The OECD’s Global Forum on Transparency and the Exchange of Information for Tax Purposes (the Global Forum) published the ‘Peer Review of the Automatic Exchange of Financial Account Information 2022’ on 9 November 2022. The full publication is accessible HERE.

Download a PDF copy of our legal guide – British Virgin Islands: Peer Review of the Automatic Exchange of Financial Account Information 2022.

The Global Forum monitors and peer reviews the implementation of the global Standard for Automatic Exchange of Financial Account Information in Tax Matters (the AEOI Standard). In pursuance of its mandate, the Global Forum reviewed each participating jurisdiction’s internal legal frameworks to ensure they are complete and that the AEOI Standard is effectively implemented in practice.

AEOI legal framework

The Global Forum concluded that the British Virgin Islands’ domestic and international legal frameworks implementing the AEOI Standard are in place and are consistent with the core requirements of the AEOI Terms of Reference.

Effectiveness in practice of AEOI

The Global Forum found that the British Virgin Islands’ implementation of the AEOI Standard is only partially compliant with the requirements of the AEOI Terms of Reference to ensure the effectiveness of the AEOI Standard in practice.

In broad summary, the Global Forum concluded that the British Virgin Islands’ implementation of the AEOI Standard is on track with respect to exchanging the information effectively in practice, including in relation to sorting, preparing and validating the information, most of the requirements in relation to correctly transmitting the information in a timely manner and providing corrections, amendments or additions to the information. However, it identified some issues relating to the British Virgin Islands’ administrative compliance framework and related procedures and the exchanging of information in a timely manner with all exchange partners.

In particular, the Global Forum noted that the British Virgin Islands is:

• partially meeting expectations in ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, including by having in place the required administrative compliance framework and related procedures. More specifically, significant issues were identified, including with respect to the extent of the implementation of the British Virgin Islands’ compliance strategy and verification activities, its monitoring of key information points such as Tax Identification Numbers and dates of birth and with respect to the enforcement procedures;
• fully meeting expectations in relation to collaborating with its exchange partners to ensure that Reporting Financial Institutions correctly conduct the required due diligence and reporting procedures;
• meeting expectations in relation to sorting, preparing and validating final account information to be reported (the Information). It was also noted that there is room for improvement with respect to the processes to sorting, preparing and validating the Information;
• fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its exchange partners;
• meeting expectations in relation to exchanging the Information in a timely manner. It was also noted that there is room for improvement with respect to sending information in a timely manner;
• fully meeting expectations in relation to sending the Information in accordance with the agreed transmission methods and encryption standards; and
• appears to be meeting expectations in relation to responding to notifications from exchange partners and the sending of corrected, amended or additional information.

The Recommendations

The Global Forum made three recommendations relating to:

• monitoring and verifying compliance with the AEOI Standard including developing and implementing administrative procedures to enable effective enforcement and appropriate sanctions when non-compliance is detected;
• sorting, preparing and validating information to ensure they meet the AEOI Standard; and
• sending information to exchange partners in a timely manner,

(together, the Recommendations).

The British Virgin Islands’ response

In response to the Global Forum’s assessment, the British Virgin Islands has cited the significant progress it has made in implementing the AEOI Standard as an early adopter notwithstanding its challenges. It referred to the hindrances caused by Hurricanes Irma and Maria including damage to infrastructure and resulting loss of staff. It underscored its commitment to meeting its obligation and continuing the work toward the implementation of the AEOI Standard.

What does this mean for industry players?

Based on the British Virgin Islands’ response to the Global Forum’s assessment, we expect that the BVI International Tax Authority will implement the Recommendations in due course. Accordingly, Reporting Financial Institutions should expect progressively increased compliance monitoring, verification activities and enforcements by the International Tax Authority including the establishment of administrative penalties and sanctions to address non-compliance with the AEOI Standard.

Reporting Financial Institutions should take a closer look at their existing CRS policies and procedures. They should also ensure that they identify the Financial Accounts they maintain, the Reportable Accounts among those Financial Accounts (including their Account Holders, and where relevant Controlling Persons) by correctly conducting the due diligence procedures and collecting and reporting the Information with respect to each Reportable Account.

If you need any assistance with the classification and reporting obligations of any entity pursuant to the AEOI Standard, please feel free to contact us.

Overview

On 15 July 2021, the Labour Tribunal (the Tribunal) made four awards against employers relating to complaints made by employees pursuant to the Labour Code, 2010 (the Code) that they had been unfairly dismissed (the Awards). The term “unfair dismissal” refers to a situation where an employer terminates an employment contract without a valid and fair reason and contrary to the provisions of the Code. The Awards ranged from $10,000 to $448,959, signaling the Tribunal’s clear willingness to order significant sums against employers in appropriate cases. The purpose of this article is to set out the Tribunal’s approach articulated in the Awards in relation  to unfair dismissals in the context of summary dismissals and redundancies, the factors that the Tribunal will take into account when assessing the amount of a punitive award against an employer and its approach to costs and interest. The full cases are available by clicking the links embedded in the names of the cases below.

Download a PDF of our Legal Guide – Labour Tribunal – Unfair Dismissal

Brief summaries of the Awards

In Colleth Ranger-Vassell v Mainsail B.V.I. Limited, the employer contended that the employee was summarily dismissed on the basis of insubordination. The employer’s position was that they gave the employee several written warnings regarding her conduct in accordance with the Code, and they were justified in summarily dismissing her due to insubordination. The Tribunal found that the dismissal was not valid as the employer had already taken disciplinary action in the form of demoting the employee following the written warnings which had the effect of wiping her record clean. The Tribunal further stated that the employer did not give the employee a written warning following the employee’s demotion which complied with the provisions of the Code on which it relied. The Tribunal also determined that where an accusation against an employee formed the basis of termination as it did in this case, the employer ought to have carried out an investigation into the matter and must have reasonable grounds for believing the employee was guilty. The employee must also be given a fair opportunity to defend himself or herself. The Tribunal determined that the dismissal was both unfair and illegal.

The Tribunal also considered the issue of summary dismissal in Qasim Yoba v Peter Island (2000) Ltd. In that case, the employee was accused of selling derelict vehicles which belonged to the employer, without the requisite authority.

The Tribunal was satisfied that the employer conducted investigations and provided a letter to the employee with a statement of the precise reason for termination, in accordance with the provisions of the Code relating to summary dismissal. Nevertheless, the Tribunal determined that the termination was unfair as the employer should have provided the employee with full details of its investigation and given him time to consider the accusations against him and to respond.

In Mark McKie v Nanny Cay Resort and Marina Limited, the employee challenged his employer’s decision to make him redundant. The Tribunal outlined the relevant criteria under the Code which must be satisfied for a redundancy to be considered valid. The employer argued that redundancy was based on a cash flow problem which fell within the statutory definition of redundancy under the Code. The Tribunal determined that the employer did not provide sufficient evidence that it was suffering from cash flow problems. The Tribunal found that there was no redundancy within the meaning of the Code and that the employee was unfairly dismissed.

The Tribunal also considered the legal procedure for redundancy in Patricia Hodge v Road Town Wholesale Trading Ltd. The employer claimed that the termination fell within the meaning of redundancy in the Code as it reorganised its business to improve efficiency. The Tribunal accepted that there was a reorganisation of the employer’s business but highlighted that the Code requires not only reorganisation of the business, but also that the reorganisation must be for the purpose of improving efficiency. The Tribunal found that the reorganisation did not reduce the employee’s work and accordingly the employee’s work was not affected by the reorganisation. The Tribunal ordered that the complainant be re-instated with effect from the day after termination with all the rights and privileges at the time of her termination. The employer was ordered to pay the employee $448,959 which represents her salary for the period between termination and reinstatement less a sum of money which she received on termination. The Tribunal also ordered the employer to review her salary which it set at $81,954.53 (up from $75,000 at the time of termination) to take account of increases she was likely to have received had she not been terminated.

These cases highlight several requirements of the Code that employers should take into account when considering the termination of an employee’s employment. We examine these considerations under the various heads below.

What are likely to be the main considerations of the Tribunal in cases of termination by way of redundancy?

In determining the validity of a termination by way of redundancy, the Tribunal indicated that it would ask itself two main questions:

• Whether the employer served the requisite notice in relation to the termination or made a payment in lieu of notice; and
• Whether the termination was for a valid and fair reason.

