Norm on Investment Fund Management Companies and Investment Funds

Resolution No. CD-SIBOIF-847-1-AGOST8-2014
Dated August 8, 2014
NORM ON INVESTMENT FUND MANAGEMENT COMPANIES AND INVESTMENT FUNDS The Board of Directors of the Superintendence of Banks and Other Financial Institutions.

CONSIDERING
I
That in accordance with Article 6, letter a), and Articles 70 and 71 of Law No. 587, Capital Markets Law, published in La Gaceta, Official Gazette No. 222, of November 15, 2006, it is the responsibility of the Superintendence of Banks and Other Financial Institutions to issue the regulatory framework for Investment Funds and the Management Companies of these Funds, in accordance with the procedures and requirements established in said Law and in this regulation. II That in accordance with Article 6, letter b), and Article 208, of the Capital Markets Law, it is the authority of the Board of Directors of the Superintendence to issue general norms aimed at regulating the functioning of the securities market. III That in sessions 844, 845, and 846, dated July 23, July 30, and August 6 of the current year, the draft Norm on Management Companies and Investment Funds was discussed, in which the aforementioned draft was partially approved, and having concluded the discussion of today, in exercise of its powers,

HAS ISSUED
The following,
Resolution No. CD-SIBOIF-847-1-AGOST8-2014
NORM ON INVESTMENT FUND MANAGEMENT COMPANIES AND INVESTMENT FUNDS

TITLE I
GENERAL PROVISIONS
SINGLE CHAPTER
CONCEPTS, OBJECT, AND SCOPE
Article 1. Concepts.- For the purposes of this regulation, the terms indicated in this article, both in uppercase and lowercase, singular or plural, shall have the following meanings:
a) 5% Shareholder: Natural or legal person who, either individually or jointly with their related parties, holds a percentage equal to or greater than 5% of the company's capital. b) Shareholding Control: Shall be understood as the possession or control, by direct or indirect means, by a natural or legal person, of more than 50% of the shares and/or voting rights or their equivalent in any company. c) Administrative Control: Shall be understood as referring to the natural or legal person who exercises legal representation or the position of President of the Board of Directors, Executive Director, or General Manager, or their equivalents, in a company. d) Group of Economic Interest: Related parties, significant linkages, and indirect manifestations of the natural or legal persons indicated in the scope of this regulation, as referred to in Article 55 of Law 561, General Law of Banks, Non-Banking Financial Institutions, and Financial Groups, and the regulations governing the matter on concentration limits. e) Derivative Instruments: Refers to financial instruments whose value is based on the prices of another underlying asset or on reference indices. f) Capital Markets Law: Law No. 587, Capital Markets Law, published in La Gaceta, Official Gazette, No. 222 of November 15, 2006.

g) Structured Products: Refers to instruments whose yield is linked to the behavior of an underlying security or to an index to which they are referenced. h) Management Company: Investment Fund Management Company. i) Superintendence: Superintendence of Banks and Other Financial Institutions. j) Superintendent: Superintendent of Banks and Other Financial Institutions.

Article 2. Object.- This regulation aims to establish the requirements for the constitution and functioning of investment fund management companies; as well as, the procedure and process for the authorization of public offering of investment funds.

Scope 3. Scope.- The provisions of this regulation are applicable to investment fund management companies, intermediaries, and other participants in the placement of investment fund shares subject to public offering.

TITLE II
INVESTMENT FUND MANAGEMENT COMPANIES
CHAPTER I
CONSTITUTION AND FUNCTIONING REQUIREMENTS

Article 4. Constitution Requirements.- Those interested in constituting an investment fund management company must submit a formal request to the Superintendent, accompanied by the following documents:
a) The draft deed of incorporation and its bylaws. b) Possess a minimum share capital of one million six hundred thousand córdobas (C$1,600,000.00) as established in Article 75, letter a), of the Capital Markets Law. In the case of the administration of real estate investment funds or real estate development investment funds, a minimum share capital of four million córdobas (C$4,000,000.00) must be possessed. c) The economic-financial feasibility study, which must include, among other aspects, considerations on the market, the characteristics of the institution, the projected activity, and the conditions under which it will operate according to various contingency scenarios. d) Information regarding its shareholders.

