The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

The deputy prime minister yesterday hailed the Investment Funds Bill 2019 as “a new chapter” for Bahamian financial services, replacing and rebalancing an “outdated” regulatory regime.

K Peter Turnquest, pictured, told the House of Assembly yesterday that the Bill’s revised legal and regulatory regime would bring The Bahamas into line “with international standards and best practices”, while also improving the sector’s “ease of business” and providing the platform to attract increased investment funds business.

Disclosing that the existing Act “now poses a risk” to The Bahamas’ reputation as a leading international financial centre (IFC), Mr Turnquest said it “misses the mark on key regulatory provisions required to oversee the industry at current internationally acceptable levels, and the underlying investor protections and market conduct provisions they encapsulate are absent from the prevailing legislation.”

Turning to the new Bill, he enthused: “This bold piece of legislation seeks to fill those regulatory gaps with a framework of rationalised definitions of fundamental terms and the realignment of fundamental, though critical, functions and responsibilities. It proposes to open the industry in key ways that will allow Bahamians greater access to international service providers to enhance their operations and client offerings.”

The 2019 legislation rebalances a regulatory approach that previously “placed an inordinate emphasis” on fund administrators as the focal point for licensing and regulation, rather than the risk attached to a particular fund’s underlying activities.

More focus will be placed on fund managers and custodians, who play key roles in the investment funds industry, ensuring they are properly regulated and governance responsibilities properly aligned to help tackle a deficiency identified in the IMF’s last assessment of the Bahamian financial services industry in 2012.

The Bill also ensures The Bahamas remains in compliance with the European Union’s (EU) Alternative Investment Fund Managers Directive (AIFMD), thereby preserving access to the EU market and investors for funds and managers/administrators domiciled in this nation.

Noting that there were 749 licensed investment funds in The Bahamas at end-December 2018, Mr Turnquest told Parliament yesterday that the Bill will introduce “an overhauled legal and regulatory framework that is compliant with international standards and best practices, and is replete with improved provisions to protect investors and lay the foundation to attract new and increased business to The Bahamas”.

He added: “When the current investment funds legislation was introduced, its provisions were, largely, suitable for the regulation of the industry at the time. The legislation provided for the supervision and oversight of investment funds in an environment where the majority of the consumers of the investment fund product in The Bahamas were sophisticated investors, or the trustees, private bankers and wealth managers that represented them.

“The regulatory framework was in line with the structure and needs of the Bahamian financial services industry at the time and sufficient to satisfy the international standards and best practices of the day.”

Mr Turnquest said the International Monetary Fund’s (IMF) Financial Sector Assessment Programme in 2012 found the Bahamas failed four out of five principles for investment fund regulation. The new Bill rewrites what an investment fund is for the purpose of licensing and regulation, and what it means to carry on investment fund business in or from The Bahamas.

“The result is that the conditions that would require or trigger a fund or its various operators, managers, related parties, etcetera, to be licensed, have been changed in the proposed legislation,” he said.

“The definition of an investment fund in the new Bill is a “unit trust, company, partnership or investment condominium that issues or has equity interest, the purpose or effect of which, is the pooling of investor funds with the aim of spreading investment risks and achieving profits or gains from the acquisition, holding, management or disposal of investments.”

“Unlike the previous definition, there is no other requirement for a connection or ‘nexus’ to The Bahamas built into it. Under the provisions of the Bill, licensing as an investment fund is triggered by an entity that fits the definition of an investment fund carrying on, or attempting to carry on business in or from The Bahamas. “