Bermuda’s Investment Funds Act 2006, the legislation which provides the rules for the creation and operation of investment funds in Bermuda, has been amended in line with the Investment Funds Amendment Act 2013.

Bermuda’s Investment Funds Act 2006, the legislation which provides the rules for the creation and operation of investment funds in Bermuda, has been amended in line with the Investment Funds Amendment Act 2013(the “Amendment”). The Amendment is designed to enhance Bermuda’s offering of investment fund products and is aimed at attracting further custom from Bermuda’sprimary clientèle: sophisticated investors and their advisors. The Amendment is further evidence of the strong collaborative process that exists between the Government of Bermuda, the Bermuda Monetary Authority (BMA), and the funds industry, both in Bermuda and internationally.

Qualified new and existing investment funds organised in Bermuda now have the option to register with the BMA in one of two new exempted fund categories: (I) Class A Exempt Funds; or ii) Class B Exempt Funds. These new exempted funds will be exempted from the requirement to be authorised under the Investment Funds Act, with the result that they will be deemed to be registered as qualified funds, but not regulated, by the BMA. Both options will offer operators of Bermuda-incorporated funds swift access to market and regulatory certainty as Class A Exempt Funds require no regulatory approvals to launch and commence operations and Class B Exempt Funds require only minimal regulatory involvement.

The new Class A Exempt Funds (“Class A Funds”) represent a significant innovation in the offshore fund market as theycan be established and launched in one business day and require no regulatory approval beforehand.Few documents are called for, with the BMA’s regulatory focus being on self‐certification by the fund operator and the delivery of an offering memorandum.

Inorder to be registered as a Class A Fund, a fund must:

1. Limit the offering of its securities to qualified participants (essentially equivalent to sophisticated investors in the US or accredited investors in the UK);
2. Employ an investment manager that...
   1. is licensed under the Investment Business Act 2003 of Bermuda, as amended; or
   2. is authorised or licensed by a foreign regulator recognised by the BMA (e.g. the US Securities and Exchange Commission, the UK Financial Conduct Authority, or the Canadianprovincial securities commissions); or
   3. has, either individually or as part of an investment management group, gross assets under management of US$100 million or more (or its currency equivalent);
3. Appoint a fund administrator, a registrar, an auditor and a custodian or prime broker;
4. Appoint a resident representative in Bermuda with access to the books and records of the fund; and
5. Prepare and send off to the BMA, on an annual basis, financial statements compiled in accordance with IFRS or GAAP as deemed acceptable by the BMA.

One can register a Class A Fund with the BMA in a business day by handing over a certificate in the prescribed form confirming that the fund meets the requirements for exemption. This must be accompanied by a copy of the fund’s offering memorandum. Once these documents are deposited with the BMA, the fund is deemed to be registered and can commence operations immediately without further approval or authorisation. The initial 'filing fee' to register a Class A Fund with the BMA is $1,500.

Continuing requirements for Class A Funds are minimal and include the deliverance every year of a certificate that states that the fund continues to qualify as a Class A Fund together with a copy of the fund’s audited financial statements for the preceding year and a statement of any material changes to its offering memorandum. In addition, the operator of a Class A Fund must notify the BMA if, at any time, it no longer meets the qualification thresholds for Class A Funds. The ongoing annual registration fee is $1,500.

The BMA has also introduced a second class of exempted funds called the Class B Exempt Funds (the “Class B Funds”). Class B Funds are designed for use by fund operators who meet all of the eligibility requirements of the Class A Funds except their investment managers do no meet the more stringent pre‐qualification criteria.

Funds that want to be registered as Class B Funds must apply to the BMA, which then has a period of up to ten calendar days to either say yes or to require additional information about the fund and/or its service providers. The initial filing fee to register as a Class B Fund is $1,000.

The continuing regulatory obligations of Class B Funds are identical to those for Class A Funds with the additional requirement that Class B Funds must seek the approval of the BMA to any change to their directors or service providers. The annual registration fee is $1,000 for Class B Funds.

Once a fund is registered under the Investment Funds Act, it may switch the category of exemption applicable to it or apply to be more extensively regulated, in line with the evolution of its operations.

Funds which were previously deemed to be 'exempted' under the Investment Funds Act prior to its amendment will be 'grandfathered in' for a period of three years following the Amendment coming into effect. At the end of this period, they will have to satisfy the requirements for either a Class A Fund or a Class B Fund.

With the introduction of the Class A Funds and Class B Funds, Bermuda has significantly simplified the process for creating and operating institutional and sophisticated investor funds while rejecting a “one‐size‐fits‐all” approach to regulation. The aim, of course, is to make Bermuda even more of a magnet for people who want to establish investment funds than it already is.

* Conyersʹ Elizabeth Denman is a member of the Asset Management Committee of the Bermuda Business Development Corporation, which worked on the Amendment.She can be reached at elizabeth.denman@conyersdill.com or on +1 441 278 7842.