The Tribunal also confirmed the following important points in respect of termination by way of redundancy:

• a termination will automatically be for a valid and fair reason if it falls within one of the instances of redundancy specified in the Code;
• where an employee is terminated on the basis of redundancy there is no need to notify the employee in writing of the nature and particulars of the reason for the termination or to have given the employee a fair opportunity to defend himself or herself; and
• the employer must always act reasonably in the circumstances.

With respect to redundancies, the test will be whether, on a balance of probabilities, the evidence shows that the dismissal is for any of the specified instances of redundancy set out in the Code. The employer must therefore be prepared to adduce evidence to support the claimed basis of the redundancy. The Tribunal has also noted that if an employee is terminated for two causes,  the Tribunal will consider the predominant cause of the dismissal to determine if it was valid and fair. Therefore, if the Tribunal determines that redundancy is the predominant cause, as it did in Mark McKie, the other cause will fail.

Employers must therefore carefully consider the reasons for any redundancy exercise and maintain the relevant evidence to demonstrate that a legitimate redundancy situation exists if it is called upon to do so.

How should employers handle summary dismissals?

The Code provides that an employment contract shall not be terminated by an employer without a valid and fair reason connected with the capacity or conduct of the employee or with the operational requirements of the business. Where an employer contemplates terminating an employment contract in such cases, the employer must inform the employee in writing of the nature and particulars of the complaint against the employee and give the employee or the employee’s representative a fair opportunity to defend himself or herself including providing access to employment records.

The Code also allows an employer to dismiss an employee summarily if he or she is guilty of serious misconduct of a nature that it would be unreasonable to require the employer to continue the employment relationship. In Qasim Yoba, the Tribunal appears to have accepted that even in cases of summary dismissal, the employee is still to be given a fair opportunity to defend himself or herself in keeping with the overarching requirements of natural justice.

Further, although an employee’s contract of employment provides for summary dismissal, employers will still be held to the provisions of the Code.

What does the Tribunal consider when making a punitive award?

The Code states that where a dismissal was unfair or illegal, the Tribunal may order reinstatement, re-engagement or compensation, where such remedies are acceptable to both parties. The Tribunal has interpreted the Code as constraining it to make a punitive award where both employer and employee have not indicated that compensation is an acceptable remedy. The Tribunal ordered punitive sums against the employers in three of the four Awards.

The Tribunal determined that the appropriate starting point for its punitive awards should be $25,000 which can then be increased or decreased based on various factors including:

• The nature, size and scope of the employer’s business;
• The conduct of the parties from the beginning of the proceedings up to the date of the final award, including the conduct of any legal practitioner at trial;
• The relevance of any compensation that may have been otherwise awarded; and
• Any fine or other penalty already suffered by the employer for the wrongful conduct to ensure that the employer is not punished twice.

It is therefore important for an employer to present evidence of its means to the Tribunal as a reference point for the calculation of any punitive award. Otherwise, the Tribunal is entitled to make an inference regarding an employer’s means which might not be as precise.

Additionally, employers should ensure their defence is carefully drafted to reduce the likelihood of a punitive award being made against them in circumstances where they would have been prepared to agree to compensation if the Tribunal found that dismissal was unfair or illegal.

When will the Tribunal order costs in proceedings? 

The Code provides that the Tribunal may only award costs for exceptional reasons, which the Tribunal considers appropriate. The Tribunal has taken the position that a punitive award itself would ordinarily amount to an exceptional reason to grant costs in favour of an employee.

In the Qasim Yoba case, the Tribunal refused to make an order as to costs in favour of the successful employee on the basis that the assistance that the employee received from his legal practitioner fell below the required standard of a legal practitioner appearing before it. Legal practitioners should therefore monitor their actions before the Tribunal to avoid adverse costs orders against their clients.

When can the Tribunal award interest?

The Code does not expressly empower the Tribunal to award interest on any compensatory or punitive sums ordered by the Tribunal. The only potentially applicable reference to interest payable under the Code appears in respect of an employee’s entitlement to recover wages in a court that have not been paid to him or her plus interest at the rate to be determined by a court.

Although the Tribunal agreed that it is not a court, it concluded that it had jurisdiction to determine employment disputes within its broad powers to make orders which would allow the Tribunal to award pre-and post-judgment interest, at the rates of 3% and 5% respectively. The Tribunal considered that it could order pre-judgment interest from the date of a complaint to the date of the award. Post-judgment interest would begin to accrue 30 days after the date of the award until payment is made.

Employers should take note that the Tribunal’s approach in applying pre- and post-judgment interest could noticeably increase the size of awards made against employers in unfair dismissal cases.

Conclusion

Employers face the risk of potentially high awards in unfair dismissal proceedings before the Tribunal.

As can be seen from the Awards we discussed above, when it comes to termination of employment, the requirements under the Code must be strictly followed in each case. Employers should therefore consult with their attorneys to assure the propriety of their dismissal proceedings to the best extent possible.

These are fairly early days for the Tribunal in its current form. We will continue to report on updates in relation to its findings as it continues to develop its jurisprudence.

If you would like any further information in relation to the matters covered by this legal guide, please email us or reach out to your usual GHP contact.

The British Virgin Islands (BVI) has introduced further changes to the economic substance (ES) regime by way of amendments to the Economic Substance (Companies and Limited Partnerships) Act, 2018 (the Act). The amendments are introduced by the Economic Substance (Companies and Limited Partnerships) (Amendment) Act, 2021 (the Amendment Act) which came into force on 29 June 2021.

Download a PDF copy of our legal guide looking at the amendments introduced by the Economic Substance (Companies and Limited Partnerships) (Amendment) Act, 2021.

This legal guide considers the key changes to the economic substance regime. 

Distribution and service centre business and limited partnerships without legal personality  

Distribution and service centre business

Prior to the changes introduced by the Amendment Act, the provision of consulting or administrative services (CA Services) to foreign affiliates was not expressly included in the definition of “distribution and service centre business”. Nevertheless, the provision of CA Services to foreign affiliates was listed as one of the core income generating activities (CIGAs) relating to “distribution and service centre business” under the Act. As a matter of construction, some industry practitioners were of the view that any relevant entity providing CA Services would likely be providing “services to foreign affiliates in connection with the business” within the meaning of the previous definition. The Amendment Act now makes it clear that “distribution and service centre business” includes the provision of CA Services to foreign affiliates.

Limited partnerships without legal personality

Initially, the definition of “limited partnership” under the Act excluded limited partnerships without legal personality. The Amendment Act removes that exclusion such that every limited partnership, with or without legal personality, is now subject to the ES regime.

Financial periods for limited partnerships without legal personality 

Following the introduction of the Amendment Act, there is now a six-month transition period for limited partnerships without legal personality which were formed prior to 1 July 2021 (Pre-Existing LPs). Limited partnerships without legal personality formed on or after 1 July 2021 (New LPs) will be immediately subject to the Act upon formation as is already the case with other relevant entities. The “financial period” for Pre-Existing LPs and New LPs is:

• • Pre-Existing LPs: such period of one year commencing on a date no later than 1 January 2022 as the Pre-existing LP shall notify to the International Tax Authority (ITA) and thereafter each successive period of one year running from the end of that period;
  • New LPs: such period of not more than one year from the date of formation as the New LP shall notify to the ITA and thereafter each successive period of one year running from the end of that period.

Investment fund business

Prior to the introduction of the Amendment Act, only the Rules on Economic Substance in the Virgin Islands (the Rules) contained any express indication that the business of being an investment fund did not itself comprise a “relevant activity”. The ITA based its conclusion on the exhaustive list of “relevant activities” under the Act, which did not include investment fund business. The Amendment Act now expressly provides that investment fund business is not a “relevant activity”. Accordingly, an entity that only carries on investment fund business will not be required to comply with any of the ES requirements.

What is investment fund business?

The Amendment Act introduces a definition of “investment fund” as “…an entity whose principal business is the issuing of investment interests to raise funds or pool investor funds with the aim of enabling a holder of such an investment interest to benefit from the profits or gains from the entity’s acquisition, holding, management or disposal of investments and includes any entity through which an investment fund directly or indirectly invests or operates (but not an entity that is itself the ultimate investment held), but does not include a person licenced under the Banks and Trust Companies Act, 1990 or the Insurance Act, 2008, or a person registered under the Cooperatives Societies Act 1979 or the Friendly Societies Act 1928.”

