Bermuda

Legislation to make Bermuda ‘major player in global funds industry’


By added on 26/09/2013

Legislation designed to make Bermuda a ‘major player in the global funds industry’ was tabled on Friday by Minister of Finance Bob Richards, reports the Royal Gazette.

Mr Richards told the House of Assembly: “Bermuda has built a reputation as a leading reinsurance market, one of the top three markets in the world. The strategy underlying the Investment Funds Act amendment is that Bermuda be seen not only as a reinsurance centre but also as a major player in the global funds industry.”

According to the explanatory memorandum, the Amendment Bill changes the Investment Funds Act 2006, providing new criteria for the exemption of funds from the requirements of authorisation and supervision. Specifically, the Bill will repeal the existing provisions on exemption and makes provision for two new classes of exempt funds, Class A and Class B. Funds that are currently exempt, however, would be grandfathered by the Act and continue to be exempt from authorisation and supervision under the repealed provisions for three years.

Mr Richards explained to Members of Parliament: “ ... the Bill was prepared to address one of the most critical challenges, namely that funds wishing to fall into an ‘exemption’ category did not wish to attract any uncertainty or delay in the processing of their applications. If they qualify to be exempted by meeting a prescribed criteria, they want to be able to file a registration/statement that would formally notify the Authority to that effect and also serve to confirm the exemption on that basis.

“It is also a concept that Bermuda already employs under the Investment Funds Act as it relates to filings which “notify” the Authority that the Investment Funds Act shall not apply to an excluded fund.”

Mr Richards told the House of Assembly the amendment is to enhance Bermuda’s ability to compete for business in the investments funds sector of the economy. “This initiative is consistent with the objective of a broader business plan being executed through the Bermuda Business Development Corporation’s, Asset Management working group.”

He explained that the changes are a product of “close collaboration between all stakeholders.” The proposed bill had been posted on the Authority’s website for comments. “Many of the comments proposed by industry have been included within the draft being considered today. In addition, the Asset Management working group has provided comments throughout the entire consultative period and have been working closely with stakeholders up and until the production of the final draft Bill. Through the consultative process it has been confirmed that the Bill does adequately address the main concerns articulated in the US during the strategy sessions held in May.”

He also said: “The Government, working together with the Asset Management working group and the Bermuda Monetary Authority, engaged with leading New York law firms in May 2013 to solicit feedback on the state of play of Bermuda’s asset management sector. This led to a forum for NY lawyers to offer their insight on key legal, regulatory and business issues to enhance Bermuda’s attractiveness as a domicile for asset managers, hedge funds, private equity funds and other financial services businesses.”

He explained: “Mr Speaker, the current legislation allows for certain funds to be exempt from the Bermuda Monetary Authority’s authorisation process primarily because these funds are promoted to qualified participants, as defined by the Investment Funds Act, 2006. Qualified participants are investors who are in a position to engage higher levels of risk and/or have the knowledge and experience to consider such risks carefully. In the case of this special category of investor, the Authority has taken the view that it need not extend the same level of investor protections afforded in other cases.

“Mr Speaker, by extending this “risk based” approach to fund regulation, the Bill aims to help support an environment conducive to an increase in the number of funds being incorporated, administered and managed in Bermuda.

Mr Richards said the two classes will be “distinctly different as regards the manner in which the exemption applications are made. He said Class A funds “will be available to large institutional funds with a licensed or authorised investment managers or an investment manager who has assets under management of 100 million dollars or more. This class will only be marketed to qualified participants. The Class A fund is also required to appoint in Bermuda an officer, trustee or representative who has access to the fund’s books and records, as well as other key service providers (ie; a fund administrator, auditor, registrar).

“Mr Speaker, Class B will replace the existing exemption regime but will have similar features. There will continue to be an application for an exemption which the Authority will review to determine if the funds meet the statutory requirements. If there are no objections, or need for any additional information, the fund will be granted a Class B exemption within 10 days. The new Class B does not require investment managers to have a minimum of 100 million dollars under management.”

“Class A will simply be a notification by the fund that it meets the qualifications, thereby streamlining the applications process. Class B — the Authority will review the application and must be satisfied that the related service providers (investment manager, custodian, auditor, administrator) are fit and proper.”

The amendment would regulate the termination of an exemption status, providing that it would occur when a fund ceases to qualify as a Class A or Class B Exempt Fund if any of the requirements for exemption for a fund in its class are not met (‘a disqualification event’).

The Authority is also to be given the power to give directions to the operator of the fund in the interests of investors.