Introduction of the Investment Funds Act 2006
Mello Jones & Martin · March 7th, 2007
We are happy to advise that on 7 March 2007 the Ministry of Finance of Bermuda signed into operation the Investment Funds Act 2006 (the “Act”).
The Act replaces the Bermuda Monetary Authority’s (“BMA”) Collective Investment Scheme Classification Regulations (the “CIS Regs”). The CIS Regs governed the regulation of collective investment scheme companies and unit trusts. The new Act will continue this regulation and will also provide a regulatory regime for investment partnerships organized in Bermuda and for Bermuda based administrators, who previously were unregulated. The previously available “3A Exemption” has been codified within the Act.
As a transitional matter, funds previously classified under the CIS Regs as “Standard Schemes” or “Institutional Schemes” will automatically be authorized and classified under the new Act as “Standard Funds” and “Institutional Funds”, respectively. A new classification, discussed below, known as the “Administered Fund” has also been created.
Funds previously exempted from the CIS Regs pursuant to the 3A Exemption will automatically be exempted from the Act, but will be required on an annual on basis on or before 30 April in each year to file, with the BMA, a certificate confirming the fund still qualifies for the exemption. Funds which were “excluded” (i.e. were private in nature and excluded from the application of the CIS Regs), will be required to service notice of such exclusion under the new Act to the BMA in order to maintain this status.
As was the case with the CIS Regs, the Standard Funds will be more closely regulated than the Institutional, Administered or exempted funds. For instance, Standard Funds will be required to seek the BMA’s consent to certain transactions including reconstructions, amalgamations and winding up. Institutional and Administered Funds need only provide notice of these changes to the BMA. Also, where Standard Funds will continue to be required to report their net asset value (“NAV”) to the BMA on a monthly basis, Institutional and Administered Funds will only be required to report their NAV on a quarterly basis.
Should a fund desire to be reclassified, this may be done free of charge for a period of six months following the coming into effect of the Act. Following this six month period, reclassification will require the payment of a fee in the amount of $750.
The requirements for each of the three classifications are noted below:
Institutional Funds must (i) either only be open to “qualified participants”, i.e. of requisite income, net worth/assets or sophistication, or require participants to invest a minimum of $100,000 in the fund, and (ii) have an officer, trustee or representative resident in Bermuda with access to the books and records of the entity.
Administered Funds must have an administrator licensed under the Act and (i) require participants to invest a minimum of $50,000 in the fund; or (ii) be listed on a recognized stock exchange.
Standard Funds include all other funds which are not excluded or exempted.
To date there is essentially no difference in regulation between the Institutional Funds and the Administrated Funds under the Act. The Authority does, however, retain the discretion to enact rules from time to time which may prescribe different levels of regulation for the three classes of funds.
An exemption from the need to be classified pursuant to the Act continues to be available where (i) a fund is only open to “qualified participants”, as described above, (ii) the administrator of the fund falls within a class of persons recognised by the BMA, (iii) the fund appoints an auditor, and (iv) the fund has an officer, trustee or representative resident in Bermuda with access to the books and records of the entity. The BMA must also be satisfied that the operator of the fund and its service providers are fit and proper persons to act as such.
Finally and most importantly, the Act also introduces the payment of an annual fee to the BMA, payable on or before 30 April of each year, in the amount of $1,250 for Standard Funds, $750 for Institutional and Administered Funds and $500 for exempted funds. We recommend that you contact the fund’s administrator or secretary to ensure the applicable fee is paid on time.