Securities Industry Act 2011
Michelle Neville-Clarke
Lennox Paton
Nassau
Michelle Neville-Clarke (Bio)
Upon completion of its review of the securities regulatory regime in the Bahamas the International Monetary Fund (IMF) made several recommendations to the Securities Commission of The Bahamas (SCB) to improve the legislation in light of international best practices.
After much consultation with industry, the Securities Industry Bill, 2010 was drafted and has been approved by the House of Assembly and the Senate of the Bahamas with a date of assent of June 1 2011. It is expected that the appointed day for the new legislation coming into force will be before the end of 2011.
The Securities Industry Act (the Old Act) which is to be repealed came into operation in 1999 and over the years this piece of legislation was amended from time to time to address matters arising, however, it was felt that to fully address the recommendations of the IMF, and to take advantage of the opportunity to expand and enhance the powers of the SCB and to update and modernise the law relating to the regulation of securities exchanges and the securities industry a full revamping of the legislation was necessary.
The Securities Industry Act 2011 (the New Act) demonstrates the Bahamas's commitment to fulfilling its obligations under the International Organisation of Securities Commissions (IOSCO) and should enable the Bahamas to obtain full signatory A status with IOSCO. The New Act also reflects the Bahamas' commitment to remaining able to respond quickly to changing circumstances in the global financial arena by outlining key obligations in the Act itself with regulations or rules left to set out the detailed requirements thus allowing the SCB to respond quickly and effectively and to facilitate further additions or changes by rule when necessary.
Some of the key changes introduced by the New Act to the existing regulatory regime are as follows:
Categories of persons registered with SCB
Currently under the Old Act registrants are licensed or registered by the SCB as a particular type of broker dealer, (Class I, II, III or IV) or securities investment advisor, however under the new regulatory regime registrants will be required to register with the SCB where that person is carrying on 'securities business'. The categories of 'securities business' as outlined in the New Act include:
(i) dealing in securities;
(ii) arranging deals in securities;
(iii) managing securities; and
(iv) advising on securities.
Firms may be registered to carry on one or more of the categories of securities business.
The New Act also lists the categories of person and activities that will be outside the scope of registration and codifies some existing policies, for example, exemption from registration for certain individuals, such as where a person incorporated in the Bahamas whose sole business is the provision of management and advisory services to one of more investment funds licensed or registered by the SCB as a professional, SMART fund or standard fund as defined under the Investment Funds Act, 2003. Currently the SCB's policy was that such types of entities were exempt, this is now codified in the New Act. In addition the categories of registration for individuals will change from principal, broker, stockbroker and securities investment advisor to chief executive officer, compliance officer, trading representative, discretionary management representative and advising representative. Also of note, the New Act specifically permits entities incorporated or registered under the International Business Companies Act, 2000 as well as the Companies Act to apply for registration and licensing.
Every person or company registered with the SCB under the Old Act as a broker dealer or securities investment advisor and every individual registered with the SCB und the Old Act as a securities investment advisor, stockbroker, principal or associated person is deemed to be registered under the relevant provision of the New Act.
Offerings in the Bahamas
Under the Old Act it was unlawful to publish to the general public any invitation to subscribe for securities or to issue to the general public any form of application to subscribe for or to purchase securities unless, before the date of such publication, a prospectus in compliance with the relevant provisions of the Old Act had been registered with the SCB or the offer was exempted from the provisions of the Old Act.
The New Act provides that no person may trade in a security on his own account or on behalf of another person where the trade would be a distribution of the securities unless a preliminary prospectus is filed with the SCB and the SCB has issued a receipt for each document. Upon issuance of the receipt for the preliminary prospectus by the SCB the preliminary prospectus may be distributed but no binding agreement to purchase the securities may be entered into until the SCB issues the receipt for the actual prospectus.
Like the Old Act, the New Act sets out similar exceptions from the requirement to file the preliminary prospectus and prospectus such as securities issued by the Government of The Bahamas, securities issued by a private company, securities of an investment fund licensed or registered under the Investment Funds Act or exempt from licensing or registration under that Act. Most notably however are the exemptions introduced for approved foreign issuers, though limited filings with the SCB are required there is much more clarity as to when an exemption from filing may be relied upon where there is an intended foreign issuance in the Bahamas including issuances pursuant to prescribed take over bids, issuances where each purchaser is an accredited investor and offerings to employees in certain prescribed circumstances.
The Bahamas looks forward to the implementation of the New Act and the flexibility the New Act will bring to ensure the country continues to meet the demands of a an evolving financial services arena.