Monday, June 24, 2024

Requirements for a fund manager or investment advisor license and requirements for operating a unit trust scheme in uganda

 

 

4.0.     For a fund manager or investment advisor, can you be a foreign company with a representative office or you have to be incorporated in Uganda locally?

 

4.1.       Section 1 of the Capital Markets Authority, Cap 84 defines a fund manager or investment advisor to be body corporates. Therefore, they can be either a foreign company with a representative office or they can be incorporated as a local private limited company.

 

5.0.       What are the requirements and costs for applying for a fund manager licence as compared to an investment advisor license?

 

A.   Director’s and Key Personnel fit and proper form.

 

5.1.       Section 30(1) of the Capital Markets Authority Act, Cap 84 provides that a person shall not act as an investment advisor or fund manager unless that person is approved under the Act to act as an investment advisor or fund manager.

 

5.2.       The Third Schedule of the Capital Markets Authority Act, Cap 84 provides for the criteria for determining fitness and properness and it applies to all approved persons, particularly their employees or directors.

5.3.       In determining whether a person is fit and proper to act as an investment advisor/fund manager, regard shall be had to the following;

 

(a)  his or her general probity;

 

(b)  his or her competence and soundness of judgement for the fulfillment of the responsibilities of the office in question;

 

(c)  whether the interest of investors or potential investors are likely to be threatened by his or her holding that position;

 

(d)  the previous conduct and activities of the person concerned in business or financial matters;

 

(e)  the outcome of any investigation of the person in any country by a government agency, professional association or other regulatory body;

5.4.       Any of the following factors constitutes prima facie evidence that the person does not qualify as fit and proper—

(a)  a person who has been found guilty in any criminal proceedings or liable in

any civil proceedings by a court of law, whether in Uganda or elsewhere, of having acted fraudulently, dishonestly, unprofessionally, dishonorably or in breach of duty;

 

(b)  a person who has been dismissed from practice by a professional body on

of dishonesty, negligence, incompetence, or mismanagement sufficiently serious to impugn the honesty and integrity of the licensed person;

 

(c) a person who has been declared bankrupt;

(d)  a person who has taken part in any business practice that, in the opinion of the Authority, was deceitful or oppressive, fraudulent, prejudicial or otherwise improper whether unlawful or not or which otherwise reflects discredit on his or her method of conducting business; and

 

(e)  a person who has been dismissed from membership of a board of directors of a company conducting financial services or removed from holding public office.

5.5.       Therefore, for a body corporate to act as a fund manager or investment adviser, its directors, or employees must meet the fit and proper criteria provided for under the Third Schedule.

 

5.6.       Section 35(3) of the Act provides that the Authority shall refuse an application for the grant of approval if the authority has reason to believe that Applicant is not of good reputation or character or is not a fit and proper person.

 

B.   Licensing requirements to act as fund manager or investment adviser.

 

5.7.       The Capital Markets Authority Act Cap 84 as amended defines a fund manager to mean a body corporate approved by the Authority which, under a contract or arrangement with a client, undertakes on behalf of a client whether on a discretionary authority granted by the Client or otherwise, the management of a portfolio of securities for the purpose of investment or management of the assets of a collective investment scheme, or management of the portfolio of a registered venture capital fund.

 

5.8.       On the other hand, an investment advisor is defined under the Capital Markets Authority Act Cap 84 as amended to mean a body corporate that carries on business of advising other persons on securities.

 

5.9.       The licensing requirements to act as a fund manager or investment adviser are the same with the exception of the following which only apply to fund managers;

 

(i) Capital requirements.

 

(ii) letter of consent from the bank to act as a custodian

 

5.10.     The following are the licensing requirements for both fund manager or investment adviser license;

 

 

(a)   The Application for a fund manager or an investment advisor licence is made in form 1 as provided in the second schedule of the Capital Markets (Licensing) Regulations SI 84 – 1 as amended. A copy of Form 1 is attached to this legal opinion and includes the detailed requirements for a fund manager license and an investment advisor license. You have to clearly elaborate whether you are applying for a fund manager or investment license.

 

(b)   Cover letter to the CEO Capital Markets Authority (CMA).

 

 

(c)   Certified copy of MEMARTS.

 

(d)   Organisation structure.

 

 

(e)   Reporting lines, outsourced functions and position occupants.

 

(f)    CVs of board of directors, senior management, key personnel.

 

(g)   Capital requirements (only applicable to fund managers). Shareholder funds should not be less than UGX 150,000,000/=, Working capital of UGX 160,000,000/=, paid up share capital minimum of UGX 375,000,000/=.

 

(h)   A full set of audited financials, audited by a firm. If it is a new company, they would have to make a full projection of financials.

 

(i)    Bank statement to verify that the Company has funds.

 

(j)    If it is a licensed entity in another country, they should have a letter of no objection from their preliminary regulator.

 

(k)   Business plan.

 

(l)    Review the internal controls.

 

(m) Contact details of 3 independent referees.

