Directive - Inflation Target Recovery Fund Inc. (2013-01-25)

Summary

This is an enforcement notice from the British Virgin Islands Financial Services Commission (FSC) describing an amended Directive issued under section 40(1)(b) of the Financial Services Commission Act, 2001 against a group of eighteen named investment funds, including Inflation Target Recovery Fund Inc. The Directive amends an earlier Directive issued to the same funds on 15 August 2011, imposing enhanced reporting, cost restrictions, and prospectus amendment requirements.

• Weekly reporting: Each fund must submit to the Commission, on a weekly basis (commencing 30 June 2011, until directed otherwise), detailed information on portfolio assets and valuations, cash balances, changes in portfolio value over US$500,000, liabilities, subscriptions, redemption requests (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: Funds must cease and desist from paying all fees and expenses except management fees, load fees, entry fees, exit penalties, Bloomberg fees, in-house legal costs, and fees for fund administration, brokerage, custody, audit and legal services (the latter category requiring the Commission's prior written approval).
• Cost discontinuation: Funds must stop incurring administrative and operating costs of their investment manager, investment advisor or other functionaries/third-party service providers, including office costs, corporate accommodation, IT fees, and other administrative expenses.
• New fee structure: Each fund must develop, no later than 31 March 2013, a fee structure (including an investment manager compensation scheme) consistent with industry practice and approved by the Commission, and implement it within a period directed by the Commission.
• 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 to add detailed disclosure on fees and expenses, related-party services and contracts involving Castlestone Management Incorporated and its directors/employees, conflicts of interest, and any other disclosure required under the Public Funds Code, 2010.

The Directive applies specifically to the named public funds (licensed as Public Funds) and their investment managers, advisors and service providers, and remains in force until varied or lifted by the Commission.

Key obligations

• Submit weekly reports to the Commission on portfolio assets, valuations, cash balances, liabilities, subscriptions, redemptions, payments/expenses, complaints, legal proceedings and regulatory actions, commencing 30 June 2011 until directed otherwise.
• Cease payment of all fund fees and expenses except the specifically 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, advisor or other service providers.
• Develop and submit for Commission approval, by 31 March 2013, a fee structure and investment manager compensation scheme consistent with industry practice, and implement it within the Commission-directed timeframe.
• Provide the Commission with copies of directors' and members' resolutions approving the compensation scheme/fee structure.
• Amend the fund's prospectus to remove references to restricted administrative/operating costs and add enhanced disclosure on fees, related-party services, conflicts of interest, and Public Funds Code requirements.

Applies to

Public Funds, mutual funds, investment business licensees

Deadlines

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