Prospects for initiating an investment fund in the Bahamas

25.03.2021

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The Bahamas is becoming an increasingly attractive investment market, especially for foreign businesses aiming for global expansion. The investment potential of this jurisdiction is determined by many factors. In this article, we will provide a general overview of the benefits and prospects that the islands offer to entrepreneurs who decide to register an investment fund in the Bahamas.

What is the Bahamas like as an investment market?

The Bahamas is known for its political stability, strong economy based on offshore financial services, and tax advantages for investment businesses. This is the main condition for a favorable climate for investment.

Foreign businesses can easily adapt to the regulatory framework of the Bahamas, as the country's legal system is based on English common law, which is understandable and predictable. The government strictly enforces a zero tolerance policy towards corruption and removes any bureaucratic obstacles to registering companies in the Bahamas.

The Bahamas is intensively developing economic sectors such as tourism, real estate, financial services and technology. Potential investors have plenty to choose from, they just have to tailor their business goals to the requirements of a specific area.

How does Bahamian law define an investment fund?

A comprehensive understanding of what an investment fund is and how it operates in the islands is provided by the Bahamas Securities Commission.

An investment fund in the Bahamas is generally defined as a collective investment scheme in which investors pool their funds for the purpose of investing in different types of assets, such as securities, real estate or other financial instruments.

An investment fund in the Bahamas is managed by a professional investment manager or fund manager who makes investment decisions on behalf of investors.

An important task of an investment fund is to diversify assets by distributing risks between several investments. Investors typically have the right to redeem their shares or units in the fund, providing liquidity.

Who regulates the activities of investment funds in the Bahamas and how?

Investment fund regulation in the Bahamas is primarily overseen by the Securities Commission of the Bahamas (SCB). The Commission enforces securities laws and regulations, including those related to investment funds, through various tools.

Registration and licensing.

An investment fund in the Bahamas is required to register and obtain a license, the type of which depends on the structure of the fund, its target investors and its investment strategies.

Current financial and annual reporting.

A registered investment fund is required to provide regular reports and updates to the Securities Commission.

AML and KYC rules.

Investment funds are required to implement robust due diligence processes and report suspicious transactions to regulatory authorities.

The SEC has enforcement powers to take action against investment funds and fund managers that violate securities laws or regulations. This may include sanctions, fines, or revocation of licenses.

It is important to note that the specific regulatory requirements and procedures for investment funds in the Bahamas may vary depending on factors such as the type of fund, its structure (for example, open-ended or closed-end) and its target investors (for example, retail or institutional). It is therefore critical for investment fund operators to work closely with legal and compliance professionals who are knowledgeable about the current regulatory environment in the Bahamas to ensure full compliance with applicable laws and regulations.

What are the licensing requirements for investment funds in the Bahamas?

Licensing requirements for investment funds in the Bahamas may vary depending on the specific type of fund, its structure and target investors. Below, we will provide a general overview of the typical licensing requirements that investment funds in the Bahamas must adhere to.

Obtaining a fund administrator license.

In the Bahamas, many investment funds employ a fund administrator to perform various administrative functions, including valuation, accounting and reporting. Fund administrators must be licensed by the Securities Commission of the Bahamas (SCB). The licensing process requires demonstrating the ability to meet regulatory standards, including financial stability and fund management experience.

Obtaining a securities' dealer license in the Bahamas.

If an investment fund or its managers engage in securities trading on behalf of clients, they will be required to obtain a securities' dealer license from the SCB.

Acquisition of a standard investment fund license in the Bahamas.

It is necessary for investment funds focused on retail investors. The licensing process requires compliance with specific regulatory requirements, including capital adequacy, governance and disclosure requirements.

In some cases, it is necessary to obtain a license from the SMART Foundation in the Bahamas. It is intended for special purpose funds to test alternative regulation.

Persons engaged in the marketing or distribution of investment fund products will be required to register as representatives of a licensed broker-dealer or investment adviser in the Bahamas.

Please note

that regulatory requirements may change over time, so it is important to review the most current regulations and seek the advice of Bahamas investment legal experts.

What legal form should a business choose to register an investment fund in the Bahamas?

Deciding the appropriate legal form for registering an investment fund in the Bahamas depends on various factors. But there are common legal forms that you can refer to when registering an investment fund in the Bahamas.

Segregated account company or SAC.

The Bahamas offers a company structure that is a flexible and popular choice for investment funds. A SAC is a single legal entity with the ability to create multiple separate accounts, each of which is treated as a separate legal entity. This structure provides asset segregation and liability protection between different accounts, making it suitable for umbrella funds or funds with multiple sub-funds.

International business company or IBC.

This form is a common choice for offshore investment funds in the Bahamas. IBCs offer simplicity and flexibility in their structure and are often used for investment funds that do not require the complex structure of segregated accounts.

In some cases, it is possible to register a limited liability company in the Bahamas.

This form is relevant for investment trusts structured as limited partnerships. Such partnerships typically consist of general partners, who manage the fund, and limited partners, who provide capital but have limited liability. This structure is commonly used in the mutual fund industry.

For investment funds in the Bahamas, a unit trust is also a suitable option.

A unit trust is a collective investment scheme in which investors own units representing their share of the assets of the trust. Mutual funds are regulated and can be created for different types of investments.

In addition, investors can choose the current form of ICON or investment condominium, which is formed by agreement between investors wishing to pool assets for their further investment.

Setting up a professional fund in the Bahamas

You can also set up a professional foundation in the Bahamas. The fact is that the Bahamas offers a special regulatory regime for professional funds that are organized and managed by experienced investors. These funds are subject to lower regulatory requirements than retail funds. The legal form of a professional foundation can vary, but often includes an SAC or an IBC.

How to obtain a standard investment fund license in the Bahamas

Obtaining a standard investment fund license in the Bahamas is a structured process, with each step coordinated by the Bahamas Securities Commission. We will only list the general steps to obtain a standard investment fund license in the Bahamas.

Determine the structure of your investment fund, including whether it will be open-ended or closed-end, and outline the investment strategy and objectives of the fund.
Appoint a registered agent authorized to conduct business in the Bahamas. The Registered Agent will assist with the application process and liaise with regulatory authorities.
Appoint two directors and hire several key service providers (custodian, administrator, broker and investment manager).
Prepare the necessary fund documents, including the memorandum or prospectus, the fund's articles of incorporation, and other required disclosures. These documents must comply with Bahamian regulations and contain complete and accurate information about the fund.
Maintain a physical presence in the Bahamas to obtain an investment fund management license (IFA must have its head office in the islands).
Prepare and submit a standard investment fund license application to the Bahamas Securities Commission. The statement typically includes detailed information about the fund's structure, investment strategy, directors, and officers.
SCB will conduct due diligence on the fund's founders, directors, and officers. Ensure that all individuals participating in the fund meet the eligibility and due process criteria in accordance with the rules of the Bahamas.
Pay the required registration fees to the Bahamas Securities Commission. The fee structure may vary depending on the type and size of the fund.

The SCB will review your application, financial documents and compliance with Bahamian financial services laws and regulations. This review may include correspondence and requests for clarification and can last from 2 to 8 months.

If the SCB approves the application and is satisfied that the fund's requirements have been met, it will issue a standard investment fund license.

You can order a consultation on entering the investment services market in the Bahamas, contact the relevant specialists of the YB Case team.