Costa Rica Regulation

Transcription

1 Csta Rica Regulatin FUNDS AND FUND MANAGEMENT Type f funds The Securities Market Regulatin Act 1, articles (LRMV), and the General Regulatins f Investment Cmpanies and Mutual Funds 2 establish the requirements fr the frmatin and peratin f mutual funds, which are treated as independent estates wned by a plurality f investrs. The participatin units f the investrs are represented by participatin certificates, issued with the same characteristics and under the same cnditins fr each investr. Only mutual funds authrized by the Oversight Natinal Authrity, (SUGEVAL, fr its initials in Spanish), may cnduct a public ffering f its participatin units r be quted n a lcal securities exchange. These funds may nly invest in certain qualified freign securities, and in ther nn-financial assets, such as real estate prperty. A newly created mutual fund type, risk capital mutual fund, allws als investing in a nn-public ffering f securities. Csta Rican regulatins allw five different types f mutual funds: Open-end funds have a variable and unlimited patrimny and the participatin units have an undefined duratin term and cannt be submitted t peratins ther than reimbursements. They shall nt be sld t third parties by means f stck mechanisms. In additin, they cannt be negtiated in secndary markets, r be subject t repurchase, but may be transferred by peratins different frm thse f the stck exchange market such as assignments. Clsed-end funds have a fixed patrimny and the participatin units are nt redeemed directly by the fund, except under sme circumstances and prcedures established by law. Open-end r clsed-end financial investment funds whse main purpse is investing in financial assets. 1 Dated 17 December 1997 and published in the Official Gazette number 18 f 27 January Created by the Oversight Natinal Cuncil f the Financial System. Meeting f 26 Nvember 2001, published in the Official Gazette number 3 f 4 January 2002.

2 2 Csta Rica Regulatin Open-ended r clsed-end nn-financial investment funds, which invest in assets f a nn-financial nature such as real estate. Real estate investment funds are thse in which neither the investrs nr the individuals r entities related t them, r that frm part f the same ecnmic interest grup, are allwed t lease the real estate that cmprises the assets f the fund; r t hld rights ver such assets, ther than thse derived frm their psitin as investrs. Mega funds r funds f funds. The SUGEVAL regulates their peratins thrugh the General Regulatins f Investment Management Cmpanies and Mutual Funds, as well as the type f funds in which they can invest, the cmmissin rules, expenses and regulatry dispsitins. Currently, tw mega funds exist and are administered by the Banc Nacinal and BAC San Jsé banks. Anther cllective investment vehicle is the investment trust. Investment trusts are usually knwn as trusts that invest the resurces prvided by the trustrs in a wide variety f securities, btaining prfits frm incme and capital gains riginated frm these securities. Unlike investment funds, which must nly perate in the rganized securities market, investment trusts may perate as private investment vehicles and invest in ver-the-cunter and privately held securities. Hwever, if the investment trust is structured as a mutual fund and it engages in the public ffering f its participatin units, these investment trusts wuld be subject t regulatin by the banking regulatry agency Superintendencia General de Entidades Financieras (SUGEF), as well as lcal securities regulatry authrity SUGEVAL, and wuld be subject t mnetary cntrls by the Csta Rican Central Bank (BCCR). If the trust is structured as a capitalizatin r a pensin fund, it wuld be subject t the crrespnding legislatin and authrities. 2.2 Laws Mutual funds management is gverned by the LRMV; the General Regulatins f Investment Management Cmpanies and Mutual Funds; and administrative regulatins. Investment trusts rganized and perated by authrized banking and financial institutins, which are structured and perate as mutual funds, fall within the authrity f the SUGEF; hwever, if a public ffering is made by them, they wuld be subject t the SUGEVAL. The general regulatins f mutual funds are als applicable t investment trusts. The BCCR sets the mnetary cntrls and restrictins t investment trusts cntained in the Csta Rican Central Bank Organizatin Act N f 1995 (LOBCCR) and regulatins theret.

