Investment Funds
SUPERVISION AND REGULATION
The Investment Funds Act 2006 (“the Act”) provides the statutory basis for regulating funds for worldwide. The Act deals with the establishment, operation and regulation of mutual funds, unit trusts, and partnership funds and is intended to protect the interests of investors.
Regulation procedures differ under the Act based on the type of fund under consideration: i.e. Private fund, Professional Class A and Professional Class B investment funds, institutional, administered, and standard.
LICENSING
The following represents the procedure involved in the incorporation and authorisation process for investment funds.
The following information outlines the requirements for Authorized and Registered Funds.
What are Investment Funds?
Investment Funds are pooled investment vehicles structured either as Mutual Fund Companies, Unit Trusts, Partnership Funds or Limited Liability Company “LLC” Funds:
Mutual Fund Company
The Companies Act 1981 defines a mutual fund company as “… limited by shares and incorporated for the purpose of investing the moneys of its members for their mutual benefit and having the power to redeem or purchase for cancellation its shares without reducing its authorised share capital and stating in its memorandum that it is a mutual fund”. Also, any company incorporated by private act and having the power to redeem or purchase for cancellation it’s issued shares at the option of, or on the request of, a member shall be deemed for the purposes of the Companies Act to be a mutual fund company.
**N.B.: For reporting purposes, funds commonly referred to as hedge funds fall within our definition of a mutual fund.**
Unit Trust
A unit trust fund is defined in section 2 of the Act as a fund under which the property is held on trust for the participants.
Partnership Funds
A partnership fund means a fund under which the property is held on behalf of participating partners of the partnership registered under the Limited Partnership Act.
Limited Liability Company Funds
A limited liability company fund means a fund under which the property is held on behalf of the members of a limited liability company formed under the Limited Liability Company Act 2016.
What funds are in scope of the Investment Funds Act 2006?
Mutual Fund Companies, Unit Trusts, Partnerships and Limited Liability Companies that meet the definition of an Investment Fund as stated in the Act must apply to the Authority to either be Authorised or Registered.
Authorised Funds
Upon authorisation, funds are classified as one of the following:
Institutional Funds:
Institutional Funds are targeted essentially at institutional/sophisticated investors and are restricted to qualified participants or those investing at least $100,000.
They are required to have an officer, trustee, or resident representative from anywhere, being a person who has access to the books and records of the fund.
Administered Funds:
Funds qualify for authorization as Administered funds if they have an administrator licensed under Part III of the Act and:
- Require participants to invest a minimum amount of $50,000; or
- A Fund listed on a Stock Exchange recognised by the Authority for the purpose of Section II of the Act
Specified Jurisdiction Funds:
For a fund to qualify for authorization as a specified jurisdiction fund, the Minister of Finance, by Order, recognizes:
- the jurisdiction, anywhere, in which the fund operates; and
- a particular law, or particular set of laws, of such jurisdiction as applicable to such fund.
The fund must also satisfy the requirements set out in the Investment Funds (Specified Jurisdiction Fund) Rules 2012.
Standard Funds:
A fund qualifies as a Standard fund if it does not fit within any other class of fund. Such funds are not restricted to sophisticated investors and may include a more significant retail element among their investors. Consequently they are subject to more comprehensive regulation and supervision.
Registered Funds
Upon registration, funds are classified as one of the following:
Private Funds:
Funds are considered Private under the Act if the number of participants does not exceed 20 persons and the fund does not promote itself by communicating invitations or inducements to the public generally.
The operator of a Private fund is required to appoint a local service provider authorised and regulated by the Authority and appoint a Custodian to ensure safekeeping of the fund’s assets.
Professional Class A and Class B Funds:
An Investment Fund, which satisfies the criteria set out in section 6A(2) of the Act, may apply to the Authority to be registered as a Professional Class A fund while an Investment Fund which satisfies the criteria set out in section 7(2) of the Act may apply to the Authority to be registered as a Professional Class B fund.
The criteria that must be satisfied for both classes, as detailed in sections 6A(2) and 7(2), are:
- the fund must be open to qualified participants as defined under section 9(2) and 9(3) of the Act;
- the operator of the fund has appointed an officer, trustee or representative resident anywhere who has authority to access the books and records of the fund;
- the operator of the fund has appointed the following service providers to the fund-
– an investment manager;
– fund administrator;
– registrar;
– an auditor; and
– a custodian or prime broker; and - the financial statements of the fund are prepared in accordance with any one of the following standards-
= International Financial Reporting Standards (“IFRS”);
= Generally Accepted Accounting Principles (“GAAP”) in Luxembourg, Canada, the United Kingdom or the United States of America; or
= Any such other GAAP as the Authority may recognize.
The qualification criteria differs between the two classes as it relates to the appointment of the investment manager. Professional Class A funds must appoint an investment manager for the fund who is either:
- licensed under the Investment Business Act 2003;
- authorized or licensed by a foreign regulator recognized by the Authority; or
- carrying on business in or from anywhere or in a jurisdiction recognized by the Authority, being a person who
- has gross assets under management of an amount that is not less than $100 million; or
- is a member of an investment management group that has consolidated gross assets under management of an amount that is not less than $100 million;
Are all fund required to comply with Proceeds of Crime (Anti-Money Laundering/ Anti-Terrorist Financing) Regulations 2008?
All Authorised and Registered funds are required to satisfy Proceeds of Crime (Anti-Money Laundering/ Anti-Terrorist Financing) Regulations 2008. As such, the Authority will require the fund to file AML/ATF information disclosing the contact details for the Compliance Officer and Money Laundering Reporting Officer, along with a copy of the Board approved AML/ATF Policies and procedures.
READ IMPORTANTS
Enforcement
Enforcement Action
Segregated Guarantee Funds