Regulatory regime for closed-ended funds in the BVI

Collas Crill

As part of BVI's continued commitment to remain at the forefront of international legislation and EU compliance, the BVI enacted the Securities and Investment Business (Amendment) Act, 2019 (the Act) and the accompanying Private Investment Funds Regulations, 2019 (the PIF Regulations). These came into force on 31 December 2019.

Who does this new regime apply to?

A fund will come within the new definition of a 'private investment fund' provided it:

collects and pools investor funds for the purpose of collective investment and diversification of portfolio risk; and
issues fund interests, which entitle the holder to receive an amount computed by reference to the value of a proportionate interest in the whole or in part of the net assets.

Application criteria

To classify as a private investment fund, the following criteria must be satisfied:

it must be lawfully incorporated, registered, formed or organised under the laws of the BVI or under the laws of a country outside the BVI;
the constitutional documents must specify that:
- the fund is not authorised to have more than 50 investors;
- an invitation to subscribe for, or purchase, fund interests issued by the fund shall be made on a private basis only; or
- the fund interests of the fund shall be issued only to professional investors with an initial investment of each professional investor, other than exempted investors, of not less than US$100,000.
it must meet the criteria specified in the PIF regulations.

What this means in practice

In practice, this means that close-ended funds will need to seek recognition and obtain a licence from the BVI Financial Services Commission (the FSC) prior to operating as a private investment fund and comply with the following ongoing obligations:

have at least two directors (at least one of whom shall be an individual)
have an 'appointed person' at all times responsible for undertaking:
- the management of fund property;
- the valuation of fund property; and
- the safekeeping of fund property
have an authorised representative
have its offering document or term sheet meet certain criteria set out in the PIF Regulations
maintain a clear and comprehensive policy for the valuation of fund property (to be carried out by the 'appointed person')
maintain financial records
prepare and file audited financial statements with the FSC within six months of the financial year
notify the FSC of specific matters set out in the PIF Regulations