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25 March 2004
In December 2003 the Mutual Funds Act 1995 was repealed and the Investment Funds Act came into operation. The primary objective of the act is to provide legislation that is sufficiently flexible to accommodate the needs and growing demands of the financial sector.
The new categories of investment funds that the act introduces are:
Standard funds are much the same as licensed funds under the repealed mutual funds legislation and are offered to the general public, but may only be licensed by the Securities Commission.
Professional funds are offered only to accredited investors and may be licensed by an investment fund administrator holding an unrestricted licence or the Securities Commission.
SMART funds are those which satisfy certain prescribed parameters and requirements of a category, class or type of investment fund previously approved by the Securities Commission. SMART funds will allow the investor varying degrees of disclosure and regulatory oversight, and can save the investor time and money with the pre-approved registration that they are accorded. The Securities Commission has approved four templates for SMART funds, and financial institutions or professional advisers may submit written proposals to the Securities Commission for the approval of additional templates, thus enabling the legislation to encompass new structures in the ever-evolving funds industry. An example of a SMART fund structure presently approved by the Securities Commission is where a financial institution is the promoter of a fund and offers investment opportunity only to the customers with whom it has entered into discretionary management agreements; these would now qualify as SMART funds.
Recognized foreign funds are investment funds where the equity interests are listed on a securities exchange prescribed by the Securities Commission and the fund is not licensed in The Bahamas, or where the fund is licensed or registered in a jurisdiction prescribed by the Securities Commission and is not suspended from operation.
Closed-end funds are specifically excluded from the definition of an 'investment fund' and thus fall outside the purview of the act. However, closed-end funds may elect to be licensed by the Securities Commission as an investment fund and, if they so elect, from the date of licensing shall be deemed to be an investment fund for the purposes of the act.
Having regard for the time-sensitive nature of the financial industry and the time taken by the Securities Commission to license funds, the act provides that unrestricted investment fund administrators may license professional funds and SMART funds. However, the act also places additional responsibilities on investment fund administrators. Upon licensing funds, investment fund administrators must provide the Securities Commission with:
The administrator also has additional ongoing responsibilities placed upon it and must take reasonable steps to:
In addition, the act has removed the blanket requirement that custodians must be appointed for each fund, and provides that custodians need not be appointed where the operators certify in writing that the structure of the fund or the nature of the assets of the fund is such that they do not require that a custodian be appointed to hold the assets of the fund.
The act also lays out the requirements for funds and administrators licensed
under the repealed Mutual Funds Act to ensure they are in compliance with the
provisions of the act.
A mutual fund licensed or authorized prior to the commencement of the act is deemed to have complied with the requirements for licensing under the act, but must submit certain details regarding its classification and structure by September 15 2004 or risk being penalized or having its licence revoked.
A mutual fund administrator licensed prior to the commencement of the act is also deemed to have complied with the requirements for licensing under the act, but will be required to comply with the paid-up capital requirements established under the regulations and must provide the Securities Commission with evidence of such compliance by September 16 2004 or risk being penalized or having the licence revoked.
Funds that were once considered exempt funds under the repealed Mutual Funds Act are now subject to the regulatory regime of the Securities Commission. Funds that were exempted by reason of the equity interests being held by not more than 15 investors, the majority of whom were able to appoint or remove the operator of the fund, may continue to carry on business until September 16 2004 if they apply to the Securities Commission or an unrestricted investment fund administrator before June 15 2004 to be licensed as an investment fund and such licence is not refused before September 16 2004. Where the application is made to an unrestricted investment fund administrator, such administrator must submit details of the application to the Securities Commission before July 15 2004. Funds exempted by reason of their being licensed in a jurisdiction prescribed by the Securities Commission and not suspended from operation may continue to carry on business until September 16 2004, but must apply to the Securities Commission before June 15 2004 to be registered as a recognized foreign fund, and such application should not be refused before September 16 2004.
The Investment Funds Act provides a strong backbone for the fund industry in
The Bahamas, and many of the amendments brought about by the act should have
widespread implications for the financial services industry in its attempt
to remain one of the world's leading international financial centres.
For further information on this topic please contact Michelle E Neville-Clarke at Lennox Paton by telephone (+1 242 502 5000) or by fax (+1 242 328 0566) or by email (email@example.com).
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