The Bahamas is considered to be a pioneer, and once a leader, in providing investment fund structures within Caribbean. While today we may not have experienced the overall growth, in terms of number of investment funds established, as with some of our Caribbean competitors, I can say emphatically, and with assurance, that overall Bahamian investment funds have enhanced the total jurisdiction offering and have helped to make The Bahamas a clear choice for financial services in the region.
Product offerings of private banking, trusts planning and investment funds for clients within the USA, Latin America and Europe have been the bulwark of The Bahamas' financial services industry, and our political, our regulatory and our legislative regimes have always been dedicated to ensuring that The Bahamas continues to enhance, develop and grow its financial services sector.
As we look forward to the future for The Bahamas' investment fund offering, the soon to be enacted Investment Funds Bill, 2019 (IFB), has been tabled in parliament with the deliberate intention to level the playing field of global fund services in The Bahamas. Per Section 2(a) of the IFB, the legislation seeks to "modernise the regulatory framework for investment funds in The Bahamas to achieve international standards and best practices of the investment funds industry".
I think there are three key proposed initiatives of the IFB that will continue to enhance The Bahamas product offering greatly are the following:
- The removal of onerous governance burdens, currently placed on fund administrator under the Investment Fund Act, 2003("IFA"), will now be placed on funds directors(or trustees or general partners) and fund managers under the IFB;
- The role of fund managers and operators were somewhat nebulous under the IFA and will now be clarified in the IFB; and
- The introduction of legislation for the cooperation Bahamian funds or fund managers with regard to the European Union of Alternative Investment Fund Managers and Directives (AIFMD), Alternative Investment Funds Managers (AIFM), Alternative Investment Funds (AIF) and AIFMD Custodians.
In the remainder of this article, we will summarily focus on the third enhancement to Bahamian investment funds and investment fund managers with current or intended business in the European Union.
The impetus for the inclusion of AIFMD is simply because, as the European Union addressed the harmonisation of investor protection and marketing within their union through the AIFMD, the eventual elimination of non-EU jurisdictions, like The Bahamas, from participating and marketing to professional investors in the EU without the essential regulations and regulatory supervision was imminent. Therefore, the IFB is strategically drafted to make the appropriate legislative change that mirrors AIFMD and thus when enacted, should allow eligible AIFM, domiciled in The Bahamas, to market AIF to EU-based professional investors.
As an important pre-requisite to this initiative, the Securities Commission of The Bahamas (SCB), has established Memoranda of Understandings (MOU) with EU members through the supervision of the European Securities and Markets Authority (ESMA) on behalf of EU Member States.
These MOUs have been established with all EU countries, with the exception of Italy and Slovenia, and again was the first step of the harmonising The Bahamas and Bahamas' AIFM and AIF with regard to levelling the playing field.
Essentially when the Act is enforce, Bahamian AIFs should be treated in the same manner as EU domiciled funds and the marketing of Bahamian alternative investment funds, including hedge funds, private equity and real estate funds should be allowed in the EU.
Under the IFB, AIFM that are domiciled in The Bahamas and have inclination to market in the EU or manage EU domiciled funds from the Bahamas will have to be licensed by the SCB in accordance with Section 27 of the Bill, and in a manner prescribed by the SCB.
A central tenet of the IFB with regards to AIFMD, AIFM and AIF is that the SCB will be lawfully obligated to regard the rules of AIFMD in the oversight of the Bahamian based AIFM and ensure that the supervision is akin to that of EU Member States. Hence, among other information, quarterly reporting to ESMA will be statutorily required where the Bahamian AIFM is marketing and/or managing an AIF in European States.
The IFB further requires the AIFM:
- to meet certain initial and ongoing capital requirements;
- implement operational policies;
- secure indemnity insurance; and
- provided reporting to the SCB