Asset Management

This past week, the Bahamas International Securities Exchange (BISX) announced the listing of four new mutual funds: · Premier Commercial Real Estate Investment Company Limited (PRE) · The Colina MSI Preferred Investment Fund, Ltd. (CBA) · The Colina Money Market Investment Fund, Ltd. (CMM) · The Fidelity Bahamas Growth & Income Fund Limited (FGI) Each mutual fund has its own dedicated space on the BISX website, with information specific to each fund displayed. Keith Davies, BISX’s Acting Chief Executive Officer, says *”With the successful listing of these four mutual funds, BISX has made another significant leap in its history. We have been able overcome a number of obstacles, and begin the process of attracting new listings to BISX.”* BISX first launched the mutual fund Listing Facility in April 2001. Mr. Davies is optimistic that the exchange will be able to demonstrate the benefits of BISX listing to international mutual funds, ultimately attracting an international tier as well. Colina Financial Advisors and Fidelity Merchant Bank and Trust Company have now become BISX Sponsor Members. The Bahamas International Securities Exchange Limited (BISX) was incorporated in September 1999, launching its domestic market for the listing and trading of local public companies in 2000. Currently, there are seventeen domestic public companies listed on BISX. Mr Davies recently announced arrangements with international online news provider Bloomberg L.P. to share information about BISX; a direct Bloomberg link also is provided from the BISX web site. He feels this alliance has raised the credibility of the exchange, while increasing the exposure of BISX to Bloomberg customers.

The Investment Funds Act 2003 has been passed by both the House and Senate. Expectations are that the Act will be gazetted at the time the Investment Funds Regulations 2003 are tabled in Parliament. The Investment Funds Act replaces the Mutual Funds Act 1995 and has attracted wide industry support as achieving *”the right balance between market demands and regulatory oversight”*. The Government, too, has said the legislation creates a ‘genuine’ regulatory structure, while providing an environment that will not stifle the flexibility and creativity of an industry that is fast moving. *”This delicate balance could only have been achieved through a process which involved all of the stakeholders of the legislation,”* said the Hon. Allyson Maynard-Gibson, Minister of Financial Services and Investments. Likewise, there has been wide consultation on the Regulations, the final draft of which is in circulation. It is anticipated the Regulations will be presented at the next session of Parliament.

The Bahamas Financial Services Board (BFSB) and the Bahamas Fund Association (BFA) will participate in *Forum 2003*, the upcoming conference and exposition for professionals in the alternative investment industry. Sponsored by the Managed Funds Association (MFA), *Forum 2003* will feature an extensive educational program, special networking opportunities, and an informative exhibition of products and services of interest to industry professionals. The 3-day event will be held at The Fairmont Chicago, June 16-18. BFSB and BFA will host a “Bahamas” booth, and are co-ordinating “Special Briefing Visits” in Chicago immediately after the conference programme. Managed Funds Association is the only U.S.-based association representing professionals in the global alternative investment industry. With roughly 600 members worldwide, MFA represents professionals in futures, hedge funds and other alternative investments, as well as brokers, exchanges, and all the other services which support the industry. A unified voice for the industry since it was founded in 1991, MFA promotes a beneficial regulatory environment and the growth of the alternative investment industry, improved public relations, and increased member and investor knowledge. *Forum 2003* is specifically designed to attract the industry’s most prominent professionals. It is expected to attract an audience of some 550 delegates. The Bahamas team will utilise *Forum 2003* and the Briefing Visits to promote the relative ease of establishing funds in this jurisdiction. Existing corporate legislation and the new Investment Funds Act/Regulations provide flexibility for simple establishment. Both areas of legislation are geared towards capital market development but retain a judicious mix of regulatory oversight to ensure that all parties are identified and deemed fit and proper to operate. With a long history of positive contribution to the industry’s development, the sector’s professional bodies provide The Bahamas Government with a window to the international financial services industry — to better identify and respond to change. The Bahamas Fund Association represents the needs of the growing fund industry to both the Securities Commission and the Government. Its work is augmented by over 10 other professional industry associations, whose objectives principally include the representation of their members and professional development.

Wendy C. Warren CEO & Executive Director Bahamas Financial Services Board 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 – including the degree of sophistication of investors, the number of participants and the provision of service by a recognised licensed service provider – 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.

