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Alternative Market Briefing

The Bahamas to amend Investment Funds Act and implement Contracts For Differences Rules

Thursday, August 13, 2020

Christina Rolle
B. G., Opalesque Geneva:

The Bahamas has been busy modernising its financial regulatory system of late and here is a recent update, fresh from Opalesque's Bahamas Roundtable 2020. Of note is the country's agile approach to regulation, whereas the financial industry constantly collaborates with the government to refine the legislation to make sure that they are consistent with international best practices and ensure that the regulatory requirements are clear.

Investment Funds Act, 2019

The Investment Funds Act, 2019 was created to modernise the regulatory framework for investment funds in The Bahamas in order to achieve international standards and best practices of the investment funds industry, and to enhance the provisions of the Securities Industry Act, 2011 in order to maintain the status of The Bahamas as a reputable international financial centre (see related Opalesque report here).

In February this year, amendments were enacted. Minister of Financial Services, Trade Industry and Immigration Elsworth Johnson said that amendments to the Investment Funds Act will address concerns by the European Union (EU) on how the determination of a professional investor is made, according to EWNews.

The Investment Act came into force in September 2019, said Christina Rolle, executive director at the Securities Commission of The Bahamas, and "we are still in a transition period with that Act, but certainly there are some new features. One is that the administrator can now be anywhere in the world. The investment fund manager can either go through a registration or licensing process in The Bahamas: (1) for managers who are only managing professional funds, they only go through a very simple registration process; (2) for those who would be managing retail funds, they go through a licensing process.

"We also rationalize in the legislation the concept of fiduciary responsibility and where that fiduciary responsibility should lie," she added.

Securities Industry (Contracts For Differences) Rules, 2020

The Securities Commission of The Bahamas is to implement a range of new regulations, including leverage restrictions. The new regulation was proposed by the Government of The Bahamas on 27th May 2020, reports Finance Magnate. The regulator will be implementing leverage restrictions of 200:1, ban binary options trading, and impose marketing restrictions.

"For the past three years, The Bahamas has seen some growth in this type of activity," Rolle said. "We have some broker-dealers who have been moving to The Bahamas to take advantage of the fact that our regulation was not as robust as other jurisdictions. And while The Bahamas had very strong securities legislation, we didn't zero in on this space because it was just not an activity we had to pay attention to in the past.

"Seeing this trend, The Bahamas determined that we were going to regulate this space. We didn't want to fall into a scenario like what happened in other jurisdictions where this activity really damaged the reputation of a southern European jurisdiction. So, what we did was conduct extensive benchmarking and engaged other regulators as well as locals, in order to identify the real issues in the space and to develop a regulatory framework."

"We were happy to be one of the first brokers here to be a part of the conversation and to be consulted on this," said Brendan Davis, business development manager at ActivTrades Corp. "And it just affirms our thoughts in the beginning that The Bahamas has a growing international reputation for transparency."

Earlier updates

"We also have recently updated our AML/CFT legislation to ensure that we remain compliant with the ever-evolving international standards," said John Delaney Q.C., senior partner at commercial law firm Delaney Partners.

The Bahamian Government sought to improve the AML/CFT regime in The Bahamas through the enactment of the Financial Transactions Reporting Act, 2018 (FTRA). The FTRA, which came into force on 25th May 2018, repeals and replaces the Financial Transactions Reporting Act of 2000 and provides enhanced provisions to address the gaps identified in the CFATF's Mutual Evaluation Report.

"In relation to matters around tax, we have implemented the substance requirements regime which is comparable to that transpiring or required around the world for responsible international financial institutions," he continued.

The Commercial Entities (Substance Requirements) Act, 2018 (CESRA), entered into force in the Bahamas on 1 January 2019. CESRA requires commercial entities engaged in certain relevant activities to have economic substance in the Bahamas.

In addition, he added, the country has recently implemented the Beneficial Ownership Register, which goes towards ensuring that it is compliant with requirements anticipated for financial centres.

"There has been work done by the government in conjunction with industry to refine the substance legislation," said Christel Sands-Feaste, partner at law firm Higgs & Johnson. "In addition, notwithstanding COVID, there was recently tabled in the House of Assembly a new Banks and Trust Companies Regulation Act and Central Bank of the Bahamas Act to reflect that there is a constant focus on refining the scope of the legislation and sharpening our pencil to demonstrate to the world that we are best in class in this area."

"For the companies themselves, we offer the opportunity to create substance because we do have premises available for leasing, for rent, or to purchase," said Linda Beidler-D'Aguilar, partner at law firm Glinton Sweeting O'Brien. "There are physical premises available for people to purchase to reside in and so it makes it much simpler in The Bahamas to be compliant with the substance requirements because the infrastructure is in place, there is the availability of appropriate property and personnel."

Related article:
7 August 2020 - Opalesque Roundtable: The Bahamas emerges as a pandemic safe jurisdiction for family offices

You can read the full roundtable discussion here:

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