In 2023, it was estimated that the value of assets under management by hedge funds was in the region of US $5 trillion. Increasingly, offshore jurisdictions such as the British Virgin Islands (BVI) feature in the structures used by onshore and offshore investment managers to cater for a growing and diverse cross section of investors, including newly minted fintech millionaires and billionaires. The BVI is the world’s largest offshore corporate domicile with over 350,000 active companies, and it is also the world’s second-largest offshore investment funds domicile with close to 2,000 investment funds. The primary legislation in the BVI which regulates its investment funds regime is the Securities and Investment Business Act, 2010 and its accompanying regulations. As part of its investment funds governance framework, the BVI launched the BVI Approved Manager regime in 2012. The structure’s popularity has grown from strength to strength since then, with 1,046 Approved Managers registered as at the end of Q4 2024.
Ease of Use and Flexibility
Recently, investment managers have become more creative, especially with the advent of cryptocurrencies and fintech businesses. This trend is being seen not only with U.S.-based managers but also with LATAM, EU and Asia based managers, who are seeking to satisfy young and savvy investors within their region and elsewhere.
As such, many investment managers from around the world now turn to the BVI Approved Manager regime. The structure is particularly attractive for start-ups but is also well suited for established small and medium-sized funds. Managers employ the approved manager framework for funds in the BVI, other offshore jurisdictions, and leading onshore jurisdictions.
In general, the BVI Approved Manager regime permits a BVI company or partnership to conduct business as an investment manager for certain funds or managed accounts without a lengthy approval process. It also provides a lighter touch regulatory regime, reducing documentation and associated costs.
Some advantages of using a BVI Approved Manager include:
- A quick setup process, where a fund manager can commence business seven days after applying
- Fast track approval processes, where an applicant for approved manager status can typically expect approval within two weeks of application
- An easy and straightforward process for the prospective fund manager to complete and submit a standard application form and supporting documents, noting that the document burden is not onerous
- Lighter regulations and filings despite the approved manager being a regulated entity
- Lower cost to set up, making it ideal for startup and small to medium-sized managers
To be eligible for Approved Manager status, the entity must:
- Be a BVI company or partnership
- Manage or intend to manage a BVI private or professional fund
- Manage or intend to manage a BVI closed-ended fund
- Manage or intend to manage a fund from any recognised jurisdiction that has equivalent characteristics to a BVI private or professional fund
- Have assets under management of not more than US $400 million in respect of open-ended funds and of not more than US $1 billion for closed-ended funds
Obtaining Approval
To become a BVI Approved Manager, the entity must apply to the BVI Financial Services Commission (FSC) at least seven days before its intended start of business. Upon submitting the application, and if the entity meets the basic eligibility requirements, it can conduct business as an approved manager for up to 30 days while waiting for approval. This period can be extended for another 30 days by the FSC, if necessary. Although the FSC commits to considering and approving appropriate applications within the initial 30-day period, typically the process is completed within two weeks.
Supporting documents for the application include:
- A copy of the entity’s constitutional documents
- The details of each principal (i.e., director, senior officer, etc.), and of each major owner (i.e., person or persons holding a significant interest in the manager)
- A written declaration by the entity that each principal and person holding a significant interest is fit and proper
- Details of the fund(s) or managed account(s) for which the manager intends to act
- The date the manager intends to commence business
- A copy of the investment advisory or investment management agreement between the manager and the fund(s) or managed accounts (s) for which the manager will act
- Written confirmation as to which individual will be carrying out the day-to-day investment business functions of the manager
- Details of any delegation of its business functions
- Written confirmation from the entity’s legal practitioner
- A copy of the entity’s AML/CFT Policy and details of its reporting officer
- A declaration of completeness of the application
Regulatory Status
A BVI Approved Manager is subject to FSC oversight and is treated like any other licensee for the purpose of the Financial Services Commission Act, 2001. Therefore, the approved manager is subject to the powers available to the FSC under that Act.
As a regulated entity, a BVI Approved Fund Manager has the following obligations:
- Two directors: The Approved Manager must have at least two directors, one of whom must be an individual. In the case of an Approved Manager constituted as a limited partnership, such partnership must always have at least one general partner.
- Authorised representative: The Approved Manager must maintain an “authorised representative” in the BVI, which is a person or entity licensed in the BVI to act as a liaison between the manager and the FSC.
- Annual financials: The Approved Manager must submit annual financial statements, and, where necessary, ensure that the notes to the financial statements give a true and fair view of the matters to which they relate.
- General obligations: The approved manager is required to notify the FSC when assets under management in open-ended funds exceed US $400 million, or US $1 billion in respect of closed-ended funds. They must also notify the FSC, in writing, of any changes to the originally submitted information in its application along with all relevant details. They should make the notification within fourteen days of the change and include a written declaration stating whether the change complies with the requirements of the Regulations. The approved manager must also maintain an AML/CFT policy and appoint a money laundering reporting officer. Additionally, the approved manager must notify the FSC of any matter related to the approved manager or the approved manager’s conduct of its relevant business activities which may have a material or significant regulatory impact on the approved manager or its relevant business.
Conclusion
With increased queries and requests for formation of BVI Approved Managers, clearly, the regime has made a mark on the industry on a global level. Global assets under management will likely continue to increase for the foreseeable future, and as the BVI consistently refines and optimizes its products, the BVI Approved Manager framework will continue offering investors and managers opportunities to participate in the growing global investment and wealth management landscape.
Please contact Christopher Simpson in our Investment Funds & Regulatory Department at csimpson@onealwebster.com for more information.
