COLLECTIVE INVESTMENT UNDERTAKINGS: SUBSIDIARY LEGISLATION

INDEX TO SUBSIDIARY LEGISLATION

Collective Investment Undertakings Regulations

COLLECTIVE INVESTMENT UNDERTAKINGS REGULATIONS

(under section 88)

(30th May, 2001)

ARRANGEMENT OF REGULATIONS

   REGULATION

PART I
Preliminary

   1.   Citation

   2.   Interpretation and application

PART II
General Conditions

   3.   Valuation of assets

   4.   Pricing of units

   5.   Issue of registered certificates

   6.   Income and expenditure

   7.   Investment objectives

   8.   Commission arrangements

   9.   Borrowing powers

   10.   Foreign currency borrowing

   11.   Disclosure of intention to borrow

   12.   Particular types of undertakings

PART III
Supervisory conditions

   13.   Financial resources

   14.   Management company

   15.   Financial resources required

   16.   Conditions applicable to directors

   17.   Change in shareholding to be approved

   18.   Audited accounts to be submitted

   19.   Appropriate internal controls of a firm to be maintained

   20.   Review meetings, inspections and consultations

   21.   Requirements in respect of an undertaking not licensed

   22.   Information on undertakings not resident may be requested

   23.   Conditions relating directly to collective investment undertaking

   24.   Management resources

   25.   Reports and accounts

   26.   Notifications to Regulatory Authority

   27.   Dealings by promoter, manager, etc.

   28.   Minimum activities to be undertaken in Botswana

PART IV
Efficient Portfolio Management

   29.   General conditions

   30.   Call options

   31.   Put options

   32.   Futures

   33.   OTC contracts

   34.   Repurchase: reverse repurchase agreements

   35.   Exchange rate risk

PART V
Trustee or Custodian

   36.   Duty to entrust assets

   37.   Management resources

   38.   Custodian and trustee to comply with instructions of investment company

   39.   Trustee or custodian report

   40.   Duties not to be delegated

   41.   Third party safe keeping agents

   42.   Fiduciary duties of trustee or custodian

   43.   Directors and accounts

   44.   Undertakings not licensed by the Regulatory Authority

PART VI
Application for Licensing as a Unit Trust or Investment Company

   45.   Application to license an undertaking

   46.   Application to license a unit trust

   47.   Application to license an investment company

PART VII
Prospectus and Advertisements

   48.   Obligation to publish and make available prospectus

   49.   Information to be contained in a prospectus

   50.   General information for inclusion in a prospectus

   51.   Advertisement to refer to prospectus

   52.   Advertisements of investment

   53.   General requirements in respect to advertisements

PART VIII
Inward Marketing of Undertakings Established in Other Jurisdictions

   54.   General information

   55.   Application to Regulatory Authority,

   56.   Disclaimer notice

   57.   Additional requirements

PART IX
Conditions Applying to Particular Types of Collective Investment Undertakings

   58.   General

   59.   Undertaking investing in units of other undertakings

   60.   Feeder undertaking

   61.   Umbrella undertaking

   62.   Venture or development capital undertaking

   63.   Futures and option undertakings, protected capital

   64.   Leveraged futures and options undertaking

   65.   Money market undertaking

   66.   Property undertaking

   67.   Close-ended undertaking

   68.   Undertaking marketing solely to professional investors

   69.   Offence and penalty

      First Schedule - General Investment Restrictions

      Second Schedule

      Third Schedule - Information to be Contained in an Application for Licensing

      Fourth Schedule - Information to be Contained in a Prospectus

S.I. 22, 2001.

PART I
Preliminary (regs 1-2)

1.   Citation

   These Regulations may he cited as the Collective Investment Undertakings Regulations.