3 3 Csta Rica Regulatin Terminatin causes The mutual funds may be terminated due t the fllwing causes: By expiratin f the term set frth in the by-laws and prspectus, except fr renvatin By agreement f the investrs assembly in case f clsed-end funds Upn cancellatin f the authrizatin granted by SUGEVAL t the investment cmpany t perate and manage mutual funds, and specifically, such fund 2.3 Managers, trustees, and custdians Managers Only authrized investment management cmpanies (IMCs) can manage mutual funds. The SUGEVAL authrizes the frmatin and peratin f IMCs upn verificatin f cmpliance with the minimum required share capital, crprate purpse, and structure requirements. A Csta Rican cmpany r the branch ffice f a freign cmpany may request authrizatin t perate as an IMC, prvided it cmplies with the statutry requirements established by law, particularly in the Cmmercial Cde, and prving that its exclusive purpse is the management f mutual funds as described herein. The IMCs shall initiate peratins in a term n lnger than 12 mnths as f the cmmunicatin f the respective agreement. Otherwise, the SUGEVAL may cancel such authrizatin. The authrizatin cannt be transferred either directly r indirectly, nr be subject t any lien r encumbrance. Regarding the establishment f fund management agreements between lcal and freign entities, the IMCs are ruled by specific regulatins issued by the SUGEVAL fr such purpses. The IMC shall be cmpensated slely thrugh cmmissins based n the fund s equity and/r its returns. The IMC may als charge cmmissins fr entering r withdrawing frm the fund. These cmmissins must be disclsed in the fund s prspectus. The SUGEVAL is in charge f ruling the methdlgy used fr the calculatin f the cmmissins and expenses in which the funds incur, as well as their applicatin. Neither the LRMV nr the SUGEVAL have specific limits regarding the fees f the IMC r the entities in charge f the custdy f the funds. Any change in management f the IMC must be previusly authrized by the SUGEVAL, and duly cmmunicated t the investrs f each fund, in the dmicile established fr such purpses. In any case, the IMC is allwed t resign as lng as all the requirements and prcedures established fr the designatin f a substitute are cmplied with.

4 4 Csta Rica Regulatin In the afrementined cases, the investrs will have the right t request the reimbursement f their participatins withut deductin f the related cmmissins r expenses. Such a request has t be made within ne mnth as f the date in which the investr was infrmed f the IMC s substitutin r management change. Trustees As stated abve, under Csta Rican law, a mutual fund is deemed a separate and independent estate by statute, in the same fashin as a trust. Lcal laws d nt cntemplate the need fr r require the existence r participatin f a trustee in additin t the investment cmpany. In general, Csta Rican law cntains n limitatins as t wh may act as trustee in a trust. In the case f legal entities, the crprate purpse included in the articles f incrpratin must specifically allw it t act as trustee. As stated abve, investment trusts rganized and perated by authrized banking and financial institutins fall within the regulatins f the SUGEF. In additin, pursuant t article 661 f the Cmmercial Cde f Csta Rica, the trustee shall nt receive any cmmissin, rewards, r ecnmic advantages ther than the fees established in the trust agreement. In the event that such fees are nt stipulated, a judge shall decide based n the criteria f experts appinted fr such purpses. Participatin depsit The mutual funds participatins shall be depsited befre any f the custdians authrized by the SUGEVAL, with the purpse f prtecting the investr s rights. Such custdians have the legal custdy and management f the incme and assets f the funds, in an independent accunt fr each. In the event f IMCs having n custdians fr the purpses abve mentined, the SUGEVAL may impse additinal requirements n the IC, including minimum share capital. In extreme cases, the SUGEVAL can authrize the custdy f the investment funds t be managed by freign custdy entities, accrding t the regulatins issued by it. 2.4 Investment restrictins Mutual funds shall be invested exclusively fr the benefit f the investrs, prviding the necessary equilibrium between security, prfitability, diversificatin, and term cmpatibility, accrding t their purpses and the limits established by law. These funds must invest in securities traded n rganized and authrized primary and secndary markets in Csta Rica. They may als invest in freign

