The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

Legal reforms debated in Parliament yesterday are designed to “address concerns” preventing the European Union (EU) from fully accepting The Bahamas’ investment funds regulatory regime.

Ellsworth Johnson, minister of financial services, trade and industry and Immigration, said the 24 changes contained in the Investment Funds Amendment Bill 2020 were focused on dealing with issues “hampering the European Union’s full endorsement” of this nation’s supervisory structure.

This, in turn, could restrict the ability of Bahamian-domiciled investments funds to access investors based in the EU’s 27 national markets. “The proposed amendments strengthen the Act by clarifying the scope of approval, the appointment and activity of investment fund managers, the investment fund administrator, the custodian and the auditor,” Mr Johnson said.

“The amendments also expand the provisions for sharing information with other regulators, and adjust the transitional period for the Investment Funds Act 2019 to facilitate adjustments being proposed in the amendment bill itself.”

The minister added: “The Bill also addresses concerns which may be hampering the European Union’s full endorsement of the Bahamas investment fund regulatory regime, particularly in regard to how the determination of a professional investor is made.

“A critical deficiency leading to The Bahamas’ implementation of the Investment Funds Act 2019 was that the regime had not been structured to provide for the full assessment of the governance, organisation and operational conduct of the operators, managers or custodians of investment funds.”

Mr Johnson said the Bill requires “all persons intending to act as an investment fund manager to Bahamas-based investment funds to apply for registration” to the Securities Commission, the sector’s regulator, including those who would provide such services to a so-called professional fund.

“In the case of standard investment funds, or other investment funds whose equity interest may be offered to retail clients who may not possess such expertise or be in such a financial position, the amendment Bill implements greater registration requirements including that the fund manager be registered under the Securities Industries Act 2011, or licensed or registered in a prescribed jurisdiction, in addition to being registered under the Investment Funds Act, 2019,” said Mr Johnson.

“As a result of these requirements, in cases where the investment fund manager is servicing an investment fund that may have retail clients, the amendment Bill removes the capital and the professional indemnity insurance requirements in the current Investment Fund Act as suitable requirements are addressed under the Securities Industry Act or would be addressed under the licensing and registration regime requirements of prescribed jurisdictions.”

Mr Johnson said other reforms will allow licensed investment funds to be exempt from appointing a custodian in “certain cases”. Fund operators will have to certify in writing that the structure, or nature of assets held, are such that custodians are not required.

The Securities Commission must now approve the appointment of investment fund auditors, while fund administrators in approved jurisdictions will be permitted to function in such a capacity in The Bahamas without any requirements to be licensed here.

“The Bill further removes the requirements for the investment fund administrator’s chief executive and compliance officer to reside in The Bahamas, and allows for a foreign investment fund administrator to be appointed to The Bahamas-based fund if the commission is satisfied that its foreign fund administrator has made arrangements for a principle officer in The Bahamas,” said Mr Johnson.

Brent Symonette, Mr Johnson’s immediate predecessor as financial services minister, said of the Bill: “This is a part of the ongoing world of financial services. We have to look forward because the industry is forever changing. This jurisdiction is under constant pressure to make sure we have updated our laws, and we monitor our business that comes through The Bahamas.”

Referring to inactive firms on the Companies Registry, Mr Symonette recalled: “When we were in Brussels the other day they said we have 44,000 companies on our register and only 6,000 pay business licenses.

Describing this as a “lack of understanding”, he added: “Many of those companies are holding companies and inactive companies, so this striking off of 11,000 companies that were purged from the list for inactivity was part of the government’s ongoing updating of our rules, our regulations and our practices so we can constantly maintain our standing in the world community.”