Panama, Portugal, Singapore, Spain, South Africa, Sweden, Switzerland, United Kingdom, United States of America.
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.
