Investment Funds Bill to plug 'gaps'

By RICARDO WELLS

Tribune Business Reporter

rwells@tribunemedia.net

THE new Investment Funds Bill will address "substantive legislative gaps" that left the Bahamas compliant with just one out of five global regulatory principles.

K Peter Turnquest, the Deputy Prime Minister, yesterday said the regulatory overhaul - designed to move the Bahamas to 'Best-In-Class' regulation - would help bring this nation into compliance with the five 'collective investment scheme' principles established by global securities supervisory body, IOSCO.

In comments made during an industry briefing on the Bill, Mr Turnquest said the Minnis administration is committed to moving from the older, exclusively rules or disclosure-based approach to regulation of investment funds, to one that considers the conduct of industry participants. "We are moving to improve the ease of doing business, and correct misconceptions about the industry as regards our commitment to compliance with various international efforts to shore-up the financial system from abuse," the Deputy Prime minister added. "Related to this, we are striving to ensure the jurisdiction is renowned for balanced, effective, best-in-class regulation.

If passed, the Investment Funds Bill 2017 will replace its 2003 predecessor. Mr Turnquest said IOSCO's Principle 24 of securities regulation, with regard to investment funds, requires the regulatory system to "set standards for the eligibility, governance, organisation and operational conduct of those who wish to market or operate a collective investment scheme".

He added that the International Monetary Fund's (IMF) Financial Stability Assessment Programme (FSAP) found that only the fund administrator was subject to full assessment of its governance, organisation and operational conduct. It said this should also be in place for the operators, managers/advisers, promoters and custodians of investment funds.

Moreover, Mr Turnquest said the report called for related parties to an investment fund present in the Bahamas to be subject appropriate ongoing oversight.

Turning to IOSCO's Principle 25, he said: "The regulatory system should provide for rules governing the legal form and structure of collective investment schemes, and the segregation and protection of client assets."

The IMF's FSAP found that specific requirements concerning segregation of client assets, and the operational conduct of the custodian, were absent from the Bahamas' investment funds legislation. It further indicated that the absence of such requirements would likely be "problematic" in the event of losses or insolvency of the fund operator.

Other deficiencies included shortfalls with respect to IOSCO principles 26, 27 and 28. Mr Turnquest added: "We can see, just from the nature of the regulatory deficiencies the new legislation will address, that the new framework must be substantively different from the existing one.

"Just as in the mid-1990s, when establishing a regulatory framework undergirded the investment funds industry's credibility and set the foundation for its growth and development, today's challenges present similar, though significantly greater, opportunities."

He continued: "We are serious about having, and being recognised as having, Best-In-Class regulation, and understand that by addressing some of the regulatory deficiencies in the prevailing legislation we are fostering the industry's growth potential."

Mr Turnquest said that by bringing investment managers, custodians, promoters and other parties to an investment fund under comprehensive and appropriate regulatory oversight, this will enhance the sector's legitimacy.