New investment funds legislation was recently enacted in The Bahamas which repealed and replaced the Investment Funds Act, 2003 and its accompanying Regulations. The Investment Funds Act, 2019 (the Act) and the Investment Funds Regulations, 2020 (the Regulations) are now in force.
This article discusses the main changes to the investment funds landscape of The Bahamas. The complete Act and Regulations may be found on the website of the Securities Commission of The Bahamas (the Commission) — http://www.scb.gov.bs/acts_regs.html.
Requirement to appoint an investment fund manager registered with the Commission
Arguably the most significant change to the investment funds landscape of The Bahamas is the requirement now for all funds (existing funds and new funds) to appoint an investment fund manager which is required to be registered with the Commission.
For a standard fund, the investment fund manager must be either:
- Registered with the Commission under the provisions of the Securities Industry Act, 2011; or
- Licensed or registered in a prescribed jurisdiction* AND registered with the Commission under the Act.
In the case of a professional or SMART fund, the investment fund manager must be registered with the Commission under the Act.
Existing investment fund managers are strongly encouraged to take note of the transitional period under the Act and ensure that they bring themselves in compliance with the registration requirement under the Act before theexpiry of same.
Prior approval of the Commission for delegation of duties by the investment fund manager
The primary duties of an investment fund manager are stated in section 62 of the Act and include, inter alia, to act honestly and fairly with due skill, care and diligence, and to act in the best interests of the fund and its investors. Any delegation by the investment fund manager of any of its duties has to be approved in advance by the Commission before such delegation may take place.
Licensing regime for Alternative Investment Fund Managers (AIFM)
As per the Act, any Bahamian entity intending to market an investment fund or an alternative investment fund in the European Union is required to be licensed with the Commission as an AIFM. Those that were doing so prior to the enactment of the Act and continue to do so, are required to notify the Commission in the prescribed manner.
New operators of existing investment funds to be approved in advance by the Commission
Subsequent to the initial licensing of an investment fund, any new operators or any change in the existing operator must be approved in advance by the Commission.
Accountant’s confirmation respecting unaudited financials
In addition to the existing requirement for investment funds (save for SMART funds which can waive the requirement for an annual audit) to make its annual audited financial statements available to investors and to file same with the Commission within the time frames prescribed by the Act and Regulations, Once every three years, all investment funds, inclusive of SMART funds, are required to have an accountant confirm that its unaudited financials have been maintained in accordance with the standards set out in the Regulations.
Changes in the definition of a Professional Fund
The revisions to the criteria for a Professional Fund include:
- Any institutional investor or a financial institution
- Any pension fund where a registered investment manager has been appointed to manage the Fund’s assets
- Any trust with total assets in excess of $5,000,000 where a licensed trustee or investment manager is responsible for investment decisions
- Any entity with net assets in excess of $5,000,000 which has appointed a licensed investment manager to make investment decisions on its behalf.
Changes to ongoing obligations
There are also a number of additional ongoing obligations of note, including:
- An investment fund administrator, on behalf of each investment fund which it administers, must maintain a record of all complaints and the investment fund must establish and maintain an effective complaints handling system and procedures
- An annual declaration for investment fund managers must be submitted to the Commission.
Recognized Foreign Funds
The concept of a “Recognized Foreign Fund” which existed under the repealed Act no longer exists. The position under the Act is that any investment fund regardless of where it is incorporated, registered or established, must be licensed under the Act if it intends to offer its equity interests in The Bahamas to non-accredited investors. Equity Investment Funds Services Ltd. has the expertise and experience to assist with the interpretation and application of this new Act and its accompanying Regulations, as well as to guide clients on the implications of the new Act and the Regulations to its business or its investment fund. We also have the expertise and experience to assist clients with determining appropriate alternative strategies based on the client’s needs.
In particular, we are able to assist investment fund managers with:
- Completing the application process
- Gathering the relevant due diligence
- Providing administrative support
- Preparing the financial statements, if necessary
- Assisting with ongoing filings and obligations.
In addition, one of our shareholders, Equity Bank Bahamas Limited, is a registered firm registered with the Commission and is able to act as the investment fund manager to investment funds.
For more information, contact L. Michael Dean. ■
*The SCB has issued a list of “prescribed jurisdictions” — refer to the Investment Funds (Prescribed Jurisdictions) Rules, 2020.