Hon. Allyson Maynard-Gibson, M.P. Minister of Financial Services and Investments Earlier this week, Minister Maynard-Gibson contributed to discussions in the House of Assembly during the Second Reading of the Investment Funds Bill. The Minister was responsible for tabling the bill for *”An Act to Provide for the Regulations of Investment Funds in The Bahamas and for Matters Connected Thereto”* during the previous session of the House. Describing Offshore Funds as delivery vehicles for international investment capital, the Minister said they provide an efficient, innovative means of facilitating cross-border connections among investors, investment managers and investment opportunities. These funds are organised using a variety of legal structures in different jurisdictions and, as the investment fund industry develops globally, new investment products are developed by fund sponsors and advisors seeking to attract different types of investors. *”At the same time,”* said the Minister, * “the rules and regulations in many jurisdictions continue to evolve.”* Over the past decade, The Bahamas has developed into a major international centre for mutual funds, prompting the Government to pass the Mutual Funds Act in 1995, which protects investors by regulating the fund industry through a Securities Commission and Administrators that license mutual funds. Since that time, The Bahamas has gained considerable credibility and recognition as a properly regulated environment for the establishment and operation of funds. Presently, there are more than 60 licensed Mutual Fund Administrators in The Bahamas, managing in excess of 700 funds with reported assets under management of approximately $90 billion. The tabled Bill strikes a reasonable balance between regulatory and market interests and is positioned to provide a strong, attractive and fertile platform for the further development and expansion of investment fund business within the financial services sector of The Bahamas. Pointing to the three traditional “Bahamas advantages”, Minister Maynard-Gibson said The Government has (a) reaffirmed the tax neutrality of the jurisdiction; (b) reaffirmed its commitment to a strong anti-money laundering and strong anti-terrorist financing regime, while providing for lawful personal privacy; and (c) strengthened the regulatory environment in line with global trends to regulate the activities of offshore funds. *”In order to secure our investment funds industry, we must develop a risk based system of regulation, i.e. a framework that identifies the risk of the business area and seeks to regulate it without adding undue bureaucracy.”* In achieving this balance, the Minister said, while it is proposed that all funds will now be subject to the regulatory oversight of by the Securities Commission, the legislation establishes a series of classes of funds each subject to varying degrees of regulatory oversight, based on its defined risks. In short, the proposed new legislation enhances the present regulatory framework, and provides for greater market efficiency, transparency and investor protection. Of particular note is the proposed creation of a new style of Fund, a SMART (Specific Mandate Alternative Regulatory Test) Fund, to which The Bahamas ‘Brand’ may be affixed. This new product allows for flexibility within the industry while preserving the regulatory integrity of the jurisdiction. *”This innovation, only available in The Bahamas, puts The Bahamas on the cutting edge of the funds industry.”* said the Minister. The Investment Funds Bill is part of a series of legislative reform measures being proposed by the government in an effort to modernise the financial services sector and to ensure that The Bahamas remains competitive. Minister Maynard-Gibson affirmed that it represents the results of extensive consultations with industry and Regulators. The Bill will be submitted for a third reading and passage after proceeding through the committal stage. If passed in the House of Assembly, it will then be presented to the Senate for that Chamber’s consent, and ultimately to the Governor-General for assent and final publication in the Gazette as an Act of The Bahamas.

