With debate on the Investment Funds bill now underway in the Parliament, the Bahamas Financial Services Board (BFSB) believes the legislation will create a risk-based regulatory approach appropriate to the market and product offerings.
The impetus for the bill derived from the need of the regulators to better supervise the Investment Funds industry and eliminate the provisions of exempt funds. Having greatly strengthened its regulatory and supervisory functions in 2000, it was recognised by both the public and private sectors that the concept of a fund which was exempt from the supervisory authority of the Securities Commission was no longer appropriate.
With a commitment to the long-term sustainability of the sector, the Bahamas Funds Association proposed a mechanism that met the requirements of the Securities Commission whilst expanding on the product options available in The Bahamas. The Bahamas Financial Services Board reaffirms this approach, "The Bahamas offers a broad array of financial services; the private sector therefore requires a risk based regulatory approach appropriate to the market and product offerings".
After refinement by the Securities Commission and in dialogue with the private sector, the SMART (Specific Mandate Alternate Regulatory Test) Fund is set to be brought into law with the passage of this bill. The securities industry is one of the most innovative sectors of the economy. As clients develop new products, they have the ability to submit through an entity licensed by the Securities Commission proposals to establish entities with a specific mandate. After consideration of risk ñ including the degree of sophistication of investors, the number of participants and the provision of service by a recognised licensed service provider ñ the Securities Commission may declare the mandate suitable for the alternative regulatory regime.
Typical concessions might include the use of a reduced content offering memorandum and the ability of the product to be licensed directly by a fund administrator in The Bahamas. The requirement that clients wishing to use SMART funds models are subject to due diligence reviews - and are within the regulatory net of the Securities Commission - is provided for in the bill.
As each specific mandate is approved, the Model of SMART fund setting the regulatory requirements for the specific mandate will be made available to the industry. The wider community is then able to make use of this Model for any number of clients. One Model that will likely be well received by the market is the common practice of pooling funds for administrative efficiency where a private bank has received a discretionary investment mandate from its clients.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.