1. For natural persons:
   i. Name, age, occupation, nationality, and domicile.
   ii. Curriculum vitae documented with the information required in Annex 1, which becomes an integral part of this regulation.
   iii. Photocopy of the identity card on both sides for nationals, or of the residence card for resident foreigners or of the passport in the case of non-resident foreigners, notarized according to the law on the matter.
   iv. Number of the Single Taxpayer Registry (RUC). In the case of non-domiciled foreigners, they must present the equivalent used in the country where they pay taxes.
   v. Certificate of judicial and/or police records issued by the corresponding national instances in the case of persons domiciled in Nicaragua, and by the competent foreign body, with the corresponding authentication, when it concerns persons not domiciled in Nicaragua or natural persons residing in Nicaragua who have been residents abroad in the last 15 years.
   vi. Notarial declaration by each of the proposed directors stating that they are not subject to the impediments established in Article 9 of this regulation.

2. For legal persons:
   i. Notarially certified copy of the testimonial of the public deed of incorporation of the company, bylaws, and their modifications, if any. In the case of foreign legal persons, the equivalent documents.
   ii. Names of the members of the board of directors, as well as the curriculum vitae of each of its members, which shall be presented in accordance with Annex 1 of this regulation.
   iii. Certificate of judicial and/or police records of the legal representative and members of the board of directors of the company, issued by the corresponding national instances in the case of persons domiciled in Nicaragua, and by the competent foreign body, with the corresponding authentication, when it concerns persons not domiciled in Nicaragua or natural persons residing in Nicaragua who have been residents abroad in the last 15 years.
   iv. List and percentage of participation of the 5% Shareholders, natural persons, ultimate owners of the shares in a chain of legal persons.
   To determine if the natural persons indicated here are 5% Shareholders, the calculation methodology established in Annex 2 of this Regulation must be followed, which is an integral part of it.
   Natural persons who, according to the aforementioned calculation methodology, are 5% Shareholders must comply with the information requirements established in numeral 1), of letter d), of this article. e) Scheme reflecting the shareholding structure of the 5% Shareholders, in which it is reflected whether this percentage of participation is individually or jointly with their related parties, indicating the full names of the natural or legal persons contained in this organizational chart.

f) For all shareholders, documentary evidence of the lawful origin of the patrimony to be invested in the new institution. At a minimum, such documentation must include:

1. Information on the bank accounts from which the money comes.
2. Information on the origin of the money deposited in said accounts.
3. Information on the origin of the patrimony (information on the activities from which the patrimony comes, such as: businesses, inheritances, donations, among others) and evidence that the money comes from them.
   g) The name of the members who will make up the Board of Directors and the main management team, as well as the curriculum vitae of each of them, which shall be presented in accordance with Annex 1. h) Minutes denoting deposit in the current account of the Superintendence, for the value of one percent (1%) of the minimum capital amount, for the processing of the request. Once they have started operations, this deposit will be returned to the promoters. In case the request is denied, ten percent (10%) of the deposit amount will be paid to the Treasury of the Republic; the balance will be returned to the interested parties. In case of withdrawal, 50% of the deposit will be paid to the Treasury. i) Notarial declaration by each of the proposed directors stating that they are not subject to the impediments established in Article 9 of this Regulation.

Article 5. Exceptions.- The Superintendent may authorize exceptions to one, several, or all of the information requirements established in letter d), of Article 4 of this regulation, in the following cases:
a) When the legal person partner is a public law institution. b) When the legal person partner is a bank or international or multilateral development organization, internationally recognized as such.

c) When the legal person partner is an institution directly supervised by the Superintendence. d) When the legal person partner is a foreign financial institution subject to supervision according to international practices. e) When the legal person partner lists its shares on a stock exchange or regulated market. When pertinent, the documents justifying the case must be presented.

Article 6.- Authorization of Constitution.- Upon presentation of the documents referred to in Article 4 of this regulation, the Superintendent will analyze the information and submit the request to the consideration of the Board of Directors, who will grant or deny the corresponding authorization, all within a period not exceeding one hundred twenty (120) days, counted from the receipt of the request.
In case of a positive resolution, the authorizing notary must mention the edition of "La Gaceta" in which the resolution of authorization to constitute as a management company, issued by the Superintendence, was published, and insert in full in the deed of incorporation the certification of said resolution. The registration in the Public Mercantile Registry will be null if this requirement is not met.