In collaboration with the Bahamas Association of Mutual Fund Administrators (BAMFA), BFSB hosted a Members Business Forum on Monday, February 17, for the purpose of providing an analysis of the new Investments Funds Bill, and the opportunity for members to provide further input to the Securities Commission of The Bahamas. The Bill, replacing the existing Mutual Funds Act, is expected to be tabled in Parliament by the end of the month. Presenting remarks at the working session, the Hon. Allyson Maynard-Gibson, M.P., Minister of Financial Services and Investments, described the Investment Funds Bill as a progressive piece of legislation. She applauded it as creating a ‘genuine’ regulatory structure, while providing an environment that will not stifle the flexibility and creativity of an industry that is fast moving. *”This delicate balance could only have been achieved through a process which involved all of the stakeholders of the legislation…..a manifestation of the benefits that can be achieved as a result of a marriage between the industry and government.”* she said. The Bill aims to improve the business framework of the funds sector, by removing impracticalities and enhancing the attractiveness of The Bahamas as a “jurisdiction of choice”. Effectively, the legislation creates a new licensing structure for funds as well as new regulatory requirements for funds administered by bank & trust companies. The regulatory authority, the Securities Commission, is to be provided with ‘administrative sanctioning’ powers, an international regulatory norm that will serve to assist in achieving its core mandate of ensuring orderly, fair and equitable dealings in the mutual fund, securities and capital markets. When the new Board of the Securities Commission of The Bahamas was appointed last fall, Prime Minister the Hon. Perry G. Christie, M.P. said The Bahamas must aspire – with renewed energy and sharper focus – to innovative product development, promotional flair, professional competence, and legislative and regulatory support within the securities industry. Brian Moree, Chairman of the Financial Services Consultative Forum, hails the Bill as a major step in efforts to regain The Bahamas’ competitive advantage in the international financial services market. He too says it includes innovative and interesting provisions while at the same time ensuring proper regulatory oversight and supervision of funds. *”It does strike a sensible balance between the regulatory issues and market demands.”* he said. The FSCF was appointed by the Prime Minister as a “Think Tank” of industry experts to which the Government will look for opinions and development strategies to reposition the financial services industry to better meet the needs of the international financial markets. *”Their input to the development of the financial services industry ensures that The Bahamas is a cutting edge blue chip financial center,”* said Prime Minister Christie. Minister Maynard-Gibson is confident that with the advise and recommendations from the Consultative Forum, together with her Ministry’s collaboration with the Bahamas Financial Services Board, The Bahamas *”will achieve success and become one of the leading financial centres in the world.”* BFSB and BAMFA collaborated in providing input to the Securities Commission as it crafted the new legislation.

Michael L. Paton Chairman Bahamas Financial Services Board 2002 will undoubtedly be regarded as a seminal year for the financial services industry of The Bahamas. In January, The Bahamas signed a Tax Information Exchange Agreement with the United States of America. This act of political expediency ensured The Bahamas maintained its Qualified Jurisdiction status for US withholding taxes, which is vital for the private wealth management sector of the financial services industry in The Bahamas. In March, The Bahamas issued a conditional commitment to the OECD to enter into Tax information Exchange Agreements, similar to the one entered into with the USA. The condition precedent is a level playing field amongst all OECD countries and those non-OECD countries with which The Bahamas competes in financial services. The Bahamas Government has recently reiterated this requirement and accordingly the OECD initiative may have been technically knocked out, at least for the time being. The end result of this is that the country is not on any supranational “blacklists”, which is important for the continued viability of The Bahamas as a financial center. There are several storms on the horizon, however, which will have to be closely tracked, including the proposed FTAA agreement and its impact on financial services. The financial services industry in The Bahamas has had to critically examine itself over the past twelve months. The government has evidenced its commitment by the establishment of the Ministry of Financial Services and Investments and has committed itself to regulatory transparency and responsiveness. The private sector has determined that it will continue to focus on private wealth management and investment funds, whilst seeking opportunities in corporate services such as those presented by the securitization sector. 2003 should be a very active year for The Bahamas financial services industry. The short-term legislative agenda contemplates, inter alia, new investment funds legislation, foundation legislation, protected cell legislation and netting and set off legislation. The purpose of the proposed new legislation is to demonstrate that The Bahamas is an attractive jurisdiction for the domiciliation of investment structures and that Bahamian law provides certainty and clarity with respect to these structures. The private wealth management sector of the financial services industry is in the middle of a significant transition period. Within private banking the emphasis is now shifting to investment management, which generates significant fees for private banks. The new model of private banking includes a variety of structured banking products, which facilitates access to investment products hitherto unavailable to the majority of private banking clients. The Bahamas is well positioned as a domicile for these structured products and they represent an immediate opportunity for the jurisdiction. In the Investment Funds sector, The Bahamas continues to attract substantial new business, with assets in investment funds of approximately $100 billion. The new Investment Funds Act, foreshadowed by the Ministry of Financial Services and Investment to be passed in 1st quarter 2003, should further strengthen the sector. The Bahamas Financial Services Board will actively promote The Bahamas via participation at recognised industry conferences and continue briefing visits with key intermediaries with the objective of raising the profile of The Bahamas – and to show that The Bahamas is indeed open for business and that we are a proactive, first class financial centre that is committed and well-equipped to offer high quality financial services to the international marketplace.