What they say about BVI

A mixture of fund administrators, lawyers, accountants and auditors and others share their thoughts about the British Virgin Islands.

Mara Alido Spencer, managing director, ACE Fund Services

The British Virgin Islands (BVI) is an attractive jurisdiction for hedge funds, according to Mara Alido Spencer (above). The legislative framework in the BVI is modern and internationally recognised. The authorities have successfully created a framework that is stringent in terms of anti-money laundering and know-your-customer requirements, she says.

The BVI offers an appropriate level of regulation for private and professional funds combined with flexibility and value for money. “It is considerably cheaper to establish a fund in the BVI than comparable jurisdictions like the Cayman Islands,” she says.

Spencer admits hedge funds domiciled in the BVI would benefit from the availability of more high-quality banking and custody services in the jurisdiction. This is unlikely to change in the foreseeable future.

“Many of the major banks have already opted to establish their offshore operations elsewhere,” she says. The flexibility of the BVI regime, which allows companies based in the islands to appoint service providers based in a list of recognised jurisdictions, means the lack of major banks in the BVI is not a major drawback in practical terms.

David Sims, managing director, Beacon Fund Advisors

The BVI and the Cayman Islands offer hedge funds a similar environment to establish investment vehicles, according to David Sims. The main difference, though subtle, is in the way the BVI regulates investment funds.

“BVI funds must be registered with the regulator, which is not the case in Cayman,” Sims says. The application process has been streamlined and registration is rarely a problem in practice, he adds. The fact that the regulator must license BVI management companies is a more substantial issue. This can take a number of days and a BVI fund cannot be registered until the manager has been licensed. “The delays caused by the licensing process may have hampered the flow of business to the BVI and left the jurisdiction a distant second behind Cayman for hedge fund domiciliation,” he says.

Nicholas Carter, managing director, PricewaterhouseCoopers

The BVI’s reputation for strong and prudent regulation is at the heart of its appeal as an international financial centre, according to Nicholas Carter. The BVI government has been at the forefront of anti-money laundering and know-your-customer rules and it has been proactive about protecting the integrity of the jurisdiction. “In many cases the rules in the BVI are stronger than in the UK and other major onshore jurisdictions. This is a very tightly regulated jurisdiction,” says Carter. He believes this creates stability and contributes to the BVI’s attraction as a domicile for hedge funds.

Rob McIntyre, managing partner, Maples & Calder

There has been a steady improvement in the level and sophistication of regulation in the BVI over the past decade, according to Rob McIntyre. The Business Companies Act 2004 and the Mutual Funds Act 1996 provide a solid platform for investment fund business in the jurisdiction, while the enactment of the Securities and Investment Business Act (SIBA) shows the jurisdiction continues to move in the right direction, he believes. “It demonstrates that the BVI remains committed to maintaining a modern regulatory framework,” he says of SIBA. McIntyre also credits the BVI regulator for staying “in step” with international standards on anti-money laundering and know your customer and managing the jurisdiction’s relationship with onshore governments. “The authorities have played their hand very well over an extended period of time,” he says.

Monique Cova, managing director, Circle Partners

The BVI continues to see a steady stream of new business coming to its shores despite the global economic downturn, says Monique Cova. She remains positive about prospects for the hedge fund business and believes the BVI will continue to be an attractive option for fund formations.

“There is no question that the hedge fund industry will change as a result of the experiences of last year. However, the industry will survive and continue to grow in the long term,” she says. The robust regulation of funds in the BVI will be a selling point for the jurisdiction, she believes.

“Other jurisdictions like the Cayman Islands will probably have to raise their level of regulation to match the standards in the BVI,” she concludes.

Robert Briant, partner, Conyers Dill & Pearman

Robert Briant (above) says the legal framework in the BVI is ideally suited to establishing hedge funds. He describes the Business Companies Act, which governs the formation of onshore and offshore companies in the BVI, as a modern restatement of the Delaware company rules adapted to an English legal model. “Other offshore jurisdictions continue to rely on the English company rules, but these have been superseded by the Delaware model,” he says.

The Insolvency Act of 2003 complements the Companies Act. This is considered a modern and up-to-date piece of legislation and Briant says it has proved to be a useful tool in restructuring hedge funds. The latest addition to the BVI legal framework, the Securities and Investment Business Act (SIBA), is expected to be enacted before the end of the year.

This will replace the existing Mutual Funds Act which governs the regulation of BVI funds by the Financial Services Commission. Briant says the rules applying to offshore hedge funds are not expected to change materially as a result of SIBA.

Mark Chapman, managing partner, Deloitte

The fortunes of BVI hedge funds mirrored the global industry in 2008, says Mark Chapman (above). The vast majority of hedge funds posted losses and assets under management (AUM) are down across the board, with the exception of short bias and managed futures funds. He believes AUM in BVI funds may have halved from over $100 billion before the market turned in 2008 to around $50 million at the end of the first quarter of 2009. “We are probably back at 2006 levels in terms of AUM in BVI funds,” he says. But Chapman believes the future for the BVI as a hedge fund centre is far from bleak. New funds will emerge to replace those that collapsed, he argues, and the BVI’s ability to offer quick and low-cost fund formations means it is ideally placed to play a role in the resurgence of the industry.