Article 7. Requirements to Start Operations.- Prior to the start of operations of an Investment Fund Management Company, the Superintendent will verify the compliance with the following aspects:
a) Minimum share capital, subscribed and paid in cash. Eighty percent (80%) of this amount in demand deposit at the Central Bank of Nicaragua, under the terms and conditions determined by its Board of Directors. b) Testimonial of the social deed and its bylaws with the corresponding registration reasons in the Public Registry. c) Opening Balance Sheet.

d) Certification of the appointments of the Directors for the first term, of the Manager or main executive of the management company, of the Internal Auditor, of the portfolio manager, Administrator and Substitute for AML/CFT, and of the members of the Investment Committee. e) Present the internal regulations of the Investment Committee and the manual of policies and procedures approved by the Board of Directors. f) Models of contracts of the company with the investor client. g) Verification by the Superintendent that the company has the physical facilities, manuals, control systems, adequate technological platform, and other operational aspects contained in Annex 4 of this regulation, which is an integral part of it. If the request for authorization of operation with evidence of compliance with the aforementioned requirements is not presented within one hundred eighty (180) days from the resolution authorizing its constitution, it will become void and the amount of the deposit referred to in letter h), of Article 4 of this regulation, will be paid to the Treasury of the Republic.

Article 8. Authorization of Operation.- The Superintendent will verify if the applicants have met all the requirements demanded by the Capital Markets Law and by this regulation for the functioning of a management company, and if they find them met, will grant the authorization of operation within a maximum period of fifteen (15) days counted from the date of presentation of the request referred to in the preceding article; otherwise, it will communicate to the petitioners the deficiencies noted so that they meet the omitted requirements and once the deficiency is remedied, it will grant the requested authorization within a term of five (5) days counted from the date of correction. The authorization must be published in "La Gaceta", Official Gazette, at the expense of the authorized management company and must be registered in the corresponding Public Mercantile Registry, in the Second Book of Companies of said Registry, also at its expense.
Authorized management companies must start operations within a maximum period of six (6) months counted from the notification of the respective resolution, otherwise, the Superintendent will revoke the authorization.
It is understood that a management company has started operations when it has

registered at least one investment fund.

CHAPTER II
IMPEDIMENTS TO BE A DIRECTOR OF A MANAGEMENT COMPANY

Article 9. Impediments.- The following may not be members of the Board of Directors of a management company:
a) Persons who are direct and indirect debtors in default for more than 90 days or for a number of three times during a period of twelve months, of any bank or non-banking financial institution subject to the supervision of the Superintendence or who have been judicially declared insolvent, in bankruptcy, or liquidation. b) Those who, with any other member of the board, are spouses or partners in a stable union, or have a relationship of kinship within the second degree of consanguinity or second degree of affinity. This cause will not be incurred when the relationship exists between an owner director and their respective substitute. c) The managers, executive officials, and employees of the same management company, with the exception of the main executive. d) Those who directly or indirectly are holders, partners, or shareholders exercising shareholding or administrative control over companies that have overdue credits for more than ninety (90) days or for a number of three times during a period of twelve months, or that are in judicial collection in institutions of the financial system. e) Persons who have been sanctioned in the fifteen (15) previous years for causing patrimonial damage to a bank, a non-banking financial institution, or to public faith by altering its financial state. f) Those who have participated as directors, managers, deputy managers, or officials of equivalent rank of a bank or non-banking financial institution that has been subjected to intervention processes and declaration of forced liquidation status, to whom by judicial or administrative resolution of the Superintendent, responsibilities, presumptions, or indications linking them to the aforementioned situations have been established or will be established. The foregoing admits proof to the contrary. g) Those who have been convicted of intentional crimes deserving penalties more than corrective ones. The aforementioned impediments will be applicable at all times and the person incurring any of them will cease from their position from the notification by the Superintendent.

