The Investment Funds Bill, 2019, which seeks to modernize the existing legislation and bring it in line with international standards established by the European Union (EU) under the Alternative Investment Fund Managers Directive (AIFMD), was passed in the House of Assembly yesterday.
Minister of Finance Peter Turnquest said, “The 2003 act governing misses the mark on key regulatory provisions required to oversee the industry at current internationally acceptable levels.”
When The Bahamas underwent a peer review under the International Monetary Fund’s (IMF) Financial Sector Assessment Program in 2012, the country’s investment fund legislation failed four of the five principles.
Turnquest said the deficiencies were related to the fact that only the investment fund administrator, and not the fund operator, manager or custodian, was subject to full assessment of its governance, organization and operational conduct; specific requirements regarding the operational conduct of custodians and the segregation of client assets were not in the Investment Funds Act; insufficient obligations regarding conduct in the valuation, pricing and redemption of underlying securities; and that managers/advisers of hedge funds were not subject to appropriate oversight.
“This, of course, was and is, unacceptable for an international financial center purporting to be a regional leader in wealth management,” he said.
Features of the new bill include the introduction of requirements for fund managers and regulatory oversight for custodians; the introduction of triggers for the licensing of investment funds; the definitions of “Bahamas-based” and “non-Bahamas-based” funds, which ensures compliance with the EU’s substance requirements; the introduction of provisions to allow international administrators without requiring them to hold a license in The Bahamas; and the establishment of a regulatory regime compliant with the EU under the AIFMD.
Turnquest said, “The Investment Funds Bill, 2019, before us for debate represents the introduction of a new chapter in Bahamian financial services.
“Its strong compliance with best practices and international standards, comprehensive and inclusive development process, and forward looking approach to market growth and development, promise that it is the right legislation to ensure this chapter is one in which the investment funds industry continues to flourish in The Bahamas.”
Graham Thompson partner Ryan Pinder, who is a former Progressive Liberal Party (PLP) minister, agreed that the updated legislation should make it more attractive to set up institutional funds in The Bahamas.
“The prospect of future growth in our funds space is very exciting,” he said in a recently released report by Global Fund Media and the Bahamas Financial Services Board.
“Major international fund administrators are not in the business of taking on fiduciary risk in the context of fund administration.
“I think the segregation of duties and the new licensing of fund managers is going to go a long way to demonstrating that we have the commitment to develop an institutional fund market.”
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