Why Set Up a Tokenised Investment Fund with an Approved Manager in the BVI?

Mar 2025

Setting up a tokenized investment fund with an approved manager in the British Virgin Islands (BVI) offers many strategic advantages by combining the innovative benefits of blockchain technology with cost-effectiveness and the operational efficiencies of the BVI’s financial services regulatory framework.

Benefits of Tokenized Investment Funds

1. Regulatory Framework: The BVI provides a balanced regulatory environment that recognizes investment funds with a broad range of strategies while maintaining appropriate supervisory oversight. The jurisdiction’s Virtual Assets Service Providers Act, which came into force in February 2023, creates a clear regulatory framework for virtual asset activities. Importantly, the BVI does not separately regulate tokenized funds, allowing them to operate under existing fund legislation. The BVI’s Electronic Transactions Act supports the electronic platform operations necessary for token offerings, which means that an investment fund can utilise smart contracts for the issue and transfer of tokens representing fund interests.
2. Enhanced Liquidity and Accessibility: Tokenization involves creating a digital representation of fund interests on a blockchain, in order to facilitate issuing or trading. This process significantly enhances liquidity, allowing investors to buy and sell tokens representing interests of the investment fund at any time. It also lowers the entry barriers, enabling eligible investors with more limited investment capital to participate in high-value assets that previously may have been inaccessible.
3. Increased Transparency and Security: Blockchain technology provides a transparent ledger of all transactions. This transparency reduces the risk of fraud and enhances trust among investors. Each transaction is recorded on a decentralized network, ensuring that the history of asset ownership is permanent and unalterable.
4. Cost-Effectiveness: Tokenized funds can reduce administrative costs through automation. Smart contracts, which are self-executing contracts with the terms directly written into code, can automate various processes such as dividend distribution and compliance checks. This reduces the need for intermediaries and lowers transaction fees.

Advantages of the BVI Approved Manager Regime

1. Expedited Approval Process: The BVI Financial Services Commission (FSC) offers a fast-track approval process for managers, typically within seven days. This allows fund managers to commence operations swiftly, providing a competitive edge in fast-paced financial markets.
2. Cost-Effectiveness: The BVI Approved Manager regime is designed to be cost-efficient, reducing both initial setup and ongoing compliance costs. This is particularly beneficial for smaller managers and start-ups who need to manage expenses carefully while establishing their operations.
3. Regulatory Flexibility: The regime offers a lighter regulatory and compliance load, enabling BVI Approved Managers to allocate more resources to their primary business functions rather than administrative tasks. This flexibility is crucial for those looking to streamline their operations and focus on growth.
4. High Start-Up AUM Limits: The regime permits substantial assets under management (AUM) limits; up to US$400 million for open-ended funds and US$1 billion for closed-ended funds. This allows managers to scale their operations significantly while remaining within the BVI Approved Manager framework.
5. Global Reach and Credibility: Approved Managers can manage both BVI and non-BVI funds in recognised jurisdictions, offering flexibility to service a global clientele. It is not required to have a commercial office or any local directors or employees on the ground in the BVI. As a result, most Approved Managers may be operated entirely remotely from outside the BVI. The BVI FSC is a respected regulator, known for maintaining high standards of integrity and professionalism. Being approved by the FSC enhances a firm’s reputation and credibility in the global financial market.

Summary

Tokenized funds represent a powerful intersection between traditional finance and blockchain technology. Combining the benefits of tokenized investment funds with the strategic advantages of the BVI Approved Manager regime creates a compelling proposition for fund managers. The enhanced liquidity, transparency, and cost efficiency of tokenized funds, coupled with the regulatory flexibility, technological accommodation, cost-effectiveness, and global reach of the BVI Approved Manager framework, provide a robust foundation for successful fund management. This approach not only opens up new investment opportunities, but also positions fund managers to capitalize on the evolving landscape of digital finance.

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Tailored professional advice should be sought in respect of individual circumstances. Please reach out to your usual Conyers contact or one of the individuals listed below with any questions regarding structuring a tokenized investment fund with an Approved Manager in the BVI.