Guide to the continuing obligations of a BVI investment business licensee

A significant interest means, in respect of an undertaking, a holding or interest in the undertaking, or in any parent of the undertaking held or owned by a person, either alone or with any other person, and whether legally or equitably, that entitles or enables the person, directly or indirectly:

(a) to control ten per cent or more of the voting rights of the undertaking;

(b) to a share of ten per cent or more in any distribution made by the undertaking;

(c) to a share of ten per cent or more in any distribution of the surplus assets of the undertaking; or

(d) to appoint or remove one or more directors of the undertaking.

A controlling interest means, in respect of a licensee, the ownership or interest in the licensee or in any holding company of the licensee which entitles a person to exert influence over a licensee, or any holding company of the licensee, and includes a person who:

(a) has more than fifty per cent of the voting rights of the licensee;

(b) has a significant interest in the licensee which, although not constituting fifty per cent of the voting rights of the licensee (in aggregate or otherwise), gives the person a considerable advantage in the voting rights of the licensee;

(c) has an influence over the activities of the licensee without having a significant interest; or

(d) instructions to a director or senior officer of the licensee to which that director or senior officer is accustomed to acting.

(a) a person acquiring a significant interest or controlling interest (as defined above) in the licensee; or(b) a person who already owns or holds a significant interest or controlling interest (as defined above) in the licensee increasing or decreasing the size of the person’s interest.

(a) a mutual fund;(b) a private investment fund; or

(c) fund with equivalent characteristics to a mutual fund or private investment fund.

The notification must include:

(a) the name of the fund;

(b) the jurisdiction and date of incorporation, registration or formation of the fund; and

(c) confirmation as to the type of fund.

The financial statements of a licensee must be signed by at least one director (where the licensee is a BVI business company) and be accompanied by:

(a) a director’s certificate in the approved form;

(b) an auditor’s report;

(c) a report on the affairs of the licensee made in respect of the relevant financial year to the members of the licensee; and

(d) such other documents as may be prescribed.

A significant owner means, with respect to an undertaking or licensee, a person having a significant interest in the undertaking or licensee.

A controller means, with respect to a licensee, a person with a controlling interest (as defined above) in the licensee.

A significant complaint means a complaint that alleges:

(a) a breach of a regulatory enactment;

(b) bad faith, malpractice or impropriety on the part of the licensee or one of its directors, employees or agents;

(c) the repetition or recurrence of a matter previously complained of (whether significant or otherwise); or

(d) that the complainant has suffered, or may suffer, financial loss that is material in relation to the complainant’s financial circumstances.

(a) an application being made to the BVI High Court for the appointment of a liquidator or administrator of the licensee under the Insolvency Act;

(b) a meeting being called to consider the appointment of a liquidator of the licensee under section 159(2) of the Insolvency Act;

(c) al being made for a creditors’ arrangement under the Insolvency Act;

(d) the making of, or any proposals for the making of, a composition or arrangement with one or more creditors of the licensee other than a creditors’ arrangement as referred to in (c) above;

(e) the striking of the licensee off the register of companies maintained by the Registrar of Corporate Affairs under the BVI Business Companies Act;

(f) the appointment of a receiver of the licensee or any of its property, whether by a creditor, the BVI High Court or otherwise;

(g) anything equivalent to events (a) to (f) occurring in a jurisdiction outside the BVI;

(h) the bringing of civil proceedings against the licensee where the size of the claim is significant with respect to the licensee’s financial resources or is likely to affect the licensee’s reputation;

(i) the commencement of an investigation with respect to the business or affairs of the licensee by any overseas regulatory authority;

(j) the taking of any enforcement action or the imposition of any disciplinary measures against the licensee by a foreign regulatory authority or a professional body (in or outside the BVI), including the refusal or revocation of membership by such a professional body;

(k) the prosecution or conviction of the licensee, or any of its directors or senior managers, in or outside the BVI for any offence (i) relating to financial services or (ii) involving fraud or dishonesty;

(l) the granting or refusal of an application for a licence to carry on any financial services business outside the BVI or the revocation of any such application;

(m) the commission by any employee of the licensee of a fraud against a customer of the licensee;

(n) the licensee becoming aware of any fraud committed against it;

(o) any matter that the licensee considers to be material to the fit and properness of the licensee or any person having a significant interest in it or any of its directors or senior managers;

(p) any significant failure in the licensee’s systems or controls;

