Both the BVI and Cayman Islands have been busy recently with changes to their AML regimes for investment funds.
Offshore funds established in the Cayman Islands and BVI could be forgiven for thinking that European laws on data protection don’t apply to them. That all changed recently though after the General Data Protection Regulation (GDPR) came into force in Europe last Friday, 25 May.
What’s GDPR and when can offshore funds be caught?
GDPR is broad in scope and expands Europe’s earlier data protection laws, with an overall aim of improving European individuals’ rights over their personal data and how it’s collected, stored and processed. GDPR applies to data controllers and data processors established in the European Union but can also apply to controllers/processors when they’re based outside the EU, depending on their activities.
Offshore funds may be classed as data controllers, if they’re processing data about EU individuals and the processing is related to offering goods or services to individuals in the EU. In practice, this means that offshore funds with EU investors or who actively market their fund to EU investors may be in scope. Unfortunately whether a fund is being offered or actively marketed to EU investors under GDPR isn’t the same as whether it’s being marketed under AIFMD, so funds need to review their activities and investors again to see if GDPR applies. GDPR can also apply to offshore funds where personal data’s being processed outside the EU by controllers/processors established in the EU.
Service providers to funds, including administrators and IT providers who hold personal data caught by GDPR, may also be classed as data processors. Specific GDPR requirements for arrangements between controllers and processors may then mean that a fund’s administration and outsourcing agreements need reviewing.
With potential penalties of Euro 20 million or 4% of annual global turnover, whichever’s greater, offshore funds that may be in scope of GDPR need to take it seriously.
Here at Harneys our Cyprus team has been busy advising funds and their service providers on whether they’re in scope and if so what they have to do to make sure they’re compliant, with a handy flowchart as the starting point.
The detailed impact of GDPR on offshore funds in practice is likely to be a discussion point for the industry for months to come, despite it coming into force last week, with one commentator remarking that the legislation’s “woollier than a row of sheep”. Here in Europe there are many people who are simply relieved that their inboxes have stopped being swamped with updated privacy policies, many from companies they can barely remember being in contact with in the first place…
We are very excited to be able to share the news that the BVI branch of Hedge Funds Care is now in a position to be able to work with and fund BVI projects aimed at preventing and treating child abuse on our islands.
Our plans to reach out to the community were delayed when we were rudely interrupted by the visits of hurricanes Irma and Maria in September 2017. But after taking a moment to dust ourselves off, Help For Children BVI this week went public with a call for proposals from charities, not-for-profits and child-serving agencies in the British Virgin Islands. The call for funding proposals seeks to support programs and initiatives related to child protection, safe–guarding, well-being and child abuse prevention and treatment as the community continues to recover and rebuild from last year’s hurricanes.
I am very grateful to fellow blogger Natalie Bell and the fabulous team at Hedge Funds Care without whom we would not have reached this point. Now we look forward to seeing the vision manifest into something meaningful for BVI children!
Click here to read more about Harneys’ involvement with Help For Children BVI, and how the project got started.
In what I fear may be the least anticipated sequel since Sharknado 5, the second part of this blog looks at two real world scenarios, taken from recent transactions in the hospitality sector, that illustrate the flexibility of the BVI’s corporate code and why it matters for investors in this space. Both are based on transactions which we recently completed, but with names and certain details changed to protect client confidentiality.
As Chair of the BVI Investment Funds Association, I eagerly awaited the publication of the Capital Economics Report like a kid in the run-up to Christmas.
The BVI has a long-standing reputation in this industry for excellence, dating back to the publication of the Mutual Funds Act in 1996, but we have never had the statistics to back up every practitioners’ firm belief in the jurisdiction that we have one of the globe’s largest and most flexible fund jurisdictions.
For some readers of this blog, combining the words ‘Virgin Islands’ and ‘hotels’ in a sentence probably conjures up a beachfront suite, with a view of turquoise ocean and perhaps, a hammock hanging invitingly just outside, shaded by a solitary palm tree. If you are currently suffering through the dank days of darkest November, I can only apologise for putting that image in your head.
However, for myself and the corporate team at Harneys, the connection between the hotel industry and the jurisdiction is not limited to properties located in our corner of the Caribbean. During 2017, we have worked on hotel and hospitality transactions involving British Virgin Islands holding company structures with a combined value of more than US$1 billion and involving a change to the indirect ownership of more than twenty hotels around the world (some of them actually in quite cold climates).
I have stared at this blank screen for twenty minutes now.
Desperately wanting to write a blog, but simply not knowing where to start or what possible words I can use to accurately describe the “experience”.
For those that are not aware, the British Virgin Islands was hit head on by Hurricane Irma earlier this month. It became the largest storm the Atlantic had ever seen and the eye of the storm absolutely swallowed up and spat out our beautiful islands.
You can read a lot of narratives online already and view the truly disturbing photos and videos that are apparently everywhere.
I have to admit, I have barely looked at nor read anything at all in the last few weeks. I don’t need to. It’s all there, burned into the retina.
