Consultation Paper - Proposed Amendment to the Investment Funds Act 2006 (2018-04-13)

Summary

This is a BMA consultation paper proposing an amendment to the Investment Funds Act 2006 that would let a Class A Exempt Fund be automatically exempt from the requirement in section 6A(2)(d)(iv) to appoint a custodian or prime broker, where prescribed criteria are met. The change is aimed primarily at insurance linked securities (ILS) funds, where proceeds are typically held and managed by a trustee under a reinsurance trust arrangement rather than by a custodian or prime broker.

• Draft Bill: Appendix I contains the draft Investment Funds Amendment Act 2018, inserting new section 6B(2A) allowing exemption from the custodian/prime broker requirement where Authority-prescribed criteria are met.
• Draft Notice: Appendix II sets out the proposed criteria an operator of a Class A Exempt Fund must meet to qualify for the exemption, including that the fund issues ILS, proceeds are held in a trust account collateralising insurance loss events, a trustee manages the assets per the governing agreements, and the offering memorandum discloses this use of proceeds to investors.
• Scope of exemption: The exemption would apply only to the specific investment strategy meeting the criteria; any other strategy would still need to satisfy section 6A(2)(d)(iv).
• Ongoing confirmation: Under the draft notice, operators relying on the exemption would need to confirm annually, via the annual certificate filed under section 6B(2), that they continue to meet the criteria.
• Consultation invite: The Authority invites comments on the proposal, to be sent to a named BMA contact by email or post.

As a consultation paper with a draft bill, this document does not itself change the law; it seeks industry feedback before the Authority pursues legislative amendment through Parliament.

Key obligations

• Submit comments on the proposal to the BMA (Melissa Morton) by email or post by the stated deadline
• If the amendment is enacted and an operator seeks the custodian/prime broker exemption, it must meet all four prescribed criteria (ILS issuance, proceeds held in a qualifying trust account, trustee management per governing agreements, and offering memorandum disclosure to investors)
• Operators exempted under section 6A that later seek this additional exemption must also satisfy the same criteria
• Operators relying on the exemption must confirm ongoing compliance with the criteria in their annual certificate filed under section 6B(2) of the Act

Applies to

Class A Exempt Funds, investment fund operators, insurance linked securities (ILS) funds

Deadlines

• 4 May 2018: Deadline for submitting comments on the Consultation Paper to the BMA

Related documents

• This document amends Investment Funds Act 2006