The Amendment Act then defines “investment fund business” as “the business of operating an investment fund”.

The definition of “investment fund” does not make a distinction as between redeemable or non-redeemable interests. As such, it likely includes both open-ended and closed-end investment funds.

Based on our interpretation of the Amendment Act, the following entities might meet the definition of “investment fund”:

• Mutual funds recognised as such by the Financial Services Commission (including incubator and approved funds)
• Closed-end funds recognised under the private investment fund regime
• A master fund, being an entity through which an investment fund directly or indirectly invests

It is likely that that the ITA will provide guidance as to which entities or categories of entities might meet the definition of an “investment fund”. Until then, any relevant entity claiming not to be carrying on a “relevant activity” on the basis that it is an investment fund should consult with their BVI counsel to determine whether the entity is indeed carrying on the business of an investment fund in respect of any relevant financial period.

Core income generating activities and winding up

Core income generating activities (CIGAs)

The Act sets out a list of CIGAs for each “relevant activity”. Following the introduction of the Amendment Act, CIGA now also encompasses “all the activities that are of central importance to the relevant entity in terms of generating relevant income and must be carried on in the Virgin Islands”. The ITA had already indicated in the Rules that the specified CIGAs for each “relevant activity” are not confined to those specified activities and that what constitutes the CIGA of a particular activity requires a fact-sensitive analysis in each case. With the new gloss on the definition of CIGA, entities carrying on a relevant activity, other than holding business, might wish to conduct a more structured analysis to pinpoint all activities that generated relevant income for the entity for the financial period under consideration and then determine whether those activities were conducted in the BVI for that period as required by the Act.

Winding up

Given the pending changes to the strike off regime, instead of the ITA seeking for the entity to be struck off under the Act, the ITA will now be seeking for the entity to be wound up in cases where it determines that this is an appropriate enforcement action for any breach of the Act.

What should I be doing now?

Pre-Existing LPs should now be looking to undergo a classification exercise to determine whether the entity is within the scope of the ES requirements. Entities claiming to be conducting only investment fund business and which would accordingly not be required to comply with any of the ES requirements, should also seek legal advice to confirm their status.

If you need further information or any assistance with the classification of your entity for the purposes of the Act, particularly in light of the introduction of the Amendment Act, please feel free to contact us.

 

 

Introduction

Except where a specific exemption applies, an entity holding a BVI financial services licence (each a licensee) is required under the Financial Services Commission Act 2001 (the Act) to appoint an individual approved by the Financial Services Commission (the Commission) as its compliance officer (the Compliance Officer).

As part of his or her core functions, as articulated in the Regulatory Code 2009 (as amended) (the Code), the Compliance Officer must prepare and submit to the Commission an annual Compliance Officer’s report (COR) detailing the level of the licensee’s compliance with the Code and any other applicable financial services legislation.

Download a PDF of our Legal Guide – Compliance Officer’s Reports

When are CORs due?

There was previously no express deadline for the submission of CORs. However, as a matter of convention, a licensee would have up to 12 months after the end of the year to which the report relates to submit its COR to the Commission. Following the amendments to the Code as contained in the Regulatory (Amendment) Code 2019, which came into force on 13 November 2019, a licensee is now required to prepare and submit its COR to the Commission within 3 months after the end of the year to which the report relates. Accordingly, all licensees must submit their CORs relating to the 2020 compliance year by 31 March 2021.

What should a COR contain?

The Code sets out, in precisely the following terms, the minimum details that a COR should contain:

• the number of persons employed by the licensee;
• the names and positions of those employees who participated in any training, the content of material covered, the dates of any such training and a copy of the licensee’s training register;
• a list of any BVI laws that the licensee may have breached over the period under review and a summary of any remedial action and time frame taken to address any such breach;
• a copy of the licensee’s register of compliance breaches (which it is required to maintain under the Code);
• the total number of suspicious activity reports made during the year of the COR;
• a list of significant complaints (as defined in the Code) made by customers of the licensee indicating the dates of the complaint, the nature of these complaints and how they were handled;
• an indication of whether there has been a significant breakdown in the internal control structure of the licensee including any compliance risks that may be associated with the licensee’s business relative to:
  • its existing risk management strategy, policies, systems and controls, and whether the internal controls remain sufficient and appropriate for the licensee’s business; and
  • whether the strategy, policies, systems and internal controls are being implemented and complied with in an effective manner;
• confirmation of whether the licensee remains properly resourced, structured, and organised to enable it to effectively undertake its business activities, including serving the number and types of its customers; and
• confirmation of the level of compliance by the licensee with its reporting, filing and all other obligations under the Code and any other applicable financial services legislation.

