Ernst & Young plans to open an office in the British Virgin Islands (BVI), a major boost to the jurisdiction that has strived to attract internationally recognised hedge fund service providers.

The news that Ernst & Young plans to open an office in the British Virgin Islands (BVI) is a fillip for the jurisdiction which is striving to attract internationally recognised hedge fund service providers.

A spokesperson for Ernst & Young confirmed the plans to establish an office in the BVI but declined to provide any further details as the project is still in its early stages.

Sources in the BVI said Ernst & Young had cleared all administrative hurdles and could begin operations in the jurisdiction before the end of the year.

The move by Ernst & Young means the Big Four audit firms will soon have offices in the BVI, providing greater choice for hedge funds in need of audit and advisory services in the jurisdiction.

Ernst & Young’s decision to open a BVI office coincides with a change in the regulations which requires BVI domiciled funds to be audited for the first time. Private and professional funds in the BVI must file audited financial statements with the regulator on an annual basis under the Securities and Investment Business Act (SIBA) which came into force in May 2010. However, there is no requirement for a local audit sign-off as in the Cayman Islands.

Deloitte is the largest audit firm in the BVI and employs around 60 staff. The firm has a strong hedge fund practice and around 70% of the companies audited by the BVI office are hedge funds. The majority of these funds are registered in the BVI.

Baker Tilly is the longest established accounting firm in the BVI. Originally formed as Parnell Fitzpatrick & Co in 1973, it has an interesting history encompassing multiple name changes. In 1996 it became part of KPMG. The partners of KPMG in the BVI formed Baker Tilly in 2004 after the Big Four stepped away from corporate secretarial work following the enactment of Sarbanes-Oxley in the US.

Baker Tilly provides a broad range of services in the BVI. This includes full trust company and insurance management services through its wholly owned affiliates, Belmont Trust and Belmont Insurance Management. The firm also has a significant insolvency practice and an expanding business advisory and IT practice.

PricewaterhouseCoopers (PwC) also exited the audit and accounting business in the BVI in 2004 only to reopen an office in the jurisdiction in 2007 with a focus on providing insolvency services. The BVI office of PwC is as a joint venture between its East Caribbean and Cayman Islands partnerships. PwC provides audit and tax services for BVI entities from its offices in the Cayman Islands and Barbados.

KPMG re-established its practice in the BVI in 2006. The partners of KPMG’s Cayman practice, who are also the shareholders of the BVI operation, drove the opening of the BVI office. The firm provides tax, restructuring and regulatory services in the BVI alongside audit and advisory work.

Tanis McDonald, director of audit at KPMG’s BVI office, says the business has remained stable through the aftermath of the financial crisis. The firm was engaged to provide advisory services to distressed hedge funds during the crisis and has recently been receiving more enquiries from start-up hedge funds.

“Our business has been quite successful during this whole period,” says McDonald. “There has been demand not only on the audit side but also for advisory services as well.”

Hedge funds have turned to KPMG for advice on the impact of regulatory changes and have also sought guidance on improving their risk management and internal controls, often in response to pressure from their investors.

“We see start-ups looking to address these issues as part of the launch process. The funds that have launched this year are more risk averse than in the past and have stronger internal controls. For instance, it is becoming more common for funds to establish an independent committee to oversee the audit process,” says McDonald.

McDonald is upbeat on the outlook for the hedge fund industry globally and in the BVI. A recent survey conducted by KPMG revealed that most institutional investors have plans to increase their allocations to hedge funds over the next three years. “We believe the hedge fund industry is entering a significant period of growth,” she says.

The KPMG survey also highlighted regulation as the major challenge facing the industry in the coming years. “The introduction of SIBA reinforces the BVI’s reputation for sound and flexible regulation. The BVI is in a strong position to capitalise on the expected growth in the hedge fund industry,” says McDonald. ■