 

(n)   Application fees of UGX 750,000 for both.

 

(o)   Evidence of TIN, Tax Clearance Certificate.

 

(p)   Certificate of good conduct for all directors, management and key personnel i.e., people involved in core management (risk, operations, marketing, compliance)

 

(q)   Fit and proper form, if foreign they should have notarized fit and proper form.

 

(r)    Foreign directors coming to work in Uganda have to have work permits.

 

(s)   Fund manager has to get a letter of consent from a bank that has agreed to act as a custodian. At the moment we have four banks that are allowed by CMA to act as custodians which are Stanbic, Standard Chartered Bank, KCB and Housing Finance. (only applicable to fund managers).

 

(t)    Certified form 20 or 24.

 

(u)   Beneficial Ownership form 1.

 

(v)   Form 18 or form 26.

 

(w)  Business premises inspection

 

 

5.11.     The Capital Markets Authority (Licensing) (Amendment) Regulations, 2016 under the Third schedule provide for a non-refundable application fee for a fund manager license or an investment advisor licence which is equivalent to approximately US 200 (United States Dollas Two Hundred) and it provides for a fund manager or an investment advisor licence fee which is equivalent to approximately USD 850- USD 1,000 depending on the approved activities in the license.

 

 

5.12.     The application for an investment advisor license is considered by the Board of CMA which meets quarterly, therefore depending on the time of submission, the application can take anywhere from 1-3 months to be approved.

 

5.13.     The above is a summary of the requirements to obtain an investment advisor/fund manager license in Uganda. However, if The Company intends to operate a unit trust scheme, then the company would in addition to the investment advisor license, must acquire a unit trust manager license and obtain approval for its unit trust scheme.

 

6.0.       What is the difference in the reporting requirements for fund manager and investment advisor?

 

6.1.       Fund managers have more stringent reporting requirements than investment advisors. Regulation 6 of the Capital Markets (fund managers) regulations, 2004 provides that fund managers have quarterly, half yearly and annual reporting requirements in terms of their financials as a manager and the portfolio that they have as a manager.

 

6.2.       Fund managers are required to give a net capital report which looks at compliance of the fund manager with the Capital Markets Authority Act for example share holder funds, working capital requirements etc.

 

6.3.       In addition to that, fund managers are required to submit audited financials statements, balance sheet, accounting records every year which should be submitted with the management letter. A signed copy should be received by 30th March every year. These have to be prepared and audited in accordance with international financial reporting standards.

 

 

6.4.       On the other hand, investment advisors are only required to submit audited financials every year since they do not have capital requirements for now. In addition to that, they are required to report to Capital Markets Authority in respect to any material changes like changes in shareholding which is also applicable to fund managers.

 

7.0.       What are the restrictions on what fund managers are allowed to do compared to investment advisors?

 

7.1.       The Capital Markets Authority Act Cap 84 as amended defines a fund manager to mean a body corporate approved by the Authority which, under a contract or arrangement with a client, undertakes on behalf of a client whether on a discretionary authority granted by the Client or otherwise, the management of a portfolio of securities for the purpose of investment or management of the

assets of a collective investment scheme, or management of the portfolio of a

registered venture capital fund.

 

7.2.       On the other hand, an investment advisor is defined under the Capital Markets Authority Act Cap 84 as amended to mean a body corporate that carries on

business of advising other persons on securities.

 

7.3.       Although the Capital Markets Authority Act Cap 84 as amended defines a fund manager and an investment adviser distinctively, a fund manager is allowed to give investment advice.

 

7.4.       Regulation 3 of the Capital Markets (Fund Managers) Regulations, 2004 defines a fund manager to mean an investment adviser licensed under the Act that is permitted by the Authority, as part of its business under contract or arrangement with a client to undertake on behalf of the client, whether on discretionary authority granted by the client or otherwise, the management of a portfolio of securities.

 

7.5.       In addition to that, Section 30(2)(b) of the Markets Authority Act, Cap 84 provides that a licensed fund manager may provide investment advice in the course of and incidental to the conduct of the business of fund management.

 

7.6.       This therefore means that a fund manager can give investment advice in the course of and incidental to the conduct of the business of fund management. The only restrictions are the terms and conditions stipulated by CMA on which the fund manager can provide investment advice. These terms and conditions are stipulated when renewing or granting a fund manager license as provided under section 30(3) of the Capital Markets Authority Act, Cap 84.

 

 

8.0.       How can a fund manager be allowed to distribute foreign securities in Uganda and what would be the requirements?

 

8.1.       A fund manager can be allowed to distribute foreign products or securities in Uganda by applying to have the foreign scheme that is offering those securities to be recognized in Uganda as stipulated under section 25 of the Collective Investment Scheme Act, 2003.

 

8.2.       Where the collective investment scheme is being managed in a country designated by an order of CMA as provided under section 24 of the Collective Investment Scheme Act, 2003, the operator (unit trust manager) shall give written notice that he or she wishes it to be recognised in Uganda.