5 5 Csta Rica Regulatin securities prvided that such securities are admitted t trade n an rganized market. In general, mutual funds and IMCs are bund by the investment plicy stated in the fund s prspectus. With the exceptin f nn-financial investment funds, t which special restrictins may be applicable by regulatin, an authrized fund may nt acquire a cntrlling interest in any cmpany. Unfrtunately, the LRMV des nt cntain a statutry definitin f cntrlling interest fr this purpse. Hwever, a cntrlling interest is understd as an interest in a cmpany that gives the investr its cntrl, which in mst cases requires an wnership r cntrl f mre than half the vting shares, r in this case, participatin units. Mutual funds must cmply with minimum diversificatin rules issued by SUGEVAL. In general, these rules state that n mre than 10 percent t 15 percent f the fund s fair market value may be invested in securities issued by ne cmpany r ecnmic grup. Furthermre, the SUGEVAL, by way f administrative regulatin, may establish special liquidity requirements t authrized mutual funds. In additin, mutual funds can participate directly in initial public ffering prcedures, prir apprval t by the SUGEVAL. IMCs are nt allwed: t invest the prfits f the mutual funds they manage in participatins issued by them; t invest their capital in the funds they manage; t grant credit with the fund s mney; t grant the investr, directly r indirectly, by means f any type f cntract, a determined yield; t discriminate the investrs by their revenues; t participate in the capital f ther IMCs; r any ther actin prhibited by the SUGEVAL. Mutual funds may nt cntrl any crpratin nr appint crprate cmptrllers r directrs n any crpratin s bard f directrs, and cannt participate in any management activity in regards t a crpratin in which it has invested. There are n specific investment restrictins applicable t investment trusts. Hwever, general cmmercial regulatins d nt allw the trustee t invest mre than ne third f the trust s fund in a single cmpany r cncern, unless the trust s grantr specifically and expressly authrizes it. 2.5 Brrwing Under Csta Rican law, a clsed-end fund may nt issue debt securities r leverage itself with debt, unless s authrized by the meeting f investrs.

6 6 Csta Rica Regulatin Special limits t authrize a fund s debt financing may be set by the SUGEVAL thrugh administrative regulatin. Ntwithstanding, pen-end funds may seek debt financing t cver temprary liquidity needs f up t 10 percent f its assets. In the case f general liquidity prblems, the SUGEVAL may set this limit at 30 percent. In general, and with the exceptin f specific situatins described abve, an investment fund may nt cllieries, encumber, r lien its assets t btain debt financing. 2.6 Accunts and prspectus As a requirement fr authrizatin, an investment fund must file befre the SUGEVAL a statement f investment plicy. This statement must include the fllwing infrmatin: The fund s name, which must be accmpanied by the phrase investment fund. The fund s purpse. The names and addresses f the investment and custdian cmpanies. The fund s managing regulatins, cntaining at the minimum thse which the SUGEVAL requires, including: the fund s term; the investment plicy; characteristics f the participatin units and f the issuance and reimbursement prcedures, amng thers; fund s general management guidelines; prceeds determinatin and distributin; the requirements fr mdifying the cntract and the regulatins fr managing the fund, and fr the substitutin f the investment cmpany and the custdian cmpany ;and administratin, subscriptin; and reimbursement cmmissins. Additinally, the fund shall file a cpy f a prspectus, which shall include the same infrmatin as the statement f investment plicy and be apprved by the SUGEVAL. Furthermre, IMCs shall be cmpliant t the requirement that establishes that a cpy f the prspectus and f all prir quarterly and annual reprts be sent, at n cst, t all prspective investrs. After subscriptin f participatin units, all f the fund s quarterly and annual reprts must be sent als at n cst t the

7 7 Csta Rica Regulatin investr. By special regulatin, the SUGEVAL determines the specific peridic infrmatin requirements and filings applicable t mutual funds. 2.7 Supervisin Fr mutual funds and investment trusts engaged in public fferings: Superintendencia General de Valres SUGEVAL P.O. Bx San Jsé, Csta Rica Telephne (506) Facsimile (506) crre@sugeval.fi.cr Web site: Fr regulated mutual trusts: Superintendencia General de Entidades Financieras SUGEF P.O. Bx San Jsé, Csta Rica Telephne (506) Facsimile: (506) webeditr@sugef.fi.cr Web site: Fund wnership The minimum number f unithlders in a Csta Rican mutual fund is 50, except real estate develpment funds and funds riented t sphisticated and institutinal investrs with a minimum number f 25.This requirement must be achieved within nine mnths as f the cmmunicatin f public ffering authrizatin, except real estate develpment funds within 18 mnths. If at any time the number r unithlders is reduced t less than 50, the IMC has six mnths t reach again the established minimum level. If nt accmplished, SUGEVAL may cancel the mutual fund; resulting in the cancellatin f the authrizatin t perfrm public ffering. 2.9 Fund structure Csta Rican law authrizes the peratin f mutual funds f funds (mega funds). Umbrella funds, which are ffshre funds cnsisting f a fund f funds that invest in ffshre funds, are nt yet permitted under lcal legislatin. Participatin units must be issued in the name f the wner, (nminative participatin units). Bearer participatin units are nt allwed.