(q) any proposed significant restructuring or reorganisation of the licensee or its regulated business or activities;

(r) any material breach of the capital or financial resource requirements imposed on the licensee by a regulatory enactment or the Code;

(s) any transfer⁶ of an interest in a licensee by operation of law or pursuant to an order of the BVI High Court, where (i) the person whose interest is transferred holds, or before the transfer held, a significant interest in the licensee or (ii) as a result of the transfer, a person becomes the holder of a significant interest in the licensee;

(t) any transfer⁷ of an interest in the licensee which does not require the approval of the FSC, where (i) the person whose interest is transferred holds, or before the transfer is held, an interest that is not a significant interest in the licensee, or (ii) as a result of the transfer, a person becomes the holder of an interest that is not a significant interest in the licensee; or

(u) a change of address of the principal office of the licensee, whether within or outside the BVI, where prior approval of the FSC for such a change is not required.

In the case of (q), within a reasonable time prior to the proposed restructuring or reorganisation taking effect.

In the case of (s) or (t), within 14 days of the transfer.In the case of (u), within 14 days of the change.

Immediately means (a) immediately after there are reasonable grounds for a licensee believing that the event is likely to occur in the foreseeable future; and (b) irrespective of (a), immediately after a licensee knows, or has reasonable grounds for believing, that the event has occurred.

(a) a change in a licensee’s name or any business name under which it carries on regulated business;

(b) a change in a licensee’s address of its principal office or place of business, whether in or outside the Virgin Islands;

(c) a change in the address of a licensee’s registered office; or

(d) a licensee carrying on business in a manner materially different to its most recent business plan.

(a) having assets;

(b) providing for its liabilities; and

(c) generally conducting its business,

so as to be in a position to meet its liabilities as they fall due.

(a) to show and explain its transactions;

(b) at any time, to enable its financial position to be determined with reasonable accuracy;

(c) to enable it to prepare such financial statements and make such returns as it is required to prepare and make under SIBA and the Code; and

(d) to enable, if applicable, its financial statements to be audited in accordance with SIBA.

A licensee must keep any such records for a period of at least five years after the completion of the transaction to which they relate.

(a) ensure that client assets are identified, or identifiable, and appropriately segregated and accounted for; and

(b) make arrangements for the proper protection of client assets.

(a) issue, or cause or permit to be issued, an advertisement, brochure or similar document or make, or cause or permit to be made, a statement, promise or forecast, which he knows, in a material particular:

(i)  is false or misleading; or

(ii) contains an incorrect statement of fact;

(b) issue, or cause or permit to be issued, an advertisement, brochure or similar document or make, or cause or permit to be made, a statement, promise or forecast, where he is reckless as to whether the advertisement, brochure, document, statement, promise or forecast,
in a material particular:

(i)  false or misleading; or

(ii) contains an incorrect statement of fact; or

(c) dishonestly conceal a material fact, whether in connection with an advertisement, brochure or similar document, statement, promise or forecast, or otherwise.

The auditor must be qualified under the Code to act as the auditor of the licensee and must have consented to act in that capacity.

The appointment of the auditor must be approved by the FSC in writing before it is made unless the licensee is a licensed fund manager, a licensed fund administrator or a licensed fund investment advisor and:

(a) the licensee has provided the FSC with not less than 14 days’ written notice of its intention to appoint the person concerned as auditor; and

(b) the FSC has not, prior to the person’s appointment as auditor, provided the licensee notice that it objects to the appointment.

(a) a licensee must conduct its business with integrity;

(b) a licensee must take reasonable care to organise and control its affairs effectively and have adequate risk management systems in place;

(c) a licensee must maintain adequate financial resources, including capital resources as appropriate, taking into account the nature, scale, complexity and diversity of its business and the risks it faces;

(d) a licensee must have due regard for the interests of its customers and treat them fairly. A licensee must make adequate arrangements to protect its customers’ assets when it has responsibility for them and must manage conflicts of interest fairly;

(e) a licensee must be transparent in its business arrangements; and

(f) a licensee must deal with the FSC in an open and cooperative manner.

(a) its directors and senior managers are fit and proper for the role to which they are appointed; and

(b) where the licensee is required to appoint an auditor, actuary or other independent officer, the auditor, actuary or other independent officer appointed is fit and proper.

The above fit and proper requirement also applies on an ongoing basis to a significant owner or controller (as defined above) of a licensee that has been approved by the FSC.

