Investment Funds

Investment Funds 2019: New Licensing Requirements & Obligations

The Investment Funds Act 2019 (IFA), brought into force effective September 1, 2019, represents a modern update to the current regulatory regime for investment funds in the Bahamas. The changes apply to all persons currently carrying on investment fund business in and from The Bahamas and those that intend to. An aim of the New Law is to bring Bahamian law with respect to investment funds into harmony with international standards and best practices, to expand the scope of powers of the Securities Commission of The Bahamas in relation to regulated persons and parties related to an investment fund and to protect investors.

The New Law also aims to develop provisions compliant with the European Union’s Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD Directive) which enables Bahamas based funds and investment fund managers to be able to continue to market themselves within Europe.

The AIFMD compliant regime instituted by the IFA should, subject to the European Securities Market Authority (ESMA) approval of The Bahamas for the extension of a third country passport, allow non-European Union alternative investment fund managers and EU investment managers to market Bahamas organized alternative investment funds to professional investors under a single authorization or passport.

Presently Bahamas organized funds may be marketed into the EU through the national private placement regimes in effect in most EU countries. This will position The Bahamas for the EU passporting process when the next round of assessments by the European Securities Commission Market Authority resumes.

Non Bahamas Based Investment Fund

Recognized Foreign Funds are no longer regulated by the SCB. However, any fund, regardless of where it is incorporated, registered, or established, must license as a Fund in The Bahamas if it intends to make invitation in The Bahamas to non-accredited investors. Non-Bahamas based funds are exempted from being licensed and are required only to be registered with the SCB.

A Non-Bahamas based fund is an investment fund that is incorporated registered or established in a jurisdiction other than The Bahamas but has a nexus to The Bahamas through it being administered or managed in or from The Bahamas. They are also are now required to notify the SCB of the start or termination of nexus to The Bahamas. Such funds must also file a copy of their Offering Memorandum with the Commission if their equity interests are being sold in The Bahamas. Closed-end funds are now required to be licensed.

All investment funds regulated by the SCB pursuant to the New Law are required to appoint an investment manager who must be registered with the SCB. Under the new IFA, every fund must appoint an investment fund manager (IFM). The IFM must be licensed or registered with the SCB having submitted the required application and met the prescribed capital and indemnity insurance requirements of the SCB.

An investment manager of a standard fund must register under the Securities Industry Act, 2011 (SIA) and the New Law, unless licensed or registered in a prescribed jurisdiction in which case, it must only register under the New Law. Under the previous legislation the IFM was not required to be licensed or registered.

Investment Fund managers (IFM) must request the prior approval of the SCB before delegating any of their duties and are now prohibited from delegating their functions to such an extent that they become letter-box entities. In the event of delegation, the investment manager remains ultimately liable to the investment fund for the actions of any of its delegates or sub-delegates.

Ongoing obligations of a licensed AIFM are inter alia: to act fairly and in the best interest of the fund and investors, to adopt and maintain adequate internal control policies related to remuneration, mitigate and deal with conflicts of interests, risk management, liquidity management, valuation, and appointment of an AIFM custodian. Note that an AIFM is prohibited from acting as custodian of any fund it manages.

An investment fund is no longer required to appoint an administrator that is licensed by the SCB. Such administrator may be licensed in a prescribed jurisdiction and must decide for a principal office in The Bahamas for Bahamian regulated funds under administration. All Investment Fund administrators licensed by the SCB must now appoint a Chief Executive Officer and Compliance Officer.

An investment fund must appoint a custodian unless the structure of the investment fund or the nature of the assets are such that they do not require a custodian. Every fund must appoint an independent custodian of its assets. General obligations for custodians under the new IFA include carrying out the sale, issue, redemption, and cancellation of equity interests, calculating the value of the equity interests, carrying out the IFM’s instructions and remittance of any consideration related to a fund transaction.

The custodian must meet the requirements of the New Law and must either be a bank and trust licensee of the Central Bank of The Bahamas, a licensee of the SCB pursuant to the SIA, or an institution approved by the SCB and subject to on-going regulation in a prescribed jurisdiction.

The industry welcomes the modernization of investment funds in The Bahamas and notes that alignment with international best practices and standards should bode well for the attraction of more institutional funds to The Bahamas.

How Can We Help?

At Valsen Fiduciaries Group, our experienced staff, combined with our global network, allow us to provide the ongoing support you need – wherever you need it, at home and abroad, whatever the size of your organisation. We are at your disposal to help you update your investment funds to the current regulatory regime for investment funds in the Bahamas. Please contact us through [email protected] or +248 2 525 217

Telephone:

+248 252 5217

[email protected]

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