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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