CHAPTER III
CHANGES IN MANAGEMENT COMPANIES

Article 10. Change of Control, Merger, and Substitution of the Management Company.- Changes in the control, merger, and substitution of a management company must be previously authorized by the Superintendent. The authorization is subject to the presentation of the following minimum documentation:
a) Request signed by the legal representative of the management companies involved. b) Notarial certification of the minutes of the general shareholders' meeting of the management companies involved, by which the merger was authorized.
In the case of substitution of the management company, notarial certification of the minutes with the agreement taken by the board of directors of the management company that assumes the management of the investment fund. c) In the case of the prevailing company, the documentation required in Article 4 of this regulation, if applicable. d) In the case of open funds, draft of the communication to investors sent by the prevailing company regarding the change of control, merger, or substitution and their right to request the refund of their shares without exit commission or cost, within thirty (30) days following the communication of the substitution or change of control. This period may be extended in accordance with what is established in Article 104 of this regulation. e) In the case of closed funds, notarial certification of the minutes of the investors' assembly in which the change of control, merger, or substitution of the management company is informed; as well as, the mechanism that the prevailing management company will use to provide liquidity to the participation securities in the secondary market, for investors who expressed disagreement with the change, merger, or substitution during the assembly. The maximum period to execute the refund of the shares will be that authorized by the Investors' Assembly. Prior to the expiration of this period, the Fund's Assembly may authorize an extension for a period equal to the original. The operational transfer of closed or open funds must be completed within the periods defined by the Superintendent through the authorization resolution. In the prospectuses of closed investment funds, the rules for the convocation of the investors' assembly, the number of investors necessary for the quorum, and the majority required for approval must be established, in accordance with the provisions established in the Commercial Code regarding extraordinary general meetings of shareholders of anonymous companies.

Article 11. Substitution of the Management Company.- The Superintendent may agree to the substitution of a management company when any of the following causes concur:
a) The cancellation of the authorization of the management company to operate investment funds or a specific fund. b) The suspension of payments, bankruptcy, or dissolution of the management company. c) The intervention of the management company. d) The failure by the management company to meet the deadlines for the redemption of shares or the policies established in the prospectus, when it is demonstrated that the management of the fund by the management company has caused damages of difficult or impossible repair to the investors. During the substitution period, investors of an open or closed fund may submit to the Superintendent the agreement of the meeting or investors' assembly, respectively, by which a new management company is designated or it is agreed to request the cancellation of the fund's registration. For the purposes of substitution, the requirements established in Article 10 must be met, and for the cancellation of registration, what is provided in Article 26, both of this regulation. The convocation to the investors of the investment funds may be carried out by the Superintendent at the expense of the management company being substituted. Without prejudice to what is established in this article, the management company may resign from its function of administration and legal representation of a part of the funds it manages when it deems it pertinent, requesting its substitution by written address to the Superintendent in which it will state the designation of the substitute management company. Attached to such letter will be that of the new management company, in which it declares itself willing to accept such function and requests the corresponding authorization. The authorization of the substitution by the Superintendent will be conditioned to the compliance with the delivery to the new management company of the accounting and computer records by the substituted management company. Such delivery will only be understood as produced when the new management company can fully assume its function and communicate this circumstance to the Superintendent. Likewise, in the case that the securities issued against the funds managed by the substituted management company have been evaluated by some rating entity, the rating granted to the securities must not decrease as a consequence of the proposed substitution. In no case may the management company resign from the exercise of its functions until all requirements and procedures have been met for its substitute to assume its functions.

The expenses originating from the substitution will be at the cost of the resigning management company, and in no case can they be charged to the fund.
The substitution must be published within fifteen (15) days through an announcement in two newspapers of national circulation and in the Official Gazette, La Gaceta.

Article 12. Cancellation of Registration of a Management Company.- The cancellation of the registration of the management company must be authorized by the Superintendent. Such authorization will be subject to the presentation of the following minimum documentation:
a) Notarial certification of the minutes of the general shareholders' meeting where the agreement of the management company to request the cancellation of its registration is recorded. b) Request signed by the legal representative of the management company. c) In case the company has registered funds, request for cancellation of registration as established in Article 26 of this regulation, or the proposal of substitution