The Supervisory Mandate of the National Bank
Investment management agreements in Georgia exist within a special regulatory environment: under the norms of the Law of Georgia on Investment Funds concerning the supervision of an investment fund and an asset management company, the National Bank of Georgia is charged with overseeing both. This means that the performance of a management agreement concluded with an investor is closely connected with the continuous monitoring of the state regulator. Under the same norm the National Bank is authorized to supervise the activity of an investment fund, to carry out the authorization or registration of a fund founded in Georgia, to recognize a foreign investment fund, and also to revoke the authorization, registration or recognition of a fund. Supervision also includes the inspection and regulation of the fund, the issuance of written instructions to it, and the imposition of additional requirements, restrictions and sanctions. Consequently, the relationships defined by a management agreement always remain under the control of the regulator, and any problem in the performance of the agreement can be escalated through supervisory channels in parallel with contractual remedies.
Licensing and Registration of the Asset Management Company
Under the same norm, the National Bank supervises the activity of an asset management company, carries out the licensing or registration of an asset management company founded in Georgia, recognizes a foreign asset management company, and also revokes the license, registration or recognition of an asset management company. The inspection and regulation of asset management companies, the issuance of written instructions and the imposition of additional requirements, restrictions and sanctions likewise form part of supervision. For the investor this means that the counterparty under a management agreement can only be a company holding the respective status granted by the regulator, and the loss of that status directly affects the services owed under the agreement. Before signing, it is therefore reasonable to verify not only the commercial terms of the agreement but also the current supervisory standing of the manager, because the regulatory status is the threshold condition for the lawful management of the assets of the fund.
The Circulation of Units and the Specialized Depositary
The mandate of the National Bank also covers the sphere of the units of the fund: the regulator regulates the relationships arising upon the issuance and circulation of units by an investment fund and ensures the detection, prevention and suppression of violations in this sphere. In addition, the National Bank establishes additional regulatory rules for the specialized depositary that services an investment fund or an asset management company. These rules may concern the capital of the specialized depositary, the experience of its personnel, its technical or software support and other matters. Such multi-level control serves the security of the assets of investors: the accounting and custody of the property of the fund lie with a specialized depositary whose reliability the regulator separately verifies. An investor thus benefits from a structure in which the manager, the depositary and the issuer of units are each subject to independent supervisory checks, reducing the risk that a single point of failure will harm the whole investment.
Rule-Making, Sanctions and Liquidation
The National Bank is authorized to establish, amend and repeal the rules connected with the regulation of investment funds and asset management companies and to supervise their observance. The same norm grants the regulator the power to determine the rules of liquidation of an investment fund and of an asset management company, and of the appointment of a temporary administrator and the exercise of his or her powers. The sanctioning instrument is also defined: the National Bank may impose a monetary fine on an investment fund, an asset management company, a specialized depositary and other persons. The amount of the fine and the procedure for its imposition are determined by a normative act of the National Bank, and the amount of the fine is directed to the state budget of Georgia. The law thus entrusts the amount of the fine to a separate normative act, and no other numerical limits appear alongside this rule. The regulator also retains the possibility to exercise other powers defined by the Law of Georgia on Investment Funds, which completes the supervisory architecture within which every management agreement operates.
Frequently Asked Questions
Who supervises investment management in Georgia?
The National Bank of Georgia, which supervises the investment fund, the asset management company and the specialized depositary under the Law on Investment Funds.
How can an asset management company lose its status?
By a decision of the National Bank: the company may be deprived of its license, or its registration or recognition may be revoked in the cases provided for by law.
Where does the amount of a monetary fine go?
The amount of a monetary fine is directed to the state budget of Georgia, while the amount and the procedure of imposition are determined by a normative act of the National Bank.
Who verifies the custody of the assets of a fund?
The specialized depositary servicing the investment fund or the asset management company, for which the National Bank establishes additional regulatory rules, including with respect to capital, the experience of personnel and technical or software support.
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An investment management agreement is a significant financial document in which every detail of the terms determines the fate of your capital. Our team will review the draft agreement, explain its connection with the requirements of the regulator and assist you in challenging a dispute. Contact Legal.ge for a consultation and we will defend your investment interests.