2.   Interpretation and application

   (1) In these Regulations, unless the context otherwise requires-

   "call and put options" means, from a buyer's viewpoint, the right to buy (call) or sell (put) a transferable security at a predetermined price within a specified time;

   "efficient portfolio management" means the use of certain financial products or derivative instruments to achieve the most efficient use of investor funds;

   "futures contract" means an obligation to buy or sell a transferable security at a predetermined price at a future date;

   "interest rate and exchange rate swaps" means agreements to exchange for a specified period interest rate payment, and principal and interest payments denominated in different currencies based on agreed currency exchange rates;

   "purchase and reverse purchase agreement" means an agreement to lend a transferable security in exchange for collateral and an agreement to reverse such agreements.

   (2) An investment company exempted by the Regulatory Authority in accordance with section 35 of the Act, is exempted from conditions in these Regulations only in relation to the matters it is exempted from under section 35.

PART II
General Conditions (regs 3-12)

3.   Valuation of assets

   (1) The assets of a collective investment undertaking, including any technique or instruments used for the purpose of efficient portfolio management, shall be valued by a method clearly defined in the trust deed or articles of association and approved by the Regulatory Authority and the method of valuation used shall be disclosed in the prospectus.

   (2) The conditions for the creation and cancellation of units shall be laid down-

   (a)   in the trust deed in the case of a unit trust undertaking; or

   (b)   in the articles of association in the case of an investment company.

4.   Pricing of units

   (1) The assets of a collective investment undertaking shall only be purchased and sold at prices which are in conformity with the method defined in the trust deed or articles of association.

   (2) The provisions of sections 47 and 48 of the Act, shall apply in respect to the issuing and purchase of units.

   (3) The prospectus shall disclose charges relating to the-

   (a)   sale or issue of units; and

   (b)   redemption or repurchase of units.

   (4) The maximum charge relating to the redemption or repurchase of units as provided for in the trust deed or articles of association shall not be increased without the approval of a majority of votes cast at a general meeting.

   (5) In the event of an increase in the redemption or repurchase charge, a reasonable notification period shall be provided by the undertaking to enable unit holders to redeem their units prior to the implementation of the increase.

   (6) The prospectus shall disclose the period within which redemption proceeds shall be paid or discharged to investors.

5.   Issue of registered certificates

   Registered certificates shall be issued in accordance with the provisions of section 52 of the Act.

6.   Income and expenditure

   (1) In addition to the provisions of section 54 of the Act the maximum annual fee charged by a management company of a unit trust or investment company as provided for in the trust deed or management agreement shall not be increased without the approval of a majority of votes cast at a general meeting.

   (2) In the event of an increase in the annual fee, a reasonable notification period shall be provided by the undertaking to enable unit holders to redeem their units prior to the implementation of the increase.

7.   Investment objectives

   (1) The investment objectives of a collective investment undertaking as disclosed in the prospectus shall not be altered without the approval of a majority of votes cast at a general meeting.

   (2) In the event of a change of investment objectives or investment policy, a reasonable notification period shall be provided by the undertaking to enable unit holders to redeem their units prior to implementation of the changes.

   (3) General investment restrictions which apply to collective investment undertakings are set out in the First Schedule.

8.   Commission arrangements

   Where managers or administrators of a collective investment undertaking enter into any advantageous commission arrangement, they shall ensure that-

   (a)   the broker or counter party to the arrangement has agreed to provide best execution to the undertaking;

   (b)   benefits provided under the arrangement shall be those which assist in the provision of investment services to the undertaking; and

   (c)   there is adequate disclosure in the prospectus and in the periodic reports issued by the undertaking.

9.   Borrowing powers

   (1) A collective investment undertaking shall not borrow money in excess of 25 per cent of its net assets at any time.

   (2) Credit balances or cash shall be off set against borrowing when determining the percentage of borrowing outstanding in accordance with subregulation (1).

10.   Foreign currency borrowing

   (1) A collective investment undertaking which invests across a range of currencies may borrow foreign currency by means of a back to back loan agreement.

   (2) Foreign currency obtained in accordance with subregulation (1) shall not be classed as borrowing for the purpose of the Regulatory Authority's borrowing restriction under regulation 9:

   Provided that the off-setting deposit-

   (a)   shall be denominated in the base currency of the undertaking; and

   (b)   equals or exceeds the value of the foreign currency loan outstanding.

   (3) Where foreign currency borrowing exceeds the value of the back to back deposit, any excess is regarded as borrowing for the purpose of regulation 9.

11.   Disclosure of intention to borrow

   Where it is envisaged that borrowing may be undertaken, there shall be full disclosure in an undertaking's prospectus.

12.   Particular types of undertakings

   Collective investment undertakings may take different forms as set out in Part IX of these Regulations.

PART III
Supervisory Conditions (regs 13-28)

13.   Financial resources

   A management company, in the case of a unit trust undertaking or an investment company, shall-

   (a)   have such financial resources as may be considered as sufficient in terms of regulation 15 at its disposal, to enable it to conduct its business effectively and meet its liabilities;

   (b)   inform the Regulatory Authority immediately upon temporarily suspending the repurchase of its units or in any event within the working day on which such suspension takes place.

14.   Management company

   The Regulatory Authority shall approve-

   (a)   the replacement of a management company in the case of a unit trust undertaking; and

   (b)   alterations in the trust deed of an authorised unit trust undertaking or change in the name of such undertaking.

15.   Financial resources required

   (1) A management or administration company (hereinafter referred to as a firm) shall have a minimum level of financial resources equivalent to 0.5 million Pula or three months expenditure, whichever is the greater.

   (2) The Regulatory Authority shall approve the form of any subordinated loan incorporated in the calculation of financial resources of a firm, including the repayment of the loan.

   (3) Amounts placed with group companies shall be deducted when calculating the minimum level of financial resources of a firm.

16.   Conditions applicable to directors

   (1) The Regulatory Authority shall approve appointments to the office of director of a firm and departures from the office of director shall be notified in writing to the Regulatory Authority immediately.

   (2) The board of directors of a firm shall not have directors in common with the board of directors of a trustee of an undertaking for which it acts.

   (3) Directors shall disclose to their board any concurrent directorship which they hold on boards of authorised collective investment undertakings or related entities which supply services to such an undertaking.

   (4) Directors and managers of a firm shall be persons of integrity and have appropriate level of knowledge and experience in management or administration of unit trust undertakings or investment companies.

   (5) A minimum of two directors of a firm shall be Botswana residents.

17.   Change in shareholding to be approved

   (1) The Regulatory Authority shall approve any proposed change in ownership or in a significant share holding of a firm.

   (2) A significant share holding for the purpose of subregulation (1) means a share holding of 10 per cent or more in a firm.

18.   Audited accounts to be submitted

   (1) Half yearly financial and annual audited accounts of a firm shall be submitted to the Regulatory Authority.

   (2) The half yearly accounts shall be submitted within two months and the annual accounts within four months of the relevant reporting period.

19.   Appropriate internal controls of a firm to be maintained

   (1) A firm shall maintain an appropriate internal control system to ensure that records clearly identify client funds and the assets in which they have been invested.

   (2) A firm shall satisfy the Regulatory Authority on a continuing basis that it has sufficient management resources to effectively conduct its business.

   (3) A firm shall organise and control its internal affairs in a reasonable manner, with proper records and adequate arrangements for ensuring that employees are suitable, adequately trained and properly supervised.

   (4) A firm shall have well defined procedures in place to ensure compliance with these Regulations and a firm shall deal with the Regulatory Authority in an open and co-operative manner.

   (5) A firm shall notify the Regulator Authority in writing as soon as it becomes aware of any breaches of the Regulatory Authority's supervisory or reporting requirements by the firm.

20.   Review meetings, inspections and consultations

   (1) The Regulatory Authority shall hold such review meetings with a firm as may be required by the Regulatory Authority and the firm shall, for the purpose of such meeting, supply such additional material as may be required by the Regulatory Authority, including internal auditors' reports, operating procedures and management letters issued by the firm's auditors and by auditors of collective investment undertakings under management or administration of the firm.

   (2) The Regulatory Authority may conduct inspections of the operations of a firm if this is deemed necessary by the Regulatory Authority.

