Legal Resources by Halsbury Law Chambers

Frequently Asked Questions about Investment Funds and Securities

Q: Do the laws of The Bahamas require investment funds to be regulated?

Yes, a fund which satisfies the definition of an investment fund under the Investment Funds Act, 2003 (the “IFA”) shall not carry on or attempt to carry on business unless it licensed or registered under the IFA.

Q: Who is responsible for the regulation and administration of the IFA?

The Securities Commission of The Bahamas (the “Securities Commission”) is responsible for regulating investment funds and for maintaining a general review of the operations of investment funds and parties related to investment funds in The Bahamas.

Q: What is an “investment fund” under the IFA?

Under the IFA, an investment fund is a company, partnership or unit trust that issues or has equity interests the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and achieving profits or gains arising from the acquisition, holding, management or disposal of investments AND which has a nexus to The Bahamas either by:

(i) its incorporation, formation or registration (as applicable);
(ii) its administrator is a company incorporated or registered pursuant to the laws of The Bahamas or which administrator has a place of business or uses an address in The Bahamas;
(iii) in the case of a unit trust, its trust instrument is governed by the laws of The Bahamas or its trustee is a company incorporated or registered pursuant to the laws of The Bahamas or which has a place of business or uses an address in The Bahamas; or
(iv) in the case of a partnership its partnership articles are governed by the laws of The Bahamas or its general partner is a company incorporated or registered pursuant to the laws of The Bahamas or which general partner has a place of business or uses and address in The Bahamas.

Such funds are also referred to as “Bahamas-based” funds. Funds whose only nexus to The Bahamas is via its investment manager or investment advisor (that is, such investment manager or investment advisor is incorporated, registered or operating in The Bahamas) is a non-Bahamas based investment fund.

Q: What is a regulated investment fund?

A regulated investment fund is one which is licensed or registered under the IFA.

Q: Are there different types of regulated investment funds?

Yes, there are four different classes or types of investments funds under the IFA, namely:

(i) professional funds;
(ii) SMART (Specific Mandate Alternative Regulatory Test) funds;
(iii) standard funds; and
(iv) recognized foreign funds

Professional, SMART and standard funds are all regarded as “licensed” funds and the recognized foreign fund is a “registered” fund. A recognized foreign fund is one where (i) its equity interests are listed on a prescribed securities exchange and not licensed in The Bahamas (ii) it is licensed or registered in a prescribed jurisdiction and not suspended from operation or (iii) it is incorporated or established and is in good standing in a prescribed jurisdiction.

Q: Are investment funds required to have a minimum number of directors?

An investment fund which is a company is required to have a minimum of two directors.

Q: Are all investment funds required to have a prospectus?

Under the IFA, the parties related to an investment fund are (i) the administrator (ii) operator (directors, trustee or general partner) (iii) promoter (iv) custodian (v) investment manager or investment advisor.

In the majority of cases, licensed investment funds are required to have an investment fund administrator which is licensed as such by the Securities Commission. Some SMART funds do not require an administrator or one which is licensed by the Securities Commission.

All investment funds must appoint a custodian, except for those funds whose investment structure or the nature of the fund’s assets are such that they do not require that a custodian be appointed to hold the assets of the fund.

Q: Do investment funds have financial reporting requirements?

Standard and professional funds are required to be audited annually and to file a copy of its audited financial statements with its licensor (that is, its administrator or the Securities Commission, as applicable) within six months of its financial year end.

In the case of SMART funds, SMART fund models 002, 004 and 005 are not required to be audited annually if all of the holders of equity interests unanimously waive the requirement for the fund to have an annual audit. If the annual audit requirement is waived, the fund is required to file semi-annual performance reports.

For SMART fund 001, while annual audited statements are not required, such fund is required to produce annual unaudited financial statements and semi-annual performance reports and for SMART fund 006, a performance report or management account is to be filed every six months with the Securities Commission and every shareholder of record.

Q: Who can license investment funds?

The Securities Commission or an administrator which holds an unrestricted investment fund administrators license is authorized to license investment funds. However, while the Securities Commission can licence all types of funds, an unrestricted investment fund administrator can only licence professional funds and certain types of SMART funds.

Q: Do regulated investment funds require a local auditor?

No, there is no such requirement for investment funds to appoint as its auditor one which is based or one that conducts business in or from The Bahamas.

Q: Is there a regime in The Bahamas in respect of the regulation of the offer of securities to the public?

Yes, any company looking to offer its securities to the public in The Bahamas is required to file with the Securities Commission a prospectus in compliance with the provisions of the Securities Industry Act, 1999 (the “SIA”) and the Securities Industry Regulations, 2000 (the “SIR”), unless an exemption from the filing of a prospectus applies. The SIA provides a definition of securities.

Q: Is a prospectus required in all cases?

No, there is no such requirement for investment funds to appoint as its auditor one which is based or one that conducts business in or from The Bahamas.

Q: Is there a concept of “accredited investor”?

Yes. Examples of an “accredited investor” includes, inter alia:

(i) any bank licensed in The Bahamas, whether acting in its individual or fiduciary capacity;
(ii) a broker-dealer or securities investment advisor licensed in The Bahamas and acting for its own account;
(iii) an insurance company licensed in The Bahamas;
(iv) a fund licensed in The Bahamas;
(v) any natural person whose individual net worth or joint net worth with that person’s spouse at the time of purchase exceeds one million dollars; and
(vi) any natural person who had an individual income in excess of two hundred thousand dollars in each of the two most recent years or joint income with that person’s spouse in excess of three hundred thousand dollars in each of those years and has a reasonable expectation of reaching the same income level in the current year.

Q: What is a non-Bahamas based fund?

A non-Bahamas based fund is one which does not satisfy the definition of Bahamas-based fund. Any non-Bahamas based fund offering its securities in The Bahamas is required to appoint a representative in The Bahamas which representative must be approved by the Securities Commission. A non-Bahamas based fund that has some other nexus to The Bahamas other than being sold in The Bahamas, that is, if its custodian or investment manager/investment advisor is in The Bahamas, such fund is required to notify the Securities Commission in writing of its nexus within 14 days of the start of such relationship.

Q: Is there a securities exchange in The Bahamas?

Yes, there is the Bahamas International Securities Exchange (“BISX”).

Q: Are all public companies required to be listed on a local exchange?

No, this is not a requirement but all public companies that are listed would be, in addition to having to comply with the requirements in the SIA and the SIR applicable to public companies, required to comply with and adhere to the BISX rules as they relate to publicly listed companies.

Q: Is there a regime for the listing of foreign mutual or investment funds in The Bahamas?

Yes, there is such a regime. Such funds can be listed on BISX provided that the requirements for listing are complied with.

Q: Are there exchange control or currency restrictions?

Yes. Persons who are or who are deemed “resident” for Bahamian Exchange Control purposes cannot purchase foreign or non-Bahamian securities without the prior permission of the Central Bank of The Bahamas. Moreover, persons who are or who are deemed “non-resident” for Bahamian Exchange Control purposes cannot purchase Bahamian securities without the prior approval of the Central Bank of The Bahamas.

 

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