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New investment fund act gives major edge over other jurisdictions
WELCOME BAHAMAS - NASSAU, CABLE BEACH & PARADISE ISLAND - 2004
New investment fund act gives major edge over other jurisdictions
Hatches "Smart fund" template, making it possible for industry to be highly creative
Anew Investment Fund Act was passed in December 2003, to address a sizeable increase in the investment funds business. The new Act puts the regulatory structure of The Bahamas among the leaders of investment fund administration.
The Act, which replaces the Mutual Funds Act and Regulations of 1995, modernizes the general legislative and supervisory environment and provides greater market efficiency, transparency and investor protection. It was designed primarily to strengthen the regulatory powers of the Securities Commission of The Bahamas. In addition, the legislation updates the definitions and classes of funds recognized locally.
An international centre
?The funds industry has become a major growth area in The Bahamas? financial services over the past decade,? says Allyson Maynard Gibson, Minister of Financial Services and Investments. ?Consequently, the country has developed into a major international centre for investment funds.? She notes that the new Act fulfills the need to develop a risk-based system of regulation, and to deal with certain weaknesses in oversight. In sum, the Act strikes a reasonable balance between regulatory and market interests, offering a strong, attractive and fertile platform for the further development and expansion of investment funds business within the financial services sector.
Equally important, from a competitive standpoint, the Act creates an innovative new style of fund, known as the SMART Fund, acronym for Specific Mandate Alternative Regulatory Test Fund.
?Clever? and ?unique? have been some of the opinions voiced about the fund. And, of course, David Thain couldn?t agree more. Thain is general manager of Arner Bank and Trust (Bahamas) Ltd and creator of the SMART Fund, which introduces four categories of investment funds. The others are the Professional Fund, being offered to accredited investors only; the Standard Fund, offered to the general public; and a Recognized Foreign Fund. But it is the SMART Fund that is generating the most interest.
Thain says SMART is a new fund approach. It is a different use for investment funds but doesn?t weaken the quality of the supervision of the investment fund sector. ?They are still licensed entities,? he points out, ?and continue to be supervised directly by the regulator. Also, a licence is required and there are ongoing filing requirements.?
He explains how SMART applicants, especially if they had gone through a licensing routine in other jurisdictions, could be pleasantly surprised by the fund. Typically, applicants must show that their funds qualify to be licensed because they meet certain criteria for that class of fund as laid out in legislation, whether it is an investment fund, regulated fund or other type. In some cases, the requirements can be quite restrictive, such as minimum investment and number of investors.
?The SMART Fund doesn?t do that,? Thain says. ?Instead, it declares the regulator in The Bahamas will entertain applications for a SMART Fund licence without pre-defining what the criteria will be for that licence.? The Securities Commission then has greater latitude in licensing when it comes to creating new funds.
Fast and flexible
The streamlining of the licensing process in The Bahamas is a major plus, claims Thain. ?For example, in the Cayman Islands all funds must be licensed by the regulator. ?Here in The Bahamas, the Securities Commission now permits that job to be handled by the licensed fund administrator. This takes one of the parties out of the loop, which can save the client significant time in coping with bureaucracy.?
The SMART Fund undoubtedly offers flexibility. The industry can be highly creative in thinking up uses for investment funds, which, in the past, often died on the drawing board because of requirements that were too restrictive. Today, if a proposed fund gets a green light from the Bahamas Securities Commission, the Commission will issue a SMART Fund template outlining the parameters under which the fund will operate. Once a template has been approved, the 43 unrestricted fund administrators based in The Bahamas are able to issue licences for new funds based on the approved SMART Fund model.
Whatever the future holds for the SMART Fund, Thain is among those who believe that other jurisdictions are getting the word about an exciting new style of investment fund in the competitive mix ? and The Bahamas has got it.
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