Subsidiary Legislation Enacted Under Mutual Funds Act

By notice dated September 3, 1998 the Registrar of Mutual Funds announced that the Governor in Council has approved the passage of two pieces of subsidiary legislation namely:

1. The Mutual Funds (Professional Fund) Regulations, 1998; and
2. The Mutual Funds (Foreign Funds and Audit) (Exemptions) Directions, 1998.

The measures have been introduced prior to the September 30 deadline for the registration and recognition of Mutual Funds under the Act and come after representations made to the Registrar by the Association of Registered Agents of the British Virgin Islands.

The Mutual Funds (Professional Fund) Regulations, 1998

These regulations are designed to provide that certain existing Funds may be "grandfathered" into the Professional Fund category. A mutual fund will be designated as a professional fund if:

1. It carried on business or was engaged in an activity as a mutual fund on January 2, 1998;
2. The initial investments in respect of the majority of each of the investors in the fund were not less than US$100,000.00 or its equivalent; and
3. The shares of the fund are, after 30th September, 1998, made available only to professional investors.

These regulations will effectively remove the requirement, for the period preceding October 1, 1998, that shares are made available only to 'professional investors' as defined under the Act. Under the Act a professional investor is one whose ordinary business involves trading in the same property as the fund (such as a Securities Broker) or one who has signed a declaration testifying to a net worth in excess of $1 Million and consent to being treated as a professional investor. The new regulations provide that after September 30, 1998 shares are to be 'made available' only to professional investors.

It seems reasonable to interpret this phrase as meaning that there will be no new issue or transfer of shares to non-professional investors but it would also seem that existing shareholders who are not 'professional investors' as defined by the Act would not be entitled to acquire any further shares in the fund without changing their status.

The Mutual Funds (Foreign Funds and Audit) (Exemptions) Directions, 1998

These directions provide that a mutual fund that is constituted outside the territory and which manages or administers its affairs in or from within the territory is exempted from the requirement to be registered under section 8, or recognised under section 18(1), of the Act. The new provision is designed to exempt non-BVI incorporated mutual funds which have appointed a BVI company to be its manager or administrator. While the fund will not have to be recognised or registered, the manager or administrator will have to be licensed.