HIGHLIGHTS OF THE Securities COLLECTIVE INVESTMENT SCHEMES REGULATIONS

HIGHLIGHTS OF THE Securities (COLLECTIVE INVESTMENT SCHEMES) REGULATIONS, 2013 Presented By: Andrea Lewis- Jones

OUTLINE �Background �Key Aspects of the CIS Regulatory Framework �Filing Requirements �Publication Requirements �New Publication Methods �Fees �Consequential Amendments to the Income Tax Act �Consequential Amendments to the Companies Act

Background �Investments in Collective Investment Schemes are regulated by the FSC �The FSC undertook to establish a comprehensive framework for CIS consistent with international standards �These regulations should provide adequate protection to investors and permit the industry to develop and grow �The Securities (Amendment) Act, 2013 which includes the new CIS Regulations was passed on December 30, 2013

Key Aspects of the CIS Regulatory Framework �Comprehensive authority for the FSC to regulate all facets of the CIS industry, including powers to authorize, examine, investigate both the funds and their service providers �A definition of CIS that does not limit the legal form �All CIS offered for sale in Jamaica must be either registered or expressly exempt from registration

Key Aspects of the Framework Cont’d CIS exempt from the registration requirements include: �Investments Clubs �Schemes sold to accredited investors only �Schemes where each investor must purchase a minimum of J$10 million �The scheme is a private issuer and offers its securities to only specific persons �A definition of private issuer is included

Key Aspects of the Framework Cont’d �The service providers to the CIS should be independent of each other and the definition of independence is stipulated �custodian �operator �trustee �manager

Key Aspects of the Framework Cont’d �Ownership of the fund’s assets and cash must be identified as belonging to the fund and its investors, not the entity acting as custodian, manager or operator. �The disclosure documents, i. e. financial statements, annual reports and offering documents must be up-to-date and contain all relevant information about the fund, its operators, managers and other key service providers.

Key Aspects of the Framework Cont’d �Standards for frequency and methods of valuation of assets were set. �Valuation methods are to be standardized. Assets to be valued in accordance with International Accounting Standards. �Valuations and the calculation of net asset value of the fund must be verified at least annually by an independent auditor. �Offering documents must clearly disclose the process for redeeming investments, pricing and the circumstances where redemptions may be stopped;

Key Aspects of the Framework Cont’d �Rules governing conflict of interest which impose a general duty to identify, avoid, mitigate and manage conflicts of interest. �Full disclosure of all relationships and transactions that might give rise to a conflict of interest must be made and all transactions must take place at arm's length. �An application form and checklist will be posted on the website.

Key Aspects of the Framework Cont’d �The Unit Trusts Act was repealed by the Securities (Amendment) Act, 2013 - Section 40 �The Mutual Funds Regulation was repealed by the Collective Investment Schemes Regulations, 2013 - Regulation 56 �Transitional Provisions for existing unit trusts and mutual funds to be registered as collective investment schemes are included in the Act and Regulations. The provision allows 12 months for existing funds to be registered- Section 41 & Regulation 55

FILING REQUIREMENTS QUARTERLY FILINGS �Regulation 20 (1) (a)(i) & (ii) -Overseas Funds Quarterly unaudited financial statement- within 45 days after the end of the quarter �Regulation 30 (1) (a), (b) & (c) – Local funds Quarterly unaudited financial statement- within 45 days after the end of the calendar quarter Quarterly portfolio statements and the net asset value -within 45 days after the end of the calendar quarter

FILING REQUIREMENTS YEAR END FILINGS �Regulation 20 (1) (a)(i) & (ii) -Overseas Funds Financial statement and auditor’s report- within 90 days of the schemes financial year end �Regulation 30 (1) (a), (b) & (c) – Local funds Annual financial statement and auditor’s report- within 90 days of the schemes financial year end

FILING REQUIREMENTS OFFERING DOCUMENT - Regulation 25(8) �The offering document shall be effective for twelve (12) months commencing with the date of registration �These documents are due 30 days before the expiry of the existing offering document

PUBLICATIONS REQUIREMENTS WEEKLY Local CIS- Regulation 31(2) requires publication of the following : �Cut-off time and the frequency of the pricing of the securities are to be published on a website maintained in respect if the scheme �The current net asset value (NAV) �The return on investment �Return on investment for a rolling fifty two week period �The year-to-date return on investment for the current calendar year � Publications for 2 -4 are to be done on a website maintained in respect of the scheme as well as in a widely circulated daily newspaper at least once per week.

PUBLICATIONS REQUIREMENTS CONT’D QUARTERLY � Local CIS -Regulation 31(2) (c) (i) requires publication of the following: Unaudited quarterly financial statements Publications are due within 45 days after the end of the relevant quarter. � Overseas CIS - Regulation 21(4) (a) requires publication of the following: Unaudited quarterly financial statements Publications are due within 45 days after the end of the relevant quarter

PUBLICATIONS REQUIREMENTS YEAR END �Local CIS- Regulation 31(2) (c) (ii) requires publication of the following: Audited financial statements Publications are due within 90 days after the end of the financial year. �Overseas CIS- Regulation 21(4) (b) requires publication of the following: Audited financial statements Publications are due within 90 days after the end of the financial year.

NEW PUBLICATION METHODS Publication for the purposes of the regulation can be done in the following ways: �Posted on a website maintained in respect if the scheme �Sent by post or e-mail �Published in a daily newspaper

FEES �APPLICATION FEE First Schedule requires that an application for registration of a scheme shall be accompanied by a fee of: US$1, 000 or the Jamaican equivalent �REGISTRATION FEE First Schedule requires that an application for registration of a scheme shall be accompanied by a fee of: US$5, 000 or the Jamaican equivalent �ANNUAL FEE First Schedule requires that an application for renewal of registration of a scheme shall be accompanied by a fee of: US$5, 000 or the Jamaican equivalent

Consequential Amendments to the Income Tax Act �A decision was taken that CIS should be given a tax status similar to unit trusts in Jamaica. It was felt that in order for CIS to be a viable alternative to the retail repo they would have to be given the same tax treatment that was afforded to unit trust. �The consequential amendments to the Income Tax Act will amend Section 2(1) of the Income tax Act: �to define both a collective investment scheme and a qualified collective investment scheme �to replace the definition of qualified unit trust with a definition for a qualified collective investment scheme

Consequential Amendments to the Income Tax Act �Replace the words unit trust and unit trust management company with collective investment scheme and collective investment scheme management company in order to give a CIS the same tax treatment that is currently afforded to unit trust. �Include a provision to facilitate a CIS incorporated as a company to get same tax treatment as a CIS incorporated as a trust. This will ensure that mutual funds are granted the same tax treatment as unit trusts.

Consequential Amendments to the Income Tax Act �Stamp duty and transfer tax on CIS are to be addressed at a later date.

Consequential Amendments to the Companies Act �Consequential amendments were made to the Companies Act to facilitate local CIS incorporated as companies in Jamaica. �The consequential amendments to the Companies Act will amend several sections including Section 27 A of the Companies Act: �A definition of a CIS which gives a CIS incorporated as a company the authority to redeem or purchase shares without reducing its authorized share capital has been included.

Consequential Amendments to the Companies Act �The CIS articles of association must summarize the provisions that should be outlined in the articles of association including: � the fact that they intend to issue investors shares where the money is pooled to buy assets that are managed by a management company � the holders of shares in a CIS shall be entitled to any surplus assets available for distribution on a winding up of the CIS ahead of any other shareholders in the company �The amendments in the Companies Act also exempt the CIS from a number of sections which are considered too onerous to make the CIS operationally viable.

Thank You!