Can a licensee request an extension of time to prepare and submit its COR?

There are no clear provisions in the Code or the Act governing whether and how the Commission would consider requests for an extension of time to file a COR. It is likely that the Commission will, as it did prior to the 2019 amendments to the Code, continue to deal with such requests on a case-by-case basis to determine whether the circumstances justify any extension being given or if any enforcement action ought to be taken where a COR has not been submitted by the specified deadline. Considering the likely discretionary nature of that exercise, licensees are well advised to submit their COR to the Commission on time to avoid the risk of any enforcement action being taken against them.

What enforcement action might the Commission take if a licensee fails to submit a COR on time or at all?  

The Commission has broad enforcement powers under the Act which it may exercise in any case where it is of the opinion that a licensee has contravened any provision of the Code or any other financial services legislation. In exercising such powers, the Commission has several options ranging from the issuance of a warning letter against a licensee to the revocation or suspension of its licence. In cases where a licensee has failed to submit its COR, the Commission typically imposes a fine commensurate with the degree of non-compliance. However, repeated infractions could result in more severe enforcement action.

Conclusion

CORs assist both the Commission and the licensee in monitoring the licensee’s compliance with the Code and other applicable financial services legislation. Accordingly, it is enormously important for licensees to prepare accurate and comprehensive CORs that comply with the Code. In doing so, licensees not only avoid the risk of enforcement action for failure to submit a compliant and timely COR; they also benefit from the opportunity to assess their compliance functions against the background of this obligatory regulatory self-inspection.

If you need any further guidance on preparing and submitting a COR or determining whether a licensee is exempt from this reporting requirement, please email us or reach out to one of our lawyers using the contact details below.

 

The Financial Services (Continuity of Business) Act, 2020 (the Act) came into force on 28 March 2020. It was enacted to provide for special measures to support the continuity of financial services business either from within or temporarily outside the Virgin Islands in an “exceptional circumstance”.

Download a PDF of our Guide to the Financial Services (Continuity of Business) Act, 2020

In this guide, we examine the scope of application of the Act and some of the special measures that may be deployed whenever an “exceptional circumstance” has arisen or is likely to arise within or outside the Virgin Islands.

At the start of the 2020 hurricane season, it is timely for entities carrying on financial services business to review and be aware of the provisions of the Financial Services (Exceptional Circumstances) Act, 2020 (the FSECA) which may apply to the financial services industry in the case of any disruption.

The FSECA came into force on 28 March 2020. It repeals the Financial Services (Continuity of Business) Act, 2017 which was put in place for a transient period to deal with the interruption in BVI financial services business in the aftermath of Hurricanes Irma and Maria. The FSECA now provides a permanent framework for the adoption of special measures relating to the conduct of financial services business in the event of an exceptional circumstance arising within or outside the Virgin Islands including but not limited to pandemics, earthquakes and hurricanes.

Whom does the FSECA apply to?

The FSECA applies to:

• all persons holding a financial services licence; and

• any person otherwise subject to the Financial Services Commission Act, 2001 (the FSCA) or any other financial services legislation including approved, recognised and authorised persons,

(together referred to as Relevant Persons).

When does the FSECA apply?

The special measures provided for by the FSECA will apply when the Minister with responsibility for financial services issues an Order published in the Virgin Islands Official Gazette declaring that an exceptional circumstance has arisen or is likely to arise whether within or outside the Virgin Islands (the Order). An exceptional circumstance has arisen or is likely to arise when:

• it has become difficult or impossible to carry out financial services business in and from within the Virgin Islands in accordance with the FSCA or any other financial services legislation; or

• different or special measures are otherwise required to facilitate the conduct of financial services business in and from within the Virgin Islands.