(a) take reasonable care to maintain a clear and appropriate apportionment of significant responsibilities among its directors, senior managers and key functionaries so that:

(i)   it is clear who has which of those responsibilities;

(ii)  the business and affairs of the licensee can be adequately monitored and controlled by the directors and its relevant senior managers; and

(iii) the employees of the licensee are appropriately supervised; and

(b) establish and maintain such systems and controls as are appropriate
for the nature, size, complexity, structure and diversity of its business.

(a) ensure that its systems and controls are regularly reviewed and updated as required; and

(b) make and retain for the retention period, a record of how it has complied with this section.

Those systems and controls must take into account:

(i)  the nature, scale, complexity and diversity of the licensee’s business; and

(ii) the degree of risk associated with each area of its business.

(a) exercise a relevant discretion or other power in a proper manner; and

(b) ensure that such discretion or power is only exercised for a proper purpose.

(a) inform its customer, in writing, of the agreed terms of business between the licensee and the customer, including the instructions received and the capacity and scope of discretion, if any, within which the licensee will act for the customer; and

(b) ensure that the agreed terms of business include—

(i)   a description of the products and services to be provided;

(ii)  the fees to be charged and the basis of the calculation of those fees;

(iii) where applicable, the terms upon which customers’ monies are to be held;

(iv) any exit fee and the basis upon which the fee is calculated; and

(v)  the means by which complaints about the licensee’s services can be made.

Those written terms of business must provide that the relationship between the licensee and its customer must be terminated upon giving reasonable notice, unless there are good reasons for not doing so.

A licensee that is a BVI business company must adopt advertising and communication practices that promote advertisement that is clear and fair, and is free of false or misleading statements.

(a) are capable of exercising independent judgment;

(b) have sufficient knowledge, skills experience and understanding of the business of the licensee, and the risks to which the licensee is exposed, to ensure that the board is able to fulfil its responsibilities; and

(c) have sufficient time and commitment to undertake their duties diligently.

(a) establish such strategies, policies, systems and controls as are appropriate given the nature, size, complexity, structure and diversity of the licensee’s business and the degree of risk associated with each area of its business; and

(b) ensure that the strategies, policies, systems and controls are fully and clearly documented and are communicated, as appropriate, to members of staff and other functionaries.

The strategies, policies, systems and controls of a licensee must specify the duties and responsibilities of the board and senior management, including such responsibilities and duties as are imposed on the board and senior management by the Code.

(a) a clearly defined strategy, and if the board considers it appropriate, policies, for the effective management of all significant risks that the licensee is or may be exposed to; and

(b) systems and controls that are sufficient to ensure that the risk management strategy and policies are effectively implemented.

(a) the licensee is able to continue to carry on its regulated business and to meet its regulatory obligations and its obligations under, or obligations imposed on it by, the Proceeds of Criminal Conduct Act, the Anti-money Laundering Regulations or the Anti-Money Laundering and Terrorist Financing Code of Practice;

(b) losses to its functions, systems and data are limited and any losses
may be recovered in a timely manner; and

(c) where the severity of the interruption or disruption results in the licensee ceasing its regulated business, or any part of it, it is able to resume its business in a timely manner.

The business continuity policy and arrangements must be:

(i)  appropriate for the nature, size, complexity, structure and diversity of the licensee’s business and the types and degree of risk to which it is exposed; and

(ii) regularly reviewed and tested, and updated as required.

The interruptions and disruptions covered by the business continuity plan and arrangements must include:

(i)   the loss or failure of internal and external resources, including human resources, systems and other assets;

(ii)  the loss or corruption of data and other information; and

(iii) external events, such as criminal acts and hurricanes and other natural disasters.

A licensee’s information systems must be monitored independently and supported by adequate contingency arrangements.

(a) the effectiveness of the internal control system is monitored on an on-going basis;

(b) regular reports on the effectiveness of the internal control system are made to the board; and

(c) any deficiencies identified in the internal control system are corrected as soon as reasonably practicable.

A licensee’s internal control policies must require any deficiencies identified in the internal control system to be reported in a timely manner to senior management and for material internal control deficiencies identified to be reported to the board, notwithstanding that they may have been corrected.

(a) the period of time for which various types of record will be retained (which, subject to other BVI legislation requiring the licensee to retain records for a longer period, is at least five years);

(b) how records are to be securely and safely stored; and

(c) the process by which stored records can be readily accessed when required by the licensee, the FSC, law enforcement agencies or other persons entitled to access them.

(a) from the date each record was generated;

(b) if the licence is surrendered, cancelled or revoked, from the date of surrender, cancellation or revocation of the licence;

(c) in relation to money laundering, financing of terrorism and financing of proliferation, from the date of termination of the business relationship; or

(d) in the case of a one-off transaction, from the date of conclusion of the transaction.

The compliance policy must be appropriate for the nature, scale, complexity and diversity of the business carried on by a licensee.The compliance systems and controls must be:

(a) sufficient to ensure compliance:

(i)   by the licensee with its compliance policies and its regulatory obligations;

(ii)  by the licensee’s board, senior management and employees with its compliance policies and any obligations that may be imposed on them by the FSCA, a regulatory enactment or the Code; and

(iii) with the licensee’s internal controls;

(b) adequate to identify compliance breaches; and

(c) effectively implemented by the licensee.

A licensee’s board must approve the compliance policy and, at least annually, review it and assess the effectiveness of the compliance policy, systems and controls in managing the licensee’s compliance risk.

(a) documented in a compliance procedures manual; and

(b) communicated, and readily available to the licensee’s directors and those senior managers and staff who have responsibility for implementing them.

(a) overseeing the licensee’s compliance function;

(b) reporting to the FSC in such manner and with such frequency as specified in the Code;

(c) reporting to the directors of the licensee; and

(d) acting as liaison between the licensee and the FSC,

with respect to the licensee’s compliance function.

(a) establish and maintain a complaints policy which provides for the effective consideration and proper handling of any complaints made to the licensee and for appropriate remedial action to be taken, where appropriate; and

(b) maintain a complaints register in which the licensee must record any complaints received together with details of how the complaint has been, or is being, dealt with.

(a) ensure that, at all times, it maintains capital resources at a level that is adequate to support its investment business, taking into account the nature, size, complexity, structure and diversity of that business and its risk profile; and

(b) maintain adequate systems and controls to monitor and assess its capital adequacy requirements on an ongoing basis.

(a) act in the best interests of the fund;

(b) if it acts as functionary for more than one fund, ensure that all the funds for which it acts are, between each other, dealt with fairly and that no fund is given an unfair advantage; and

(c) in its dealing with investors of the fund, ensure that all investors are treated fairly.

(a) the basis or amount of the licensee’s charges for the provision of those services; and

(b) in the case of a retail customer, details of the licensee’s professional experience in relation to the services to be provided.

A licensee must not provide advice to a retail customer concerning a transaction or investment strategy or act as a discretionary manager for
a retail customer unless the licensee has taken reasonable steps to make
the customer aware of the risks involved and of any conflicts of interest.

A licensee must take reasonable steps to ensure that it does not in the course of its licensed business provide any advice to a retail customer,
or exercise a discretion for a retail customer, unless the advice, or exercise
of discretion, is suitable for the retail customer having regard to:

(a) the facts disclosed by the retail customer, including facts disclosed in a fund prospectus or offering document (if any);

(b) the terms of any agreement with the retail customer; and

(c) any other relevant facts about the retail customer of which the licensee is, or should reasonably be, aware.

A licensee must take reasonable steps to ensure that the facts about a retail customer that is required to take into account are recorded as soon as the licensee becomes aware of them.

Where a licensee decides to postpone an order in the best interests of the customer, it must record the decision together with reasons for the decision.

(a) ensure that a transaction it executes is promptly allocated; and

(b) record the intended basis of allocation when:

(i)  the licensee is dealing for one or more customers, either before
or as soon as possible after the transaction is effected; or

(ii) the licensee is dealing for one or more customers and itself, before the transaction is effected.

If a licensee discovers an error, either in the intended basis of allocation or in the actual allocation, it may recommence the allocation on a different and correct basis provided that a record of the reason for reallocation is made at the time of reallocation.

Each allocation made by a licensee must be made in accordance with standards and procedures which are uniform for all allocations made by the licensee.

(a) otherwise agreed between the licensee and the customer;

(b) it is in the overall best interest of the customers concerned; or

(c) any possible disadvantage has been disclosed to the customer concerned.

