British Virgin Islands gets hotter, new operations with securities

SECURITIES AND INVESTMENT BUSINESS ACT, 2010. On December 31, 2010 fully comes into force, adopted in BVI law on activities related to securities and investments “SECURITIES AND INVESTMENT BUSINESS ACT”, 2010 on SIBA.

The purpose of adopting the law was the normalization of relations in the following four areas.

• Doing business investment.
• The public issue of securities.
• activities of mutual funds.
• protection against unfair conduct in the investment market.

For those who have used offshore BVI company for securities transactions, the most interesting are the provisions relating to the conduct of investment business.

In accordance with the law, any person leading the activity, which is in the concept of “investment business” in or from the BVI in accordance with the requirements of CIBA must be licensed to conduct investment business, specifically enabling the implementation of the respective type of investment. By carrying out activities in the BVI it should be understood :

• person occupies the premises in the BVI to conduct investment business;
• person offers to persons in the BVI services that fall under the definition of “investment business»

By carrying out activities in the BVI means holding company incorporated in BVI investment business outside the BVI.

For a definition of “investment business” are following, members of his activities:

• Conduct dealer transactions with an investment;
• Bargaining with investments;
• Investment Management;
• Providing investment advisory services;
• provision of custodian services in respect of investments;
• providing administrative services in respect of investments;
• transactions on the exchange of investment.

Extension of these activities is provided in Appendix 2. For example, under the guise of activity – “Implementation of dealer operations with investments, in particular, means purchase, sale, subscription for new securities issue, the operations on placement of new securities, held as an agent. Type of activity “Bargaining with an investment” – the conclusion of agreements with account of another person (a principal or agent) buys, sells, subscribes to invest in order to conduct transactions with respect to these operations. It should be noted that the law contains about one hundred pages, so the quotes here do not cover the entire volume determinations.

The list of species included in the concept of “investment” is a fairly widely, for example, can be mentioned: the shares, the share capital of companies, shares in mutual funds, bonds, proof of debt, bills, documents, authorizing the purchase of securities, options , futures. A full list is given in Annex 1.

Fortunately, there is a pleasant exception, for those who acquired the company in the BVI to own just an anonymous securities or enterprise in Ukraine.

Such a pleasant exception is that if a person acquires and sells investments for its own account and on your own behalf, the law it is not covered, except in cases where it acts as a market maker. As a further exception is the exclusion from the list of investment activities, the operations associated with the issuance, redemption or repurchase of securities, issued by the company itself, which opens the possibility of raising funds from investors for subsequent investments in specified investment objects. A detailed list of exemptions contained in Part B of Annex 2.

For conducting these operations in the Act without a license provided for some serious financial penalties.

For example, for conducting investment transactions without a license from the company can be punished by a fine of 40 to 75 thousand dollars, and in the case of punishment of the company is also punished by the authorized person of the company, such as a director or other senior representatives. Let us consider some typical situations where the use of customary law in respect of securities transactions. In this case, for example, taking one kind of investment – “action”.

Example 1. BVI company at his own expense and at the sole discretion of buying from a company registered in Cyprus, the shares of the Ukrainian company.

This operation does not need a license because they do not belong to any of the types of investment business. Important thing is this – if a company incorporated in Cyprus, will initiate the transaction, its activities will be held in the BVI, so if it acts as an agent, it also falls under the Act.

Example 2. BVI company contracts with a company registered in the UK, an agreement on the nominee holding shares in Ukrainian.

This transaction relates to the “Provision of custodian services in respect of investments, therefore, requires a license.

Example 3. BVI company as an agent of the Ukrainian shares to acquire a company registered in Seychelles.

This operation is considered a “dealer transactions with an investment” and therefore requires a license.

As can be seen from the above examples the new law significantly restricts the functionality of a BVI company to conduct securities transactions without obtaining a license to conduct investment business.

For those companies that decide to obtain a license, additional requirements that relate to the size of minimum capital requirements for corporate governance, the appointment of managers with the prior consent of the Financial Committee and a number of fairly onerous requirements inherent in a regulated activity. In addition, for a license set collection fee.

For those who are attached to the jurisdiction of the BVI and would not want to part with it, as the company is in any case remains a useful tool for other non-investment operations, we can see that the extent of the law can be compensated for the complexity of monitoring its implementation, as before present a BVI company which is not served or reporting and are not required to be audited. They do not even need to store documents on the operations in its country of registration. But it should be emphasized that the conduct of investment business will in any way violate the law, regardless of awareness of the regulatory body, and therefore, there is a strong likelihood that the nominee directors are not willing to sign contracts that can break the law, and law-abiding companies will refuse to deal with a BVI company which will directly conflict with the requirements of the law. Those who do not want to change the usual course of action that should turn its attention to located in the same part of the world of offshore jurisdictions – Belize, principles of corporate governance and fiscal management in many respects similar to the BVI.

Y. Azarov, 25.10.2010

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