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- Isle of Man
Exchange & Trade
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Cryptocurrency Trade and
Initial Coin Offering (ICO)
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Forex Trading License
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Institutions (EMI - PSP)
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Financial Services Providers
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Private Asset Management
Holding & Finance Company
Estonia, a new European Crypto Market -
Starting a Crypto Currency Company in Estonia with Exchange and Wallet Service Provider License
Key points for Cryptocurrency Company structure
Regulatory Oversight as a means of Attracting Business
Designated Business Registration Policy IOMFSA Changes – 5th October 2018
How long will an Application take?
Open a Cryptocurrency Company in Ireland
Why Register a Bitcoin Company in Ireland?
Cryptocurrency Regulation 2019 Taxation
Anti-Money Laundering Requirements
Ownership and Licensing Requirements
New Guidance on Cryptocurrencies and Initial Coin Offering (ICO)
Exchanges, Wallets, Broking
Registration and other Obligations
Initial Coin Offering (ICO)
Types of Financial Product
Tokens that are not Financial Products
Fair Dealing and Initial Coin Offers
Cyprus Investment Firm (CIF)
Cyprus Strategic Advantages
Cyprus Investment Firm (CIF) License
Initial Capital Requirements
Conditions for the Granting of a License
Information and Documents required
Applying for a Securities Dealers License
Financial Dealers Licensing Amendments
Vanuatu FX Regulation
List of Securities Covered by
The Dealer in Securities License
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Why Vanuatu Forex License
How Atrium Legal Lab Can Help You
Mauritius Investment Dealer
Advantages to be Licensed in New Zealand
As a Financial Services Provider (FSP)
NZ FSP Registration
Who needs to be licensed?
New FMA Role
New Zealand FSP Registration
What you need to Obtain FSP Registration
NZ FSP Registration
Timeframe to Complete this process
Funds in the British Virgin Islands
British Virgin Islands
Registration of an Investment Fund
BVI Incubator and Approved Fund
BVI Hedge (Incubator) Funds
Limited Functionary Requirements
Luxembourg Private Asset Management Company (SPF) - The Concept
Permitted and Prohibited Activities of a Luxembourg SPF
Capital Requirement and Supervision
Luxembourg Private Asset Management (SPF)
Luxembourg SOPARFI (Société de Participations Financières) - The Concept
Luxembourg Holding (SOPARFI)
Individual stocks (including short selling and options)
Bonds, commodity futures, currencies, arbitrage, derivatives
Offering high potential returns In a short period of time
The focus of hedge funds is on maximum short-term profits
The British Virgin Islands (“BVI”) is a long-standing jurisdiction of choice for the incorporation of investment funds. This is due to the familiarity and stability of the BVI’s English common law based legal system, tax neutral treatment and the business-friendly flexibility of the BVI’s regulatory and judicial regime. Funds in the British Virgin Islands are regulated by the Financial Services Commission (the “FSC”).
The majority of BVI funds are incorporated as companies under the BVI Business Companies Act (the “Act”), as amended. This provides for a very flexible structure as there is no concept of authorised capital or share capital under BVI law and, subject to the memorandum and articles of association of the BVI company, shares may be issued with no par value. The Act also provides for segregated portfolio companies with statutory segregation of assets and liabilities between segregated portfolios established within the company. Segregated portfolio companies are popular for multi-class or umbrella funds in which two or more segregated portfolios use different investment strategies.
Alternatively, funds may be incorporated as international limited partnerships, which do not have a separate legal personality distinct from that of the partners; making the general partner ultimately responsible for the debts and obligations of the partnership (a limited partner is not liable for the debts and obligations of a partnership beyond the amount of its contributed partnership interest).
Registration of an Investment Fund
The British Virgin Islands (“BVI”) is the second largest offshore jurisdiction for hedge funds globally and a prominent and flourishing jurisdiction for establishing offshore investment funds, generally. The BVI’s flexibility in offering alternative regulatory regimes for small to mid-sized hedge fund groups makes it an efficient proposition to establish investment managers and advisers in the BVI. This is one of the many advantages that makes the BVI a leading domicile for offshore hedge funds.
High-level of corporate governance and a flexible corporate statute with the BVI Business Companies Act 2004
Alternative Investment Fund Managers Directive 2011/61/EU compliance with BVIs opt-in regime
Private equity and venture capital managers are welcomed with a ‘lighter touch’ regulatory regime
Targets smaller fund managers with the Approved Manager Regime and the specialised Approved and Incubator
Robust commercial court
Competitive incorporation fees
Without doubts with a question of choosing a jurisdiction for the establishing a fund it is better to apply to experienced professionals for legal assistance.
According to the BVI legislation that regulates the process of registration and licensing of funds, four main types of funds can be distinguished:
BVI Incubator Fund, for which no administrator, investment manager, prime broker/depositary or auditor is required.
The BVI Incubator Fund is a start-up fund for those managers who want to keep costs in line until they have a track record to attract sufficient subscriptions to make the funds viable for the long term. The fund may have:
- a maximum of 20 investors;
- a minimum initial investment of US$20,000; and
- net assets of up to US$20 million.
