Chairman of the ten-year old firm Stephen Hancock, in explaining the reasons for its closure said that the “Board of Directors, at a specially convened meeting, had concluded that the “economic outlook for fund administration both internally and as a jurisdiction created insufficient comfort to warrant the continuation of the business.”
The company will close its doors on December 31st 2004 putting approximately 50 employees out of work. The controlling shareholders are Stephen Hancock and Maria Castrechini, according to a source with some knowledge of the company.
The company’s reason for its closure, the “economic outlook for fund administration” in the jurisdiction has prompted response from the Securities Commission of The Bahamas, which issued a terse press release.
The Commission’s release apparently taking issue with “recent information provided to the media over the past few days by Cardinal International Fund Services Ltd (Cardinal), a licensee of the Securities Commission of The Bahamas (Commission), regarding an inspection being conducted by the Commission, the Commission confirms that it is currently conducting an inspection for cause.”
The Commission release added the following tantalizing and enigmatic sentence. “When the inspection will be completed is dependant on the level of cooperation that the Commission receives from Cardinal” suggesting that perhaps Cardinal is being less than forthcoming.
The Commission’s Acting Executive Director Hillary Deveaux told the Business Journal that the term “inspection for cause” refers to inspections conducted by the Commission when the regulator has reason to believe that conditions exist that warrant just such an inspection.
“Inspection for cause is not an normal inspection,” he explained. “We do these kinds of inspections when we we feel we have reason for going in because of a critical situation.”
Mr. Deveaux said that he could not comment on the “critical situation” that prompted the “inspection for cause” but he indicated that it was possible that an incomplete picture may have been created based on the information allegedly released by Cardinal to the media.
Attempts to contact Cardinal directors Thomas Hartley and Diane Pindling proved fruitless and Mr. Hancock was in a meeting. Ms. Castrechini was away from the office.
The Journal has learned from a source wishing to remain anonymous that aback of Cardinal’s “economic outlook statement” was a level of frustration with the regulatory regime in place for mutual funds and the seeming lack of official promotion for the fund industry.
The Bahamas Financial Services Board (BFSB) industry lobbying body, issued a statement in which it attempts to address both the regulatory and promotional issues.
According to the BFSB, the fund industry would have preferred the “registration route” “adopted by some jurisdictions” but that The Bahamas’ “model for licensing is due to the membership of the Securities Commission of The Bahamas (SCB) in the International Organization of Securities Commissions (IOSCO)”.
The suggestion is that the industry’s preferred “registration route” for licencing funds, was sacrificed for The Bahamas model”. And the reason given for the sacrifice is that the industry “recognized and agreed that IOSCO membership is in [the] best long term interest of [the] funds industry in The Bahamas since it reinforces the legitimacy of the jurisdiction as one which is properly regulated within established and recognized international standards.”
Toward the end of its release the BFSB notes that “at the moment, Standard (Retail) Funds do not enjoy the same fast track approval process. However industry is now studying mechanisms that could improve the licensing timeframes for these types of funds and is confident, based on the constructive and open dialogue with SCB that has helped lead to other recent improvements and advancements in the jurisdiction�s funds environment, that we will continue to see appropriate and market sensitive approval process enhancements.”
Unfortunately, for Cardinal, the Standard (Retail) Funds are what it does; and as Dr. Gilbert Morris observed, when you “sign up to these international standards”, which because they are not indigenous, make it impossible for regulators to respond to issues peculiar to your jurisdiction.”
Eventually, a fund manager cannot keep going back to a client with excuses about regulatory delays. Whatever Cardinal’s problems may have been, it should not have been in a position to allegedly suggest that compliance with the regulatory regime was inimical to its economic viability.
C.E. Huggins, The Bahama Journal