8 8 Csta Rica Regulatin 2.10 Stck exchange registratin Clsed-end mutual funds are required by law t register fr trading n an rganized lcal exchange. Open-end investment funds cannt be listed since its participatin units are nly subject t redemptin by the fund. Open-end investment funds participatin units are nt cnsidered securities. Participatin units f freign funds, as fr any ther freign securities, may be registered fr trading at a lcal exchange, prvided they are authrized by the SUGEVAL Bank secrecy The Law n Narctics, Psych trpics, and Unauthrized Drugs prhibits and punishes mney laundering and related activities. Natinal banks have the bligatin t prevent such activities, and if the SUGEF suspects abut mney laundering related activities, it must immediately prvide ntice abut this t the judiciary authrities. Additinally, Csta Rica has adpted several internatinal treaties abut the subject such as: the agreement between Central America and Dminican Republic fr the preventin and reprehensin f mney laundering and ther assets regarding the illegal drug traffic and related crimes, and the United Natins agreement against drug illegal traffic and narctics Fund set-up If all requirements are met upn filing the request fr authrizatin, the estimated term fr this t be granted scillates arund three mnths, prvided several cmpliance cnditins are previusly met (that is, publicatins). The mutual fund must initiate peratins n later than nine mnths after the cmpliance cnditins mentined abve are cmpleted. Otherwise, the authrizatin will be cancelled. Csts related t the implementatin f the fund are cmprised f legal fees invlved in the preparatin f required legal dcumentatin such as affidavits, legal certificatins, and thers. Hwever, n specific fee shall be paid t the SUGEVAL in rder t file such request Freign funds The General Regulatin f Investment Cmpanies and Mutual Funds, issued n 8 May 2006, establishes the requirements n the marketing f mutual funds,

9 9 Csta Rica Regulatin rganized and managed under the laws f a territry utside the Csta Rican jurisdictin. Such regulatins establish that, nly the mutual funds that have been previusly authrized by the SUGEVAL, can be ffered in the Csta Rican market. The authrizatin may nly be requested by the entities that are allwed t perfrm the marketing f the mutual fund, which may be: the investment cmpany thrugh a branch ffice established in Csta Rica, r the Csta Rican lcal investment cmpanies r brkerage firms that are previusly authrized by the freign fund investment cmpany t market the mutual fund lcally. Lcal securities law regulates the public ffering f securities r participatin units within the territry f Csta Rica. A public ffering is defined by statute as any ffer, implied r explicit, with the purpse f issuing, allcating, negtiating, r trading securities, transferred by any f the authrized means t the public r a specific grup. If a freign fund desires t market its participating units in a public and widespread fashin, a request and filing fr authrizatin must be made t the SUGEVAL. The new regulatin establishes very specific requirements that must be cmplied, in rder t btain the authrizatin t ffer participatin units f freign mutual funds within the Csta Rican territry. Once the request has been filed and all the requirements have been cmplied, the SUGEVAL must grant the authrizatin accrding t the related rules f the General Public Administratin Act. The entity authrized t market the freign fund must cmply with the reprting duties and ther bligatins with the SUGEVAL, which are set frth by the General Regulatin f Investment Management Cmpanies and Mutual Funds. The SUGEVAL shall infrm the crrespnding supervisry authrities f the cuntry where the mutual fund is registered, f any vilatin f the legal dispsitins regulating the funds. In these cases, the Natinal Financial System Oversight Cuncil (CONASSIF), may suspend the public ffer f the fund s participatin units and cancel the marketing authrizatin.

10 10 Csta Rica Regulatin 2.14 Bearer shares Bearer shares are securities which are nt issued under the name f a determined persn, and are transferred by simple delivery. These shares are negtiable instruments with n recrd f wnership. Therefre, title is held by anyne wh pssesses the security and hlds it in gd faith. Under Csta Rican legislatin, crpratins cannt issue bearer shares Use f the internet The use f the internet t market investment funds in Csta Rica is deemed as a public ffering, and as such, is subject t regulatin and authrizatin by the SUGEVAL, since the internet is cnsidered a massive cmmunicatin media. KPMG in Csta Rica Sergi García Mejía KPMG Abgads S.A. Edifici KPMG,Blvd. Multiplaza San Jsé Csta Rica Tel Fax sgarcia1@kpmg.cm The infrmatin cntained herein is f a general nature and is nt intended t address the circumstances f any particular individual r entity. Althugh we endeavr t prvide accurate and timely infrmatin, there can be n guarantee that such infrmatin is accurate as f the date it is received r that it will cntinue t be accurate in the future. N ne shuld act upn such infrmatin withut apprpriate prfessinal advice after a thrugh examinatin f the particular situatin.