   (3) A firm shall consult with the Regulatory Authority before engaging in significant new activities, and shall ensure that any reference in publicity material to the role of the Regulatory Authority in relation to the supervision of the firm's activities are not misleading.

21.   Requirements in respect of an undertaking not licensed

   A firm providing administration services to a collective investment undertaking not licensed by the Regulatory Authority shall submit to the Regulatory Authority in respect of such undertaking-

   (a)   a copy of the agreement which the firm has entered into in relation to the undertaking;

   (b)   a copy of the prospectus or similar document issued by the undertaking and the firm shall ensure that the prospectus does not give the impression that the undertaking is authorised or supervised in any way in Botswana;

   (c)   a copy of the annual audited report issued to unit holders; and

   (d)   a monthly return containing the following aggregate information for all undertakings under administration within each base currency category-

      (i)   domicile of the undertakings;

      (ii)   number of undertakings;

      (iii)   number of unit holders; and

      (iv)   total net asset value.

22.   Information on undertakings not resident may be requested

   The Regulatory Authority may request information on collective investment undertakings not resident in Botswana in order to effectively performing its role as supervisor of service providers in Botswana, and such request shall not imply any regulatory or supervisory role for the Regulatory Authority in respect of such undertakings.

23.   Conditions relating directly to collective investment undertaking

   (1) The Regulatory Authority shall, in respect of an investment company-

   (a)   approve appointments to the office of director; and

   (b)   be notified in writing immediately the office of director is vacated.

   (2) The board of directors of an investment company shall not have directors in common with the board of directors of its trustee.

   (3) Directors of an investment company shall disclose to their board any concurrent directorship which they hold on boards of authorised collective investment undertakings or related entities which supply services to such undertakings.

   (4) A disclosure of interest made under subregulation (3) shall be recorded in the minutes of the meeting at which it is made.

24.   Management resources

   An investment company which does not employ the services of a management company or fund administration company shall-

   (a)   have a minimum paid up share capital equivalent to 0.5 million pula within three months of authorisation;

   (b)   satisfy the Regulatory Authority on a continuing basis that it has sufficient management resources to effectively conduct its business and otherwise comply with regulation 24(a); and

   (c)   meet the Regulatory Authority for review meetings as required by the Regulatory Authority and an investment company is required, for the purposes of such meeting, to supply any additional information as may be required by the Regulatory Authority, including operating procedures and management letters issued by the company's auditors.

25.   Reports and accounts

   (1) The contents to be included in the monthly, half yearly and annual reports shall be as set out in the Second Schedule.

   (2) The annual audited accounts of a promoter of an undertaking and investment adviser shall be submitted to the Regulatory Authority.

26.   Notifications to Regulatory Authority

   (1) The management company in the case of a unit trust undertaking or an investment company, shall notify the Regulatory Authority in writing of receipt of approval to market units in another jurisdiction.

   (2) The Regulatory Authority shall be given not less than 14 days notice in writing of proposed amendments to the-

   (a)   prospectus;

   (b)   memorandum and articles of association of an investment company; and

   (c)   material agreements entered into with third parties.

   (3) The Regulatory Authority may object in writing to amendments notified to it in accordance with subregulation (2) and amendments objected to by the Regulatory Authority shall not be made.

   (4) The Regulatory Authority shall be notified in writing and in advance, by a management company, of any proposal to replace third parties which have contracted directly or indirectly with the unit trust or investment company, to carry out services.

   (5) The Regulatory Authority may object to the proposals made in accordance with subregulation (4) and replacements objected to by the Regulatory Authority shall not be made.

   (6) Where the Regulatory Authority approves proposals made in accordance with subregulation (4), a management company shall audit the undertaking at the date of replacement and furnish the Regulatory Authority with the audit report.

   (7) The new trustee or custodian shall confirm to the Regulatory Authority in writing, that they are satisfied with the transfer of assets after an audit report has been furnished to the Regulatory Authority in accordance with subregulation (6).

This section of the article is only available for our subscribers. Please click here to subscribe to a subscription plan to view this part of the article.

Please click here to login