The Order may indicate whether all or only specified provisions of the FSECA will apply or if it applies to all or only specified Relevant Persons. It must indicate the date from which the provisions of the FSECA will apply and, unless specified otherwise, the duration of application. The Order may also specify that the FSECA is to be applied retroactively if necessary.

What are the main allowances under the FSECA?

In an exceptional circumstance, the Board of the Financial Services Commission (the Board), which has the responsibility for monitoring and overseeing the operation of the Financial Services Commission, will be afforded added flexibility to continue to discharge its functions. In particular:

• the Board may not be able to meet for the number of times stipulated in the FSCA. Under FSECA, it will have additional flexibility to meet at any other time or place, whether within or outside the Virgin Islands, or by any convenient medium, including via electronic means;

• the Chairman and/or the Managing Director of the Board may make urgent decisions on their own which would have otherwise required a majority vote of the commissioners of the Board. Such decisions, however, will require subsequent ratification by the Board.

The Order may also specify that:

• a Relevant Person may temporarily relocate the whole or part of his or her business to another jurisdiction or to a new address within the Virgin Islands in order to continue the operation of his or her business;

• the provisions of the Insurance Act and the Regulatory Code relating to the licensing of loss adjusters are disapplied;

• directors or authorised agents normally required to be resident in the Virgin Islands may be resident outside the Virgin Islands for the period that the Order remains in force;

• the Commission may extend the time for Relevant Persons to perform outstanding obligations, including the payment of any administrative penalty;

• records that are normally required to be kept in the Virgin Islands may be temporarily kept in the jurisdiction of relocation; and

• certain specified fees that would have otherwise been payable are waived.

What are the additional points to note under the FSECA?

Where a Relevant Person relocates temporarily outside the Virgin Islands due to an exceptional circumstance, he or she will be deemed to be operating in the Virgin Islands and must continue to comply with all applicable laws.

The FSECA also establishes a Financial Services Complaints Tribunal to receive and investigate complaints made by a client or customer of a licensee regarding the handling of claims made against the licensee.

The Minister has already issued an Order in light of the disruptions caused by the Covid-19 pandemic. Although hopefully further orders under the FSECA will not be required, the FSECA now provides a permanent legislative framework to help facilitate the ongoing operation of the financial services industry in or temporarily from outside the Virgin Islands in the event of any exceptional circumstance.

For more information and to discuss how the FSECA could inform your business continuity plans and strategies, please feel free to email us or reach out to one of our lawyers using the contact details below.

 

 

Introduction to Private Investment Funds

Download a PDF of this article

The British Virgin Islands (BVI) Securities and Investment Business Act, 2010 (the Act) was amended to introduce a new private investment fund (PIF) regime for previously unregulated closed-ended investment funds effective as of 31 December 2019. The Act is accompanied by the Private Investment Funds Regulations, 2019 (the Regulations) which together constitute the PIF regime.

Under the PIF regime, a private investment fund must apply to the Financial Services Commission (the Commission) for recognition before it may be promoted or allowed to operate as a PIF in or from within the BVI. However, all PIFs currently operating in the BVI must apply for recognition within the transition period specified in the Act which commenced on 31 December 2019 and ends on 1 July 2020. Any PIF failing to do so will be considered to be conducting unauthorised financial services business and therefore subject to enforcement action.

In this guide, we focus solely on the application process for recognition of PIFs currently operating in the BVI which must be submitted to the Commission by 1 July 2020. This guide is based on the requirements contained in the Act and the Regulations, the Guidelines prepared by the Commission and the statements made by the Director of the Commission’s Investment Business Division at the virtual Meet the Regulator Forum held on 2 June 2020.

The Application Process

Step 1: As a critical first step, PIFs should conduct a classification exercise to determine whether or not they fall within the definition of “private investment fund” under the Act.

A PIF is defined as any company, partnership, unit trust or any other body incorporated, registered, formed or organised in the BVI or any other country which:

• 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 a part of the net assets of the company, partnership, unit trust or other body.

