Speaker:

Sailaja Alla, Associate Appleby Spurling Hunter, Hong Kong 6 May 2005
Appleby Spurling Hunter

ESTABLISHING MUTUAL FUNDS IN THE BRITISH VIRGIN ISLANDS

Introduction
Bahamas Bermuda BV I
C ay man Islands

Luxembourg Ireland G uernsey Jersey Isle of Man

* Figures as at December 2004

What is a Fund?
A company, a partnership or unit trust which collects and pools investor funds for the purpose of collecting investment Issues shares, partnership interests or units that entitles the holders to receive on demand an amount computed by reference to the value of a proportionate interest in the whole or in part of the net assets of the company

What is a Fund?
The regulatory authority and relevant law: Financial Services Commission (FSC) Mutual Funds Act 1996

Categories of Funds
BVI law provides for 3 categories of funds: Private Funds Professional Funds Public Funds

Categories of Funds
Private Funds No more than 50 investors Invitation to subscribe for equity interests is made on a private basis Cannot carry on business until it is recognised as a private fund

Categories of Funds
Professional Funds Professional investors only Initial investment should not be less than US$100,000 A professional investor is i) a person whose ordinary business involves investing; or ii) a person who has declared that, individually or with spouse, has a net worth in excess of US$1 million and consents to being treated as a professional investor

Categories of Funds
Professional Funds: Cannot carry on business until it is recognised as a professional fund (14 days grace period) Private & Professional Funds: Application for recognition is made to the FSC after the investment vehicle is established need to submit proof that fund is private or professional & details of service providers and various other details No Application fee. Annual fee is US$350

Categories of Funds
On-going requirements for private and professional funds: Notify FSC of any change of name Notify FSC of any change in registered office/registered agent Notify FSC of change in service providers Notify FSC of any suspension of business Notify FSC of any regulatory action taken against the fund, its directors or service providers

Categories of Funds
Public Funds Any fund that is not private or professional fund Cannot carry on business unless it is registered Registration requires an application to FSC with details of the funds service providers and other information requested by FSC. Application fee is US$500

Categories of Funds
Public Funds Required to publish a prospectus, appoint an approved auditor and maintain accounts for each year FSCs prior approval required to change directors, service providers or to make any substantial changes to prospectus

Categories of Funds
Public Funds FSC has discretion to grant or refuse registration Custodian has to be functionally independent of the manager or administrator Application and annual fee is US$500

Categories of Funds
All BVI Funds: No specific requirements under Act with regard to location of the service providers but Policy Guidelines impose requirement that service providers to be incorporated in BVI or in a recognised jurisdiction (i.e. Belgium, Bermuda, France, UK, USA, Gibraltar, Spain, Switzerland, the Netherlands, Malta, Luxembourg, Singapore, Guernsey, Hong Kong, Ireland, Isle of Man and Jersey)

Categories of Funds
All BVI Funds: FSC may impose terms and conditions and restrictions upon the issue of a certificate of registration or recognition FSC will not impose terms and conditions when the fund has appointed service providers incorporated in the BVI or in a recognised jurisdiction

Investment Vehicles
Investor requirements usually dictate the type of vehicle used: Company Partnership Unit Trust

Investment Vehicles
Companies:

Investors = Shareholders Company Board of Directors

Investment Manager/Advisor Administrator Custodian/Prime Broker Auditor

Investment Vehicles
Unit Trusts:

Investors = Unit Holders Trustee of Unit Trust

Investment Manager/Advisor Administrator Custodian/Prime Broker Auditor

Investment Vehicles
Partnerships:

Investors = Limited Partners Limited Partnership

Investment Manager General Partner Administrator Custodian/ Prime Broker Auditor

Regulation of Service Providers

Only Administrators and Managers (of open-ended funds) are regulated by the Mutual Funds Act Must have one of the following to carry on business as an Administrator or Manager: (a) a license; (b) written permission from FSC; or (c) must be a Manager or Administrator under the laws of a recognised jurisdiction

Regulation of Service Providers

Application for license requires: Notice with prescribed information Statement of financial and human resources and administrative facilities available to applicant Applicant has to be fit and proper person with adequate knowledge, expertise, resources and facilities necessary for the proposed business

Regulation of Service Providers

Application for license requires: Disclosure of beneficial owners of applicant, Applicant to have 2 directors at all times and cannot have ability to issue bearer shares Application fee of US$250 and annual fee is US$500

Segregated Portfolio Companies

Segregation of Accounts

General Account Cell 1 Business Cell 2 Business Cell 3 Business

Complete segregation of accounts of each business from liabilities of other businesses in other cells and general liabilities of company

Segregated Portfolio Companies

Advantages of SPC Ring-fencing of assets within a single corporate entity Greater legal certainty Reduced complexity Administrative cost savings

Segregated Portfolios Companies

Single legal entity Segregated portfolios may be traded independently Assets of one portfolio are protected from the liabilities of another portfolio Assets: either segregated portfolio assets or general assets

Taxation
No taxes on profit, income, capital gains or appreciation in value No withholding taxes, no estate duty, inheritance or capital transfer tax. Certain registration or other government fees may be applicable.

Anti-Money Laundering Regulations

Relevant laws: The Proceeds of Criminal Conduct Act, 1997 Anti-Money Laundering Code of Practice, 1999 A Mutual Fund/ Manager/ Administrator must maintain: Identification procedures Records keeping procedures Internal reporting procedures Internal controls and communication procedures which are appropriate for the purposes of forestalling and preventing money laundering

Anti-Money Laundering Regulations

Do not need to obtain satisfactory identity evidence: If client is regulated by the FSC If client is an authorised financial institution in a country which has anti-money laundering laws equivalent to the BVI If client is an attorney or accountant and is bound by rules of a professional body which are equivalent to the BVI

Anti-Money Laundering Regulations

A Mutual Fund/ Manager/ Administrator must: Take measures to make employees aware of requirement under the law Provide training for employees on dealing with suspicious transactions Appoint Compliance Officer Appoint Reporting Officer

Anti-Money Laundering Regulations

Offences and Penalties: Summary conviction - fine not exceeding US$5,000 Conviction on indictment (first time) fine not exceeding US$10,000 Conviction on indictment (after first time) fine not exceeding US$15,000

Further Resources
To obtain Briefs and Guides, please contact us at :

Appleby Spurling Hunter 5511 The Center 99 Queens Road Central Hong Kong Tel: (852) 2523 8123 Fax: (852) 2524 5548 hkinfo@applebyglobal.com www.applebyglobal.com

Q. & A.

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Hong Kong Office 5511 The Center 99 Queens Road Central Hong Kong