Bahamas: The Bahamas Securities Industry Reforms Near Completion

Last Updated: 27 November 2018
Article by Bahamas Financial Services Board

By: Christina Rolle, Executive Director, Securities Commission Of The Bahamas

A complete overhaul of legislation governing The Bahamas' investment funds industry is nearing completion, announced Christina Rolle, executive director of the Securities Commission of the Bahamas (SCB) at the annual briefing for the Bahamian securities and investment funds industries earlier this month.

The overhaul includes an updated Investment Funds Act (IFA) as well as some forthcoming changes to the overall securities industry legislative framework.

Investment funds overhaul

The Investment Funds Act 2003 was largely structured to be in line with the operations of fiduciary administrators and did not necessarily account for the appropriate regulation of the various roles within a fund structure.

Consequently, the SCB's mission has been to address those gaps that would help support institutional, as well as private wealth business.

"In launching the overhaul, it was important to the Commission that we develop best in class legislation from a regulatory point of view and to enable the jurisdiction to gain ground in the investment funds space, particularly with respect to institutional funds," said Rolle.

It is anticipated that overhauling the IFA "will accomplish key improvements to the regulatory structure which will enhance The Bahamas' competitive appeal".

The Bill contains key changes related to:

  • Changes in the definitions of Bahamas versus non-Bahamas based funds;
  • Changes in the triggers for licensing of funds;
  • The ability to appoint international administrators without requiring that they be licensed;
  • The introduction of licensing requirements for fund managers and regulatory oversight of custodians, as well as;
  • The establishment of an AIFMD Regime with a view to The Bahamas qualifying for an EU Passport.

Update to Rules

Rolle at a recent industry briefing session outlined that there are other Rules impacting the securities industry that are near completion or in various stages of development. The Securities Industry (Business Capital) Rules, 2018, which were developed by the Commission to specifically address funding for small and medium businesses are now being finalized. Some of the other key securities laws being developed include the compliance officer rules, takeover code, and corporate governance rules.

The Compliance Officers Rules will establish and clarify requirements and related qualifications and obligations of compliance officers, as well as create standards that must be met in the outsourcing of the compliance function. The takeover codes will provide a framework for how takeovers will occur, and will ensure the protection of minority shareholders in takeover circumstances.

The proposed corporate governance rules will create standards that all public issuers are expected to adopt and will form the basis by which the Commission will assess the effectiveness of the corporate governance framework for public companies, including state owned enterprises. The Commission is looking to have both the Takeover Code and Corporate Governance Rules concluded by end of year.

Rolle said SCB's application to become a signatory to IOSCO's Enhanced Multilateral Memorandum of Understanding (EMMoU) is receiving favorable consideration and is awaiting formal response from the IOSCO Screening Group on whether the application has been approved.

The EMMoU includes additional powers which regulators must be able to exercise. These powers are referred to by the acronym ACFIT and they include:

  • The power to obtain Audit Papers
  • Powers by the regulator to Compel Attendance for testimony
  • The ability of a regulator in one jurisdiction to assist or provide information to another regulator on the freezing of assets
  • The power and ability of a regulator to obtain existing records and logs from internet service providers
  • As well as the power and ability to obtain and share existing telephone records and logs.

"These enhanced ACFIT powers will go a long way to improve cross- border enforcement cooperation and assistance among securities regulators," said Rolle.

"IOSCO has stipulated that Members will have ten years within which to become compliant with and sign on to the EMMoU. In the meantime, both the current MMoU and the EMMoU will co-exist so that Members have a choice as to when to sign onto the Enhanced version."

Fintech

Noting the growing interest in the jurisdiction as it relates to initial coin offerings (ICOs), crypto exchanges, and other digital token arrangements, Ms. Rolle said the Commission has initiated discussions for the development of a regulatory framework aimed at providing clarity to participants in the crypto space.

Risk-based supervision

Rolle also addressed why Risk-Based Supervision (RBS) has become the dominant approach to regulatory supervision of financial institutions around the world.

"As the focus of global regulators shifts towards ensuring financial stability and managing contagion risk in an increasingly inter-connected marketplace, the approach towards supervision is expected to become more inclusive, risk based and data centric," she said. "Stability of the financial system has become a central challenge to regulators worldwide and the financial crisis has taught us that financial regulators must evaluate and constantly improve on their supervisory frameworks to keep up with the rapid development within the financial sector."

In this regard the Commission has designed a risk-based supervisory framework, which includes continuous AML/CFT risk identification and monitoring, along with supporting templates.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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