Under the government's previously announced plans the Mutual Funds Act 1996, which has to date been the predominant legislation governing hedge funds, will now be repealed and replaced with Part Three of the SIBA.

While the introduction of the SIBA is a major development for the island, Conyers Dill and Pearman has said that the Act will bring few changes that are relevant to hedge funds and their functionaries.

According to the firm, the new regime largely retains the structure of the current regime - in particular, the definition of "mutual fund" and the categories of public, private and professional funds remain the same.

Furthermore many of the requirements, according to the firm, are already existing practices of the Financial Services Commission.

The firm has advised that the SIBA will likely be supplemented by "Mutual Fund Regulations" (principally applicable to professional and private funds) and the "Public Funds Code" (applicable to public funds).

The final content of these regulations is not yet known, but as participants in consultations on the documents, the firm has advised of the key changes that are expected for private and professional funds:

• The introduction of an audit requirement: "All private and professional funds will now be required to have an auditor (which has been approved by the FSC) and to submit audited financial statements to the FSC annually. These requirements are likely to be introduced under the Mutual Fund Regulations rather than SIBA itself."
• Authorised representative: "Unless the fund has a significant management presence in the BVI, it will be required to appoint a local 'authorised representative,' which will be a BVI entity or individual certified by the FSC for this purpose. The authorized representative acts as the liaison between the FSC and the licensee, and is required to maintain certain records."
• Offering document and investment warning: "As required by current FSC practice, it is expected that the Mutual Fund Regulations will formally require every private and professional fund to prepare an offering document to the FSC (unless the FSC is otherwise satisfied as to how information will be communicated to potential investors). SIBA and the Mutual Fund Regulations will likely require that the offering document contain a prescribed 'investment warning.'"
• Functionaries and notifications: "As reflected in current FSC practice, it is also expected that the Mutual Fund Regulations will formally require every private and professional fund to have a manager, administrator and custodian."
• Minimum investment for professional funds: "For professional funds, all investors (not just a majority as is currently required) will be required to make a minimum initial investment of USD100,000 (with limited exceptions, for example with respect to employees and fund functionaries)."
• Extension of time to carry on business prior to recognition: "New professional funds may now carry on business for a period of 21 days (instead of the previous 14) prior to being recognised under SIBA, provided an application for recognition is submitted within 14 days of commencing business."

Lastly the firm has noted that funds incorporated in a jurisdiction other than the BVI can no longer be registered or recognized as a public, private or professional fund. Instead, there is a new, fourth category of "recognized foreign funds" which have their own specific rules under SIBA.

Concluding, the firm stated that hedge funds that are already recognized or registered under the Mutual Funds Act, 1996, need not take any action in respect of their existing licenses.