Peter O’Connell, managing director, Conifer Fund Services

The regulations in the BVI are designed to ensure the islands attract high-quality business, says Peter O’Connell. The authorities are open to working with onshore regulators with a view to maintaining high standards in the jurisdiction. He believes the BVI’s reputation for robust regulation and the global trend towards greater oversight of hedge funds is positive. “It will help restore investor confidence. The requirements in the BVI are not onerous. As a service provider, we can help clients to meet regulatory requirements around the world,” O’Connell states. He says onshore governments should cool their rhetoric on offshore jurisdictions. “The business that comes to the BVI and Cayman is good business. It ultimately benefits countries like the UK,” he says.

Simon Schilder, partner, Ogier

The BVI competes effectively against the Cayman Islands for hedge fund formation work, believes Simon Schilder. He says this is due to the strength of the insolvency and company laws in the jurisdiction. “The legal framework in the BVI is the most modern and sophisticated of any offshore jurisdiction,” he says. The Securities and Investment Business Act (SIBA), which he expects to be enacted later this year, gives the BVI an opportunity to respond to the issues raised by the G20 and stay on the cutting edge of regulation. This includes responding to moves to regulate hedge funds in onshore jurisdictions. “Depending on the timing, it may be possible to incorporate some of the latest ideas of regulation into SIBA,” Schilder says.

Valerie Georges-Thomas, partner, Appleby

The BVI is a speedy and low-cost jurisdiction for the establishment of private and professional investment funds, says Valerie Georges-Thomas. These types of funds can be incorporated in a single day and they can commence business while the application to register the fund with the regulator is still pending. The regulatory burden on local funds is light.

“This is what has made the BVI the second largest domicile for hedge funds,” she says. At the same time, the authorities are keen to attract the “right type of business” to the islands. This is evident in the tight anti-money laundering and know-your-customer rules in the BVI,” she says.

Ross Munro, partner, Harneys

The quality of the company and insolvency legislation in the BVI is its main advantage, says Ross Munro.

“The rules are simple, flexible and modern. The corporate legislation in the BVI is superior to Cayman and there are still cost advantages to doing business here,” Munro says.

He believes the rhetoric from the G20 and onshore governments is unjustified. “The tax neutrality of the BVI allows international business deals to happen, which ultimately benefits these countries.” But he admits there is little the BVI can do to shape international policies and says legislative changes such as the proposed Stop Tax Haven Abuse Act in the US do pose a threat to the jurisdiction.

“Legislation such as this could undermine the ability of foreign investors to gain exposure to US managers through offshore vehicles. It is a risk to the BVI, but ultimately the biggest losers will be US investment managers,” he says.

Sherri Ortiz, chief operations officer, BVI International Finance Centre

Sherri Ortiz says the BVI is keen to attract more hedge fund business to its shores. She believes the jurisdiction is solidly positioned in terms of regulation and legislation.

She also highlights the collaboration between the public and private sector on major issues as another strength of the BVI.

“We are committed to working together to maintain the quality of the regulatory framework,” she says. The Securities and Investment Business Act is an example of this. The private sector is being consulted on the draft version of the Act and will be invited to suggest improvements.

“We anticipate that the new legislation will result in a more flexible and business-friendly environment for the formation and management of investment funds,” Ortiz says.

Tanis McDonald, audit director, KPMG

The BVI does not subject investment funds based in the jurisdiction to heavy-handed regulation, says Tanis McDonald (above). There is no requirement to file an audit or to provide the regulator with detailed information about the fund and BVI funds are under no obligation to appoint local directors.

However, private and professional funds domiciled in the jurisdiction must be registered with the regulator and management companies incorporated in the BVI are subject to licensing rules.

McDonald says the BVI’s focus is on being diligent with regard to anti-money laundering and ensuring the jurisdiction is not used to funnel assets tied to criminal conduct. On this front the BVI meets the highest international standards. This has helped to protect the BVI’s reputation as a high-quality international financial centre, McDonald says.

Kay Reddy, managing director, Blenheim Trust

Establishing an investment fund or company in the BVI is “quick and easy”, says Kay Reddy. This has led to steady and consistent growth in the number of funds based in the jurisdiction.

“The BVI appeals to the alternative investment community. The majority of funds registered here are hedge funds, but we also have a number of property and private equity funds,” she says. The BVI authorities would like to develop the island’s financial services sector by attracting more blue-chip banks to the jurisdiction.

But Reddy says they are cautious about exposing the BVI to the reputational risks associated with failures in the banking sector. The scarcity of international banks in the BVI has not held back the development of the BVI funds sector, she adds.