When a licensee has aggregated an order for a customer transaction with an order of its own account transaction, or with another order for a customer transaction, then in the subsequent allocation:

(i)  it must not give unfair preference to itself or to any of those for whom it dealt; and

(ii) if all orders cannot be satisfied, it must give priority to satisfying orders for customer transactions unless it believes on reasonable grounds that, without its own participation, it would not have been able to effect those orders either on such favourable terms or at all.

A licensee provides best execution for a customer if:

(a) it takes reasonable care to ascertain the price which is the best available for the customer in the relevant market at the time for transactions of the kind and size concerned; and

(b) unless the circumstances require it to do otherwise in the interests
of the customer, it deals at a price which is no less advantageous
to the customer.

A licensee may rely on another person who executes the transaction to provide best execution, but only if it believes on reasonable grounds that the other person will do so.

In applying best execution, a licensee must:

(i)  have regard to the best price, the likelihood of execution and settlement at that price, the costs of execution and the nature of the order; and

(ii) leave out of account any charges disclosed to the client which it or its agent would make.

A licensee must establish and implement a best execution policy.

(a) advise the customer to deal or to switch within or between investments; or

(b) in the exercise of the licensee’s discretion, deal or arrange a deal or effect such a switch for the customer,

if the dealing or switching would reasonably be regarded as too frequent in the circumstances.

(a) deal in the investment, or any related investment, on its own account; or

(b) deal in the investment, or any related investment on behalf of the connected person,

until the customers for whom the publication was principally intended have had, or are likely to have had, a reasonable opportunity to react to it.

(a) either avoid any conflict of interest arising or, where conflicts arise, should ensure fair treatment to all its customers by disclosure, internal rules of confidentiality, declining to act, or otherwise; and

(b) not unfairly place its interests above those of its customers.

If a licensee has a material interest in a transaction to be entered into with or for a customer, or a relationship which gives rise to a conflict of interest relating to such a transaction, the licensee must not knowingly either advise, or deal in the exercise of discretion, in relation to that transaction unless it takes reasonable steps to ensure fair treatment for the customer.

Where the policies of of a licensee to manage conflicts of interest are not sufficient to ensure, with reasonable confidence, that risks of damage to client interests will be prevented, the licensee must clearly disclose the general nature and sources of conflicts of interest to the customer before undertaking business on its behalf. In making such disclosure provide the customer with sufficient detail, taking into account the nature of the customer, to enable the customer to take an informed decision with respect to the investment business in the context of which the conflict of interest arises.

(a) identify, with reference to the licensed business carried on by the licensee, the circumstances which constitute or may give rise to a conflict of interest entailing a material risk of damage to the interests of its customers or any of them;

(b) set out procedures for ensuring the fair treatment of its customers; and

(c) if the licensee is a member of a group, take into account potential conflicts arising from its membership of the group.

A licensee must establish, and maintain systems and controls designed to ensure the effective implementation of its conflicts of interest policy.

A licensee must keep a record of any significant conflicts that arise in the conduct of its licensed business and the steps that it has taken to avoid or manage those conflicts of interest.

(a) keep safe, or arrange for the safekeeping by a suitable custodian of, documents of title or other ownership rights relating to customer investments; and

(b) take reasonable steps to ensure that any customer investments that are registrable, are properly registered either in the customer’s name or, where agreed with the customer, in the name of a suitable custodian or a nominee that is:

(i)  chosen by the customer; or

(ii) a corporate nominee, the business of which is limited to the holding of investments and related activities.

(a) customer investments are separately identifiable from investments of the licensee; and

(b) the customer investments of each customer are separately identifiable from each other.

(a) use a customer’s investments for its own account unless it has obtained that customer’s prior written consent to do so; or

(b) lend, or arrange the lending of customers’ investments to another person unless:

(i)   the customer to whom the investment belongs has consented, in writing, and the loan is subject to appropriate documented terms and conditions;

(ii)  where customers’ investments belonging to more than one customer are registered in the same name, each customer whose investments are so registered has consented, in writing, to the lending of customer investments registered in that name, and each customer’s entitlement is clearly ascertained;

(iii) adequate collateral is obtained and maintained for the duration of the loan, in accordance with any written instructions given by the customer; and

(iv) the licensee arranges for all income, inclusive of dividends, fees or commissions, earned thereby (other than any fees payable to the licensee for arranging the loan) either to be paid to the customer directly or to be received by the licensee on the customer’s account and treated as customer money, unless instructed otherwise by the customer.