PIFs will typically include most types of private equity funds, for example. However, joint venture enterprises, family offices and investment vehicles investing in only one asset class will not generally satisfy the PIF definition and will quite likely fall outside scope. In the final analysis, each PIF must be examined on its own circumstances to determine if both limbs of the definition are satisfied. If you are uncertain about your entity’s classification, we strongly recommend that you speak with a lawyer.

Step 2: PIFs are required to have an authorised representative and appointed persons responsible for undertaking:

• valuation;
• management; and
• safekeeping relating to the fund property.

You should have the names and addresses of these persons to hand as you prepare to complete the application.  You will also need additional information about the PIF including places of business inside and outside the BVI, entity type, the names of the directors or general partners, details of the trustees where applicable and the PIF’s financial reporting mechanism.

Step 3: Once you have gathered all the relevant information, you should commence the application process immediately.

You will need:

(a) the completed application form together with:

• the PIF’s constitutional documents;
• the PIF’s certificate of incorporation, formation, registration or equivalent document;
• the PIF’s valuation policy;
• the offering document or term sheet, or the proposed offering document or term sheet, if applicable;
• register of directors, if applicable;
• a résumé or biography for each director, general partner, trustee or other underlying individual(s) where the director, general partner or trustee is a corporate entity; and

(b) the initial application fee of US$700.

Please note that the PIF’s constitutional documents should indicate that:

• the PIF is not authorised to have more than 50 investors; or
• an invitation to subscribe for, or purchase, fund interests shall be made on a private basis only; or
• the fund interests shall be issued only to professional investors with a minimum investment of US$100,000.

It might not be necessary or feasible for a PIF to issue an offering document or a term sheet. In those cases, the PIF must specify in the application form:

• why the fund does not intend to issue an offering document or term sheet; and
• how the information relating to investments in the fund will be communicated to investors or potential investors.

Step 4: The Commission has said that it will not process incomplete applications.

You should therefore ensure that the application form is thoroughly completed and all supporting documents are in place and meet specifications.

Step 5: You should then submit the completed application form and accompanying documents to the Commission by hand or email.

Step 6: The Commission will assess completed applications to ensure that they are compliant with the Act and the Regulations.

Assessments will be done on a “first come, first served” basis and, as indicated by the Commission, within 24-48 hours of receipt.

As specified in the Act, when the Commission grants an application for recognition, it will register the PIF in the Register of Private Investment Funds. The Commission will also issue a certificate of recognition as a PIF upon payment of the recognition fee of US$1,000 (for approvals up to 30 June 2020).

Recognition fees for any PIF approved after 30 June 2020 will be US$500. Such recognition will be valid until the end of the year. PIFs must then pay an annual fee of US$1000 to maintain the certificate of recognition.

If the application has been denied, the Commission will notify the applicant accordingly.

Conclusion

PIFs currently operating in the BVI should seek to become compliant with the new PIF regime as a matter of urgency. We can help you to navigate this process from classification of your investment vehicle to recognition by the Commission.

For more information or if you require any assistance with your PIF applications, please feel free to email us at ghp@ghpbvi.com or reach out to one of our lawyers using the contact details below.

Jermaine O Case Joins George Henry Partners LP

Jermaine O Case joined George Henry Partners LP (GHP) on 18 May 2020 as the newest addition to the firm. Jermaine brings to the firm experience and expertise in the areas of banking, financial services regulatory, corporate and commercial, debt finance, employment and general commercial litigation. Jermaine also advises on all aspects of the British Virgin Islands’ telecommunications regulatory framework.

“Jermaine is a great addition to our team. His particular skill set and experience are an excellent fit for GHP, and enhance our offering and capacity to provide the best service to our clients. We are excited to have Jermaine on board at this critical stage of our development and look forward to deploying the expanded suite of services his addition to the GHP team brings,” remarked Sheila George, Managing Partner.

“I am ecstatic about joining GHP and couldn’t be prouder to be a part of this highly qualified and skilled team. I am delighted to have the opportunity to work in an environment with a culture of excellence, where every member of the team is given a platform and is motivated to achieve his or her full potential. GHP’s core values certainly align with my own. Their people-centric approach ensures that clients receive consistent, high quality, tailored legal support. I very much look forward to using my skills, expertise and experience to add value to the team,” said Jermaine Case.

View Jermaine’s Profile