Sometimes an investor fund dispute is unavoidable. So what strategies can fund managers deploy to resolve investor fund disputes? Sadly, there is no one-size-fits-all approach, but in this post I will highlight some effective and commonly-deployed tactics. Continue reading
I am not just the black sheep of my family; I am the black sheep who stormed out of the farm, sought out the neighbourhood wolf pack and then asked if he might be able to join.
I come from a family of doctors, nurses and teachers who have spent their lives working exclusively in either the truly incredible and freely available British National Health Service or the state sponsored comprehensive school system, which provides a free education to anyone and everyone in the UK. All of these roles are incredibly noble and I remain very proud of the careers my family have chosen.
So it is safe to say that when I elected to go down the path to becoming a lawyer, there were a few furrowed brows. When I then mentioned I wanted to start by assisting major corporations with their legal affairs before moving onto the investment funds industry, frowns began to form. And when I finally announced that I was going to take this vocation into the offshore environment, the tears began to flow accordingly. The sheep in wolf’s clothing had arrived.
You may have heard that the BVI and the Cayman Islands are introducing registers of beneficial ownership. The good news is that, for the funds industry anyway, which is being engulfed by more and more regulatory red-tape, this should be one of the least onerous new developments to your business.
The BVI legislation in relation to the beneficial ownership register comes into force on 30 June 2017 and the Cayman legislation comes into force on 1 July 2017. Each requires information about the beneficial ownership of BVI business companies and Cayman Islands companies (including LLCs) to be uploaded onto a secure and private register maintained within the relevant jurisdiction.
I’m sorry if I got anyone’s hopes up with the title to this post. Unfortunately, this is not going to give fund managers magical insights on how to secure that crucial investment to launch a fund or take an existing fund to the next level. However, this post may help keep some fund managers out of trouble!
I am often approached by clients and contacts with queries about the marketing of their fund interests internationally. This may be because my business cards and email signature state that I am a “Practitioner of Foreign Law” – perhaps people think I am able to advise on the laws of every “foreign” jurisdiction!
The bad news for people with such queries is that I am usually not qualified to answer specific queries on marketing in particular jurisdictions – I only practice Cayman and BVI law. However, the good news is twofold:
1. Asking these types of questions is the right thing to do! All our fund manager clients are (hopefully) aware of the various laws, regulations and rules that govern marketing fund interests in their home country. What every fund manager should also know is that they need to tread very carefully when marketing fund interests overseas. My fellow Offshore Funds Bloggers have written some useful posts on the European Union’s Alternative Investment Fund Managers Directive here and here. Although the funds marketing regime in Europe can be considered one of the most stringent in the world, it is worth remembering that almost every other jurisdiction will have laws and regulations on how (and to whom) fund interests may be marketed there. For example, managers in the United States will be very familiar with the careful planning needed to ensure that their funds fall within the various exemptions and safe harbours of the Securities Act and Investment Companies Act (not to mention state-by-state blue sky filing requirements!). Continue reading
The real estate sector is ripe for international private equity fund managers – and offshore fund vehicles are just the ticket for investment in property portfolios.
When I volunteered to write a guest blog (for our funds team) this month, I must admit I was slightly filled with dread when they said yes with (in my view) rather inappropriate amounts of enthusiasm. What do I know about offshore funds as a corporate and commercial lawyer, who has more recently been turning her hand to corporate restructurings in a flattish transactions market? Well, the answer is in fact quite a lot about what offshore funds are being used for, particularly in the property market in the UK.
I regularly act for residential and commercial property investors and those who lend to them and I also have a (probably) slightly unhealthy interest in Rightmove’s sold property prices. What better credentials do I need?
With a real estate property magnate in the White House and the increase in property investment generally, the real estate sector is ripe for international private equity fund managers to tap into.
We speak to a lot of emerging managers and we are always pleased to hear when they are looking to expand their investor base and bring in non-US and tax-exempt US investors (such as pension funds and charitable entities), because that is where we come in.
What makes us less happy is when we hear (which we do) that some managers are turning down allocations because creating a master-feeder structure with an offshore vehicle to accept those investors has traditionally been prohibitively expensive. In this current environment of capital raising, turning away potential investors is particularly difficult to contemplate.
Always looking for innovative solutions, we wanted to solve this problem and saw an opportunity to use the BVI “approved fund” vehicle to link up with a domestic limited partnership or limited liability company to form a cost-effective mini-master structure. This has enabled managers who have a proven track-record with a domestic fund to branch out into accepting investments of any size from non-US and tax-exempt US investors.
The United Kingdom served its Article 501 notice today, giving two years’ notice to leave the European Union. Managers of offshore funds, as well as everyone else here in the UK, now have more clarity on the Brexit timetable, with the UK scheduled to be out of the EU in March 2019. Much has been uncertain since the UK’s referendum in June last year, and that’s not likely to end until the final exit terms are agreed, but it’s clear that the effects of Brexit will be felt beyond the UK and Europe. Brexit negotiations are expected to be intense and politically complex (especially with French and German elections later in 2017 and Scotland’s demand for a further independence referendum before Brexit finally takes effect), with the UK’s stated aim, in its Article 50 notice, of agreeing a “deep and special partnership, taking in both economic and security co-operation” between the UK and EU post Brexit.
So what impact will Brexit have on offshore funds?