 

8.3.       The following are the requirements to be satisfied in order for a fund manager to be allowed to distribute foreign securities;

 

(a)  Written Notice from the Operator (this shall contain the address of a place in Uganda for the service on the operator of notices or other documents required or authorized to be served on the operator).

 

(b)  An application for a recognized scheme.

 

(c)  Certificate of Incorporation for the Operator.

 

(d)  Fit and Proper Assessment for the operator and depository or trustee.

 

(e)  Details of a representative in Uganda and a letter delegating power to the representative to act generally for the operator and to accept service of notices and other documents on his or her behalf.

 

(f)   Prospectus and or scheme particulars for the schemes for which recognition is being sought.

 

(g)  Non-refundable fee for giving written notice of intention to be recognized scheme (UGX 500,000).

 

(h) Non-refundable application fee to be a recognized scheme (UGX 500,000.

 

(i)   Annual fees UGX 1,500,000

 

9.0.       Can The Company operate a unit trust scheme with only a fund manager license?

 

9.1.       We confirm that a fund manager license is not sufficient for The Company to operate a unit trust scheme in Uganda. Below is a summary of the requirements for a unit trust scheme;  

 

9.2.       Section 17 of the Collective Investment Schemes (“CIS”) provides that in case of a unit trust scheme, there must be an operator (manager) and a trustee each of whom are a body corporate incorporated in and with its registered office in Uganda, and each of them should be licensed.

 

9.3.       Regulation 4 of the Collective Investment Schemes (Licensing) Regulations, 2003 provides than an application for a unit trust scheme license shall be made to Capital Markets Authority by the promoter of a collective investment scheme in form 1 set out in the first schedule and shall be in triplicate.

 

9.4.       The documents to accompany the application in case of a unit trust scheme are as follows;

 

(xi)        the Trust Deed, which shall comply with the requirements under Part III of Schedule 1 to the Act (relating to the trust deed) and Part II of the Collective Investment Schemes (Unit Trust) Regulations, 2003;

 

(xii)       scheme rules;

 

(xiii)      the scheme particulars, which shall contain the matters specified in Part lV of Schedule 1 to the Act (relating to the scheme particulars), and Part 3 of the Collective Investments Schemes (Unit Trust) Regulations, 2003;

 

(xiv)      a statement of the corporate name and registered office of the manager (operator);

 

(xv)       a statement of the corporate name and registered or principal office of the trustee;

 

(xvi)      letter of consent to act as a trustee (must be licensed bank or insurance company in Uganda);

 

(xvii)     letter of consent to act as a manager;

 

(xviii)   a statement specifying any other activities, other than in relation to the scheme, in which the manager or trustee is or proposes to be engaged; and

 

(xix)      the prescribed fees (see 5.6 below);

 

9.5.       In respect of a unit trust manager—

 

(i)           Memorandum and Articles of Association;

 

(ii)          a statement of the corporate name, registered office and principal place of business;

 

(iii)         a statement of the particulars of the directors of the company;

 

(iv)        the address of a place in Uganda for the service on the applicant of any notice or other document required or authorised to be served on him or her under the Act and these Regulations;

 

(v)          evidence of minimum net capital of Uganda shillings two hundred million;

 

(vi)        certified audited financial statements and auditor’s report for the preceding three years, where applicable;

 

(vii)       a detailed statement of the applicant's assets and liabilities;

 

(viii)      letter of consent to act and details of its auditor; and

 

(ix)        the prescribed fees (see 5.6 below);

 

9.6.       The prescribed fees for application for a unit Trust Scheme are as follows;

 

(a)  a non-refundable license application fee of approximately USD 135 (United States Dollars One Hundred Thirty-Five).

 

(b)  a licence approval fee for a unit trust scheme of approximately USD 675 (United States Dollars Six Hundred Seventy-Five).

 

9.7.       In addition, the I&M directors must all meet the fit and proper test as stipulated in schedule 6 of the Collective Investment Schemes Act, 2023. The requirements for this test are like those provided under 4.0. of this opinion.

 

10.CONCLUSION

 

10.1.     For The Company to act as a fund manager or investment advisor in Uganda, the company would have to apply for a fund manager license under the Capital Markets Authority framework described in 4.0 hereof.


10.2.     However, if The Company is also interested in offering unit trust products in Uganda as previously indicated, the company would additionally have to be licensed under the CIS framework to act as a manager of a unit trust scheme and appoint a bank to act as trustee for the scheme. The unit trust scheme would also have to be approved by the Capital Markets Authority.

 

10.3.     In order for The Company to distribute foreign unit trust scheme products, it would have to apply that the foreign scheme whose products it is distributing in Uganda be a recognised scheme in Uganda.

 

10.4.     In respect of other foreign products which are not unit trust scheme products that The Company wants to distribute; The Company would be required to get a letter of no objection from Capital Markets Authority to distribute those foreign products in Uganda.

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