The benefit of an Incubator Fund is that it does not require an offering memorandum, licensed investment manager, administrator, custodian or auditor. Rather, investors must only be provided with a written description of the investment strategy and a written outline of the risks including the risk of investing in an Incubator Fund. The Incubator Fund can only be approved for a two-year period.
For managers who have gained investor interest and traction during the two-year period, an Incubator Fund may be converted into an Approved Fund, Professional Fund or Private Fund.
BVI Approved Fund
This type of fund also does not require an investment manager, prime broker/depositary or auditor, but there is a requirement for the availability of a licensed administrator. Investors do not necessarily need to be qualified, but their total amount should not exceed twenty, and the total amount of assets that the fund can manage should not exceed 100,000,000 USD.
BVI professional fund
BVI professional fund can manage an unlimited amount of assets, for this type of fund there are no restrictions on the amount of investors. However, such a fund should appoint an investment manager (except for the cases of obtaining exemption), prime broker/depositary, as well as auditor and administrator. The minimum investment size should be at least USD 100,000. In addition, investors must sign declarations confirming their qualifications as "professional investors" (that their net annual income is 1 000 000 USD or more).
A private fund
A private fund can manage an unlimited amount of assets, there are no requirements for a minimum subscription size (minimal investment), but as well as in a professional fund, it is required to appoint an investment manager (except for the cases of getting a release); prime broker/depositary, as well as auditor and administrator. For a private fund, the following restrictions are provided: the total number of shareholders cannot exceed 50 or the number of invitations to investors who are invited to invest in the fund cannot exceed three hundred. In this case, the directors of the fund will have to confirm that such invitations were made exclusively in private order.
To incubate is to keep something in a suitable environment for a term where it can develop to its full potential. Increasingly, the concept is being applied to hedge funds, where “to incubate” implies structured conditions for the development and verification of investment strategies over time. As such, an incubator fund is ideal for start-up and emerging managers who do not have much capital but aim to attract greater sums of capital in the near future. Establishing a verifiable track record via an incubator fund has proven successful in demonstrating a manager’s capabilities and is an opportune path for attracting meaningful capital sums. Structured properly, an incubator fund offers new opportunities for emerging hedge fund managers.
In support of this growing trend, the British Virgin Islands (BVI) recently launched a tailor-made product for such start-up and emerging managers aptly named, the “incubator fund.” This new type of fund was launched pursuant to regulations made under the BVI Securities and Investment Business Act, 2010 (as amended). Specifically, the legislation that governs this new fund is the Securities and Investment Business (Incubator and Approved Funds) Regulations 2015 (the Regulations).
As a fund geared primarily towards start-up and emerging managers who want to establish and demonstrate a track record prior to going after more and larger investors, the incubator fund has the following three key features and benefits:
(1) It can be launched very quickly and commence trading within two (2) business days of lodging an application for approval with the BVI Financial Services Commission (the Commission).
(2) It has limited functionary requirements.
(3) It offers a cost-effective alternative for start-up and emerging managers and small, closely connected investor groups.
An incubator fund has the following regulatory thresholds:
- a maximum of 20 investors;
- a minimum initial investment of US$20,000 by each investor; and
- a cap of US$20 million on the value of investments of the fund.
Limited Functionary Requirements,
The BVI incubator fund has no functionary requirements. Accordingly, it can be established and operated without an administrator, manager, custodian, or auditor. Also, the fund is not required to have an offering memorandum but is only required to file a description of its investment strategy and give appropriate investment warnings to investors.
Under the Regulations, an incubator fund is permitted to operate for two years, with the possibility of one additional year. This time period allows for the establishment of a track record without onerous regulatory obligations.
Prior to the end of the two or three period, or upon exceeding any of the specified thresholds, the fund must elect one of the following options:
- Convert to an approved fund.
- Convert to a private fund or professional fund by preparing, amongst other things, an audit demonstrating its current financial position and compliance with the Regulations and submitting the appropriate application to the Commission.
- Where it is not viable for the fund to continue at the end of the two- or three-year period, the fund must wind up its operations.
Further General Requirements
A BVI incubator fund is required to appoint an authorised representative in the BVI, and must have at least two directors at all times, one of which must be an individual.
The fund is required to prepare and submit to the Commission its annual financial statements, although there is no requirement that these statements be audited. The fund is also required to submit semi-annual returns to the Commission regarding its eligibility to utilise its fund classification.
Our lawyers and financial services specialists at ATRIUM LEGAL LAB provide solutions to clients by combining the traditional legal fabric with new technologies.
The BVI incubator fund can be launched very quickly and provides tremendous flexibility for start-up and emerging managers who want to establish and demonstrate a track record. The incubator fund, when coupled with the approved manager regime and the overall package of BVI investment fund products, increases the attractiveness and competitiveness of the BVI as an investment funds jurisdiction and reinforces its leading status in the global investment funds market.
Atrium Legal Lab has a team of trained professionals to advise clients who are interested in BVI investment fund products. In particular, we welcome questions about BVI incubator funds and are pleased to assist you.
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