Directive - Next 11 Emerging 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 dated 15 August 2011. It applies to a named group of eighteen public funds, including Next 11 Emerging Fund Inc., and imposes enhanced reporting, spending restrictions, and prospectus amendment requirements on those funds.

• Weekly reporting: Each affected fund must submit to the Commission, on a weekly basis, detailed information on its portfolio assets and valuations, cash balances, explanations for portfolio value changes over US$500,000, liabilities, subscription and redemption schedules (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 from paying all fees and expenses except management fees, load fees, entry fees, exit penalties, Bloomberg fees, in house legal costs, and fund administration, brokerage, custody, audit and legal service fees; the latter category requires the Commission's prior written approval.
• Cost discontinuation: The fund must stop incurring certain administrative and operating costs of its investment manager, investment adviser or other functionaries, including office costs, corporate accommodation, IT fees and other administrative expenses.
• New fee structure: The fund must develop, by 31 March 2013, a fee structure (including a compensation scheme for the investment manager) consistent with industry practice and approved by the Commission, and implement it within a period the Commission directs.
• Governance evidence: The fund must provide the Commission with copies of directors' and members' resolutions approving the new compensation scheme or fee structure.
• Prospectus amendments: The fund must amend its prospectus to remove references to accrual and payment of the investment manager's/adviser's administrative and operating costs, and add detailed 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 directive is a targeted enforcement action rather than a general rule change, and continues in effect until the Commission directs otherwise.

Key obligations

• Submit weekly reports to the Commission on portfolio assets, cash balances, portfolio value changes over US$500,000, liabilities, subscriptions, redemptions (paid and unpaid), payments/expenses with invoices, investor complaints, legal proceedings and other regulators' actions, commencing 30 June 2011 until directed otherwise.
• Cease payment of all fees and expenses except specified categories, and obtain the Commission's prior written approval before paying fund administration, brokerage, custody, audit or legal service fees.
• Discontinue incurring specified administrative and operating costs (office costs, corporate accommodation, IT fees, other administrative expenses) of the investment manager, adviser or other service providers.
• Develop a Commission-approved fee structure and compensation scheme for the investment manager 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 compensation scheme or fee structure.
• Amend the fund's prospectus to remove references to accrual/payment of administrative and operating costs and to add disclosure on fees, related-party services, conflicts of interest, and other Public Funds Code 2010 requirements.

Applies to

public funds, mutual funds, investment business licensees

Deadlines

• 30th June 2011: Commencement of weekly reporting obligation to the Commission, continuing until directed otherwise.
• 31st March 2013: Deadline to develop a Commission-approved fee structure, including a compensation scheme for the investment manager.