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IMF Country Report No. 22/353

EASTERN CARIBBEAN CURRENCY UNION

TECHNICAL ASSISTANCE REPORT - REVIEW OF REGULATIONS TO NEW SECURITIES ACT AND INVESTMENT FUNDS ACT

December 2022

This Technical Assistance Report on ECCU was prepared by a staff team of the International Monetary Fund. It is based on the information available at the time it was completed on September 2022.

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TECHNICAL ASSISTANCE REPORT

EASTERN CARIBBEAN CURRENCY UNION

Review of Regulations to New Securities Act and Investment Funds Act

September 2022

Prepared By

Tanis MacLaren, MCM Expert

Authoring Departments:

Monetary and Capital Markets Department

DM5 Reference: 7263728

Mission ID(s): 23MMU18

Project ID(s): MCM_WHD_2021_01

DISCLAIMER

The contents of this report constitute technical advice provided by the staff of the International Monetary Fund (IMF) to the authorities of Eastern Caribbean Securities Regulatory Commission (the “TA recipient”) in response to their request for technical assistance. This report (in whole or in part) or summaries thereof may be disclosed by the IMF to IMF Executive Directors and members of their staff, as well as to other agencies or instrumentalities of the TA recipient, and upon their request, to World Bank staff, and other technical assistance providers and donors with legitimate interest, unless the TA recipient specifically objects to such disclosure (see Operational Guidelines for the Dissemination of Technical Assistance Information). Publication or Disclosure of this report (in whole or in part) or summaries thereof to parties outside the IMF other than agencies or instrumentalities of the TA recipient, World Bank staff, other technical assistance providers and donors with legitimate interest, shall require the explicit consent of the TA recipient and the IMF's MCM Department.

Contents

• Glossary

• Preface

• Executive Summary

• I. Introduction and Background

• II. Overall Assessment

• III. Gaps

  • A. Material Change Reporting

  • B. Capital Requirements

  • C. Regulation of Marketplaces, Ancillary Facilities etc

  • D. Conduct of Business Rules

  • E. Transition Provisions

• IV. Not Strictly Required but Should be Considered

  • A. Recognized Foreign Jurisdictions/Recognized Countries

  • B. Conduct of Business Rules—Know the Product

  • C. Disciplinary Proceedings

• V. Other Areas Where Rules/Guidance May Be Needed In Future

  • A. Performance Reporting

• VI. Final Remarks

• Table

• 1. Key Recommendations

• Appendices

Glossary

Preface

At the request of the Eastern Caribbean Securities Regulatory Commission (ECSRC), a Monetary and Capital Markets (MCM) Department mission conducted a review of a draft version of the new Investment Funds Regulations (IFR) and Securities Regulations (SR) form May 20–June 30, 2022. The two sets of regulations are a key part of the new regime to govern the capital markets in the member territories of the Eastern Caribbean Currency Union (ECCU).

The review was conducted by Ms. Tanis MacLaren, MCM short-term expert, who met virtually with Ms. Alousia Faisal, Chief Executive Officer of the Commission, and Ms. Suzy St. Brice, Legal Officer. The mission wishes to thank them for their cooperation and productive discussions, and in particular to their remarkable responsiveness to questions.

Executive Summary

A new legislative framework is being implemented in the ECCU and the draft Regulations reviewed in this report are the final pieces of that framework. The new framework is to govern all aspects of the securities markets in the eight member territories of the ECCU. It consists of a new Securities Act (SA) and a separate Investment Funds Act (IFA) that would replace the old Securities Act, 2001 (Old Securities Act), and all other securities legislation in the member territories of ECCU.

In 2020, the Investment Funds Bill and Securities Bill proposed by the ECSRC were approved for enactment in the ECCU member countries by the Monetary Council. To date, the new Securities Bill has been enacted in five of the eight ECCU member countries while the Investment Funds Bill has been enacted in four of the member countries.¹ The ECSRC expects that the new legislations will be passed in the remaining countries during 2022. The general regulations under each Act (reviewed here) operationalize the new regime.

The draft regulations provided for review largely comply with the requirements of their respective Acts and would meet most of International Organization of Securities Commissions' (IOSCO) expectations for the necessary legal framework as set out in the Principles in the areas addressed. There were a few gaps that are noted below, such as gaps in the licensing requirements for investment fund service providers, reporting requirements for investment funds, and regulation of clearing facilities. Most of these were filled in consultation with the Commission during the review process and the changes are included in the revised drafts attached in the Appendices. The remaining gaps, such as a modern capital formula or the ability to waive delivery of client account statements, have been discussed with the ECSRC. There is a project ongoing to develop a new capital formula. Subject to those comments, it should be noted that while the overall legal regime does not specifically address all the topics addressed in the IOSCO Principles, it appears to be sufficient, given the level of development of the market in the ECCU. The legal framework has flexibility built in to deal with growth.

The principal challenge in the review was ensuring the investment funds and securities regimes worked together. Because the subject matters of the two Acts overlap, and some issuers and intermediaries potentially may get caught under both regimes, it was important to minimize the potential for duplicate requirements or conflict. However, this did entail some repetition across the two regimes to ensure equivalent requirements applied.

The output of the review is not publication ready yet. There are comments in the draft and this report that the Commission should consider. The forms need to be finished and transition provisions developed for the IFR. Further, although not strictly required, both sets of regulations would benefit from some simplifications and streamlining.

^{Table 1.}

Key Recommendations

^{Table 1.}

Key Recommendations

Recommendations and Authority Responsible for Implementation	Priority2	Timeframe3
The forms (and related requirements) in the SR and IFR must be completed and should be streamlined before they are published as part of the new regime (Commission).	H	ST
Transition provisions need to be added to the IFR to cover funds and service providers that were previously under the jurisdiction of a regulator in one of the ECCU member countries and now are to be governed by the Commission (Commission).	H	ST
The permission to waive delivery of account statements in the SR should be deleted. (Commission).	M	ST
Develop and include a common set of criteria for approval of foreign entrants under the IFR and SR (Commission).	M	ST
Disciplinary Committee Procedures
Consideration should be given to consulting with local counsel on the proposed Disciplinary Committee procedures (Commission).	M	ST
Consider adding: discretionary authority regarding matters to be investigated; specific provisions on how notice is to be given; and extend some minimum notice periods to allow for more effective information exchanges.	M	ST
Capital Requirements
Develop a suitable IOSCO-compliance set of capital requirements (Commission).	H	MT
Consideration should be given to approaching other regional regulators regarding joint work on capital requirements (Commission).	M	ST
Legislative Amendments
Consideration should be given to amending the SA to expressly require announcements of material changes to be given immediately (Commission; Monetary Council).	M	MT
The IFA should be amended to eliminate the requirement in s. 28(1)(e) for the investment fund manager to have its principal and registered office in the ECCU.	H	ST

View Table

^{Table 1.}

Key Recommendations

Recommendations and Authority Responsible for Implementation	Priority2	Timeframe3
The forms (and related requirements) in the SR and IFR must be completed and should be streamlined before they are published as part of the new regime (Commission).	H	ST
Transition provisions need to be added to the IFR to cover funds and service providers that were previously under the jurisdiction of a regulator in one of the ECCU member countries and now are to be governed by the Commission (Commission).	H	ST
The permission to waive delivery of account statements in the SR should be deleted. (Commission).	M	ST
Develop and include a common set of criteria for approval of foreign entrants under the IFR and SR (Commission).	M	ST
Disciplinary Committee Procedures
Consideration should be given to consulting with local counsel on the proposed Disciplinary Committee procedures (Commission).	M	ST
Consider adding: discretionary authority regarding matters to be investigated; specific provisions on how notice is to be given; and extend some minimum notice periods to allow for more effective information exchanges.	M	ST
Capital Requirements
Develop a suitable IOSCO-compliance set of capital requirements (Commission).	H	MT
Consideration should be given to approaching other regional regulators regarding joint work on capital requirements (Commission).	M	ST
Legislative Amendments
Consideration should be given to amending the SA to expressly require announcements of material changes to be given immediately (Commission; Monetary Council).	M	MT
The IFA should be amended to eliminate the requirement in s. 28(1)(e) for the investment fund manager to have its principal and registered office in the ECCU.	H	ST