In its latest move to strengthen the framework for collective investment schemes (CIS), the Financial Services Commission (FSC) is implementing new changes by the end of 2024 which will limit any investor from owning more than 20 per cent interest in any fund or portfolio.

The FSC had put out a consultation paper in August and solicited feedback from securities dealers on the new guidelines that it had intended to bring into force by December 1. Following that consultation period, the FSC published the final guidelines on November 24 which now include a transitional period for unitholders to reduce their interest. This includes a 50 per cent cap by March 2024, a 30 per cent cap by June 2024 and a 20 per cent cap by December 2024. Investment managers will also need to file the holdings of the top 10 unitholders on a quarterly basis.

“The FSC notes that investments concentrated by one investor may present a liquidity risk or jeopardise the continuation of the fund should larger investors opt to leave the fund. As such, the FSC now requires that the investments of an individual investor, inclusive of investment managers, should not form more than 20 per cent in any fund or portfolio. Individual investor in this regard, refers to any individual or body corporate whether having singular or multiple accounts in whose name this/these accounts are held,” said the new FSC guidelines document.

The FSC should also be provided with an execution plan by the end of this month for the reduction of units by unitholders in excess of 20 per cent interest.

These limits will not apply to listed close ended funds and seeding/raising capital for a fund which will only be limited to two years, unless approved by the FSC.

CIS are investment vehicles whereby members of the public can purchase shares or units in the fund which will then purchase assets based on the mandate of that fund. CIS effectively enable an investor to get exposure to an asset class they might not have ready access to based on minimum capital requirements. These CIS’ are managed by a fund manager whose team of professional members manages the investments of the fund’s mandate. An independent trustee protects the interests of the unitholder by ensuring that the investment goals and objectives of the fund are carried out as prescribed by the fund manager. A custodian or registrar may also be involved in the process.

Investment managers will also be required to have a conflict-of-interest policy and ensure that they appropriately manage conflicts of interest between themselves and investors in the fund. The valuation of assets in the fund should also be independently valued which will be governed by documented policies and procedures.

Investments managers should have policies in place to address the risk and liquidity management of the fund which also includes stress testing as well. These policies should also be ratified by the board of directors.

The last publicly available data on CIS by the FSC is from March 2023 which noted that the valuation of assets stood at $345 billion. Most of these assets were held in fixed income securities which were valued at $201.4 billion.

Most unit trust funds, which are CIS, are up year to date with the funds largely composed of equities being down. This reflects the reduced value of securities on the Jamaica Stock Exchange where about three-fifths of securities are down year to date.