Directive - Emerging Markets Growth And Income Fund Inc. (2013-01-25)

Summary

This is an enforcement Directive issued by the BVI Financial Services Commission under section 40(1)(b) of the Financial Services Commission Act, 2001, amending an earlier Directive of 15 August 2011. It applies to a named group of public funds, including Emerging Markets Growth And Income Fund Inc., and imposes enhanced reporting, cost restrictions and remediation requirements pending resolution of regulatory concerns.

• Weekly reporting: Each affected fund must submit weekly information to the Commission on portfolio assets and valuations, cash balances, material portfolio value changes over US$500,000, liabilities, subscriptions, redemptions (paid and unpaid), payments and expenses with supporting invoices, investor complaints, legal proceedings, and any regulatory investigations or actions by other regulators.
• Fee and expense freeze: The fund must cease and desist paying all fees and expenses except specified categories (management, load, entry, exit, Bloomberg fees and in-house legal costs), and except fund administration, brokerage, custody, audit and legal service fees which require the Commission's prior written approval.
• Cost cuts: The fund must discontinue incurring administrative and operating costs relating to its investment manager, investment adviser or other service providers, including office costs, corporate accommodation, IT fees, and any other administrative fees or expenses.
• New fee structure: The fund must develop, no later than 31 March 2013, a fee structure (including an investment manager compensation scheme) consistent with industry practice and subject to Commission approval, then implement it within a period directed by the Commission.
• Governance evidence: The fund must provide the Commission with copies of directors' and members' resolutions approving the new compensation scheme or fee structure.
• Prospectus amendment: The fund must amend its prospectus to remove references to accrual and payment of the restricted administrative and operating costs, and to add detailed disclosure on fees and expenses, related-party services and contracts involving Castlestone Management Incorporated, conflicts of interest, and any other disclosure required under the Public Funds Code, 2010.

The Directive names multiple related public funds under common management (including Aliquot-branded funds, Porcupine funds and others), all subject to the same conditions until the Commission directs otherwise.

Key obligations

• Submit weekly reports to the Commission on portfolio assets, valuations, cash balances, material value changes over US$500,000, liabilities, subscriptions, redemptions, payments/expenses with invoices, investor complaints, legal proceedings and other regulators' actions, until directed otherwise.
• Cease and desist paying all fund fees and expenses except specified permitted categories, and obtain prior written Commission approval for administration, brokerage, custody, audit and legal service fees.
• Discontinue incurring 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 an investment manager compensation scheme, by 31 March 2013, and implement it within the period the Commission directs.
• Provide the Commission with copies of directors' and members' resolutions approving the new compensation scheme or fee structure.
• Amend the fund's prospectus to remove references to restricted administrative/operating costs and add disclosure on fees, related-party services, and conflicts of interest as required under the Public Funds Code, 2010.

Applies to

public funds, investment business licensees, mutual funds

Deadlines

• weekly, commencing 30th June 2011, until directed otherwise: Submission of specified fund information to the Commission
• 31st March, 2013: Deadline to develop a Commission-approved fee structure and compensation scheme for the investment manager