Directive - Collection of Modern Art Inc. (2013-01-25)

Summary

This is an enforcement action notice from the BVI Financial Services Commission publishing an amended Directive issued under section 40(1)(b) of the Financial Services Commission Act, 2001. The Directive was issued to a group of 18 named public funds, including Collection of Modern Art Inc., and amends an earlier Directive issued to the same funds on 15 August 2011. It imposes detailed ongoing reporting, cost-restriction and disclosure requirements on the affected funds.

• Weekly reporting: Each fund must submit weekly information to the Commission (portfolio holdings and values, cash balances, explanations of value changes over US$500,000, liabilities, subscription and redemption schedules, unpaid redemption details, payments/expenses with invoices, investor complaints, legal proceedings, and other regulatory actions) commencing 30 June 2011 until the Commission directs otherwise.
• Fee freeze: The funds must cease and desist from paying most fees and expenses, with limited carve outs (e.g. management fees, load fees, entry/exit fees, Bloomberg fees, in-house legal costs) and require prior written Commission approval for fund administration, brokerage/custody, and audit/legal service fees.
• Cost cuts: Funds must discontinue certain administrative and operating costs tied to their investment manager, adviser or other service providers, including office costs, corporate accommodation, IT costs, and other administrative fees.
• New fee structure: Each fund must develop, by no later than 31 March 2013, a Commission-approved fee structure (including a compensation scheme for the investment manager) consistent with current industry practice, and implement it within a Commission-directed timeframe.
• Governance evidence: Funds must provide the Commission with copies of directors' and members' resolutions approving the new compensation scheme or fee structure.
• Prospectus amendments: Funds must amend their prospectuses to remove references to accrual/payment of the restricted administrative and operating costs, and add enhanced disclosure on fees and expenses, related-party services and contracts (including those involving Castlestone Management Incorporated), conflicts of interest, and any other disclosure required under the Public Funds Code, 2010.

The notice is a published enforcement record rather than general industry guidance; it applies specifically to the 18 named public funds listed in the Directive, though its content illustrates the type of remedial conditions the Commission may impose on regulated funds.

Key obligations

• Submit weekly portfolio, cash balance, liability, subscription, redemption, payment, complaint and legal/regulatory action information to the Commission from 30 June 2011 until directed otherwise
• Cease paying most fund fees and expenses except specified carve outs, and obtain prior written Commission approval for administration, brokerage/custody, audit and legal service fees
• Discontinue office, corporate accommodation, IT and other administrative costs relating to the investment manager, adviser or other service providers
• Develop a Commission-approved fee structure, including investment manager compensation scheme, no later than 31 March 2013, and implement it within the period directed by the Commission
• Provide the Commission with copies of directors' and members' resolutions approving the new fee structure or compensation scheme
• Amend the fund's prospectus to remove references to the restricted administrative/operating costs and add enhanced disclosure on fees, related-party services, conflicts of interest and Public Funds Code, 2010 requirements

Applies to

public funds, mutual funds, investment business licensees

Deadlines

• commencing 30th June 2011, until directed otherwise: Weekly submission of fund reporting information to the Commission
• no later than 31st March, 2013: Deadline to develop a Commission-approved fee structure and compensation scheme for the investment manager