Notwithstanding the requirement of AIFMD, the tenor of the IFB seeks to make the investment manager and therefore also the AIFM more responsible and accountable. According to the IFB, additional capital will be based upon a formula using the value of funds managed in a portfolio.
The required amount of indemnity insurance needed by an AIFM will be evaluated against risk and liability due to professional negligence.
In addition to the stricter requirements just stated, AIFM will have ensure that adequate and proper human and technical resources, proper internal controls, proper documented controls to safeguard and protect electronic data processing, and sound books and records are kept.
Unprofessional investment managers on the whole, under the new IFB, will simply not be allowed in The Bahamas and certainly will not be able to prospect using Bahamas investment fund vehicles as marketing structures for European investors.
Notwithstanding the high level of regulation and supervision by the SBC, AIFM will be allowed to delegate some of the functions to a third party.
The AIFM must first justify to the SCB objectively why the delegation is required and after clear justification, the AIFM must demonstrate that the delegate has, not only the ability, but also the resources to perform the function or functions delegated. In addition, the delegate must be fit and proper and must be able to be supervised by the SBC without interruption.
Further, the AIFM must be able to monitor and give instructions directly to the delegate without any encumbrances and will need to be able to revoke the delegation with immediate effect for and in the best interest of investors. Most importantly, the essences of the delegation cannot be a sham where the AIFM effectively becomes a "letter-box entity".
The AIFM will be prohibited from delegating portfolio and risk management functions to an AIMFD custodian or to an eligible entity unless the delegate has "functionally and hierarchically separated its portfolio management or risk management functions from its other potentially conflicting functions, and the potential conflicts of interest are properly identified, managed, monitored and disclosed to the investors of the investment fund".
In referring to the AIMFD Custodian, it is noted that the IFB further enhances The Bahamas' offering by inclusion of legislation that defines this role.
For the purpose of AIFMD and per Section 91 of the IFB, only a) banks and trusts regulated by the Banks and Trust Companies Regulation Act (Ch. 316), b) person registered under the Securities Industry Act, 2011, c) similar regulated entities, with ongoing supervision in a prescribe jurisdiction and d) AIFMD custodians authorised by a competent authority in a EU Member State, can perform as custodians under the new IFB. The IFB seeks to align custody rules for Bahamian AIF with those of EU AIF by clearly laying out provisions that deal with AIFM conflicts of interest, cash flow monitoring, compliance and delegation functions, and numerous reporting and compliance requirements to protect and safeguard the European Investor and the overall reputation of The Bahamas as a jurisdiction.
Overall, the IFB is a welcomed addition to The Bahamas' financial services product offering. The enactment of the Bill will confidently put The Bahamas at a competitive advantage. The Bahamas has enjoyed the reputation of being a well-governed, well-regulated, well-respected and a highly educated jurisdiction with a dynamic, fluid, progressive legislative regime. The soon to be enacted Investment Funds Bill, 2019 is another of many fluid enhancements that will continue to make The Bahamas a clear choice for financial services.