BVI Incubator Fund License

Introduction

The statutory legislation governing most funds in the BVI is the Securities and Investment Business Regulations 2015 (“SIBA”) and the Mutual Fund Regulations, 2010

About BVI Incubator Fund License

The incubator fund is designed for managers who are looking to start an investment strategy on a trial basis with sophisticated investors. If the strategy succeeds within the prescribed timescale, the Regulations provide a seamless route for the fund to be recognised or approved as a private professional or approved fund, depending on the manager's future plans for growth of the fund. If the strategy does not succeed, the regime allows for an incubator fund to close down or convert to an ordinary company. The key differentiating criteria for incubator funds over other fund types include:

• Only suitable for "sophisticated private investors". Such investors are defined in the Regulations as "a person who has been invited to invest in an incubator fund and the amount of his or her initial investment is not less than US$20,000."
• The total number of investors is limited to 20.
• Net assets of the fund must not exceed US$20,000,000 or its equivalent in any other currency.
• No manager, administrator or custodian is required to be appointed.
• No audit required.
• Can only be approved for a two year period. It is possible to seek an extension from the Commission for an additional 12 month period. Prior to the end of this period it will be necessary to make an application to the Commission for the fund to be recognised as either a private fund or a professional fund or to be approved as an approved fund.

Functionaries’ requirements

BVI funds, recognized or registered under SIBA, are generally required to appoint functionaries who must either meet the FSC’s ‘fit and proper’ criteria, or must be located in one of the BVI’s recognized jurisdictions. Functionaries from a non-recognized jurisdiction may also be appointed, provided that they will satisfy the FSC that their jurisdiction has an effective

Eligibility Criteria

Custodian

• An incubator fund is required to appoint a custodian who must be functionally independent from the manager and the administrator.
• The custodian must be a body corporate who is a fit and proper person to act as an authorised custodian of bearer shares; and has systems and procedures in place;  for the secure custody of bearer shares; and  that will enable it to comply with the obligations imposed on an authorised custodian.
• A fund may apply for an exemption to engage a custodian, but in such event the FSC will want to be informed about the custodianship arrangements for the fund (for instance, whether a prime broker or the fund’s directors will be responsible for the safekeeping of the fund’s assets).

Auditor

• An incubator fund is required to appoint, and at all times have, an auditor for the purposes of auditing their financial statements.
• The auditor of an incubator fund does not need to be based in the BVI.

Authorised Representative

• An incubator fund must appoint an authorized representative in the BVI. The authorised representative will act as a conduit between the fund and the FSC.
• The authorized representative must hold a certificate issued by the FSC.

Investment manager

• A BVI domiciled investment manager can either be licensed under Part I of SIBA or be approved under the Investment Business (Approved Managers) Regulations, 2012 as amended (the “AMR”).
• If the Investment Manager is licensed under SIBA, the incubator fund has to obtain a license Category 3, sub-category B (and possibly E). Under this regime each director, shareholder (holding a significant interest of 10%) and officer of the person seeking a license must satisfy the FSC’s fit and proper criteria. The application also requires a detailed business plan. Multiple ongoing requirements are in place, such as the appointment of an anti-money laundering reporting officer and compliance officer, appropriate compliance systems and controls, the preparation of financial statements in accordance with certain accounting standards and the appointment of an authorized representative.
• If licensed under the AMR which is a lighter regulation and licensing process whereby the manager may carry on business 7 days after submitting the application form to the FSC, without having to wait for the outcome. After being approved under the AMR, an approved investment manager may serve an unlimited number of professional funds recognized under SIBA, being restricted only by the amount of aggregated assets under management, which for open-ended funds cannot exceed USD 400 million. An approved manager may also manage funds domiciled outside of the BVI, provided that these funds will meet similar criteria as private funds.
• An approved manager must appoint an anti-money laundering reporting officer.

Ongoing Obligations

• Submit semi-annual returns to the FSC by 31st January and 31 July which summarizes pertinent information regarding the fund’s status, including the number of investors, total investments, aggregate subscriptions and redemptions, NAV and details of any significant investor complaints and how such complaints were dealt with. Each return will contain a confirmatory declaration which the directors will need to make confirming that the fund is not in breach of the New Fund Regulations.
• Notify the FSC within 14 days of any changes to the information provided in the application for approval or in relation to any matter which is likely to have a material impact on the fund.