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New Bermuda fund legislation: self-declared exempt institutional funds offer same day registration

Monday, October 07, 2013
Opalesque Industry Update - Bermuda has today amended its Investment Funds Act 2006 (the "Act") to create a new self-declared exempt fund which guarantees same day registration.

The new Class A Exempt Funds will permit qualified investment managers to register their Bermuda-organised investment funds in a single day. In order to qualify, operators of Class A Exempt Funds must limit the offering of the fund’s securities to "qualified participants" (akin to sophisticated investors) only and must retain an investment manager who is either regulated by a recognised securities regulator in its home jurisdiction or who has, individually or as part of a group, assets under management of at least $100 million. Registration is accomplished by filing a registration certificate and an offering document with the Bermuda Monetary Authority (the "BMA") through its electronic filing facility ERICA. No further regulatory actions or approvals are necessary for a Class A Exempt Fund to launch and commence operations.

New Class B Exempt Funds will replace the existing exemption available under the IFA and will be available to those investment managers who do not meet the qualification requirements applicable to the Class A Exempt Funds. Applications will normally receive approval from the BMA within 10 days.

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

  1. Limit the offering of its securities to qualified participants (essentially equivalent to accredited investors in the U.S. or sophisticated investors in the U.K.);
  2. Employ an investment manager that satisfies one of the following requirements: (i) is licensed under the Investment Business Act 2003, as amended of Bermuda; (ii) is authorised or licensed by a foreign regulator recognised by the BMA (i.e., the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, Canadian Provincial securities commissions, etc.); or (iii) 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 file with the BMA, on an annual basis, financial statements prepared in accordance with IFRS or GAAP as deemed acceptable by the BMA.
  6. Registration of a Class A Fund with the BMA can be accomplished in a business day by delivering to the BMA 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 approvals or authorisations being required. The initial filing fee to register a Class A Fund with the BMA is $1,500.

    Ongoing requirements for Class A Funds are minimal and include delivering, on an annual basis, a certificate 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 prequalification criteria.

    Funds desiring to be registered as Class B Funds are required to apply to the BMA. The BMA then has a period of up to ten (10) calendar days following the date of submission of the application to either grant the Class B Fund exemption 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 ongoing regulatory obligations of Class B Funds are identical to those applicable to Class A Funds with the additional requirement that Class B Funds seek the approval of the BMA to any change to the fund’s director or service providers. The ongoing annual registration fee is $1,000 for Class B Funds.

    Once a fund is registered under the IFA, it may switch the category of exemption applicable to it or apply to be more extensively regulated, as its evolving operations may require.

    Funds which were previously deemed to be “exempted” under the IFA prior to its amendment (“PreAmendment Exempt Funds”) will be grandfathered for a period of three years following the Amendment coming into effect. At the end of this threeyear period, PreAmendment Exempt Funds will cease to qualify for exemption unless they 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. Rather than a “onesizefitsall” approach to regulation, Bermuda offers tailored products and solutions designed to meet the needs of today’s sophisticated fund industry. Leveraging off of Bermuda’s international reputation, the Amendment will enhance Bermuda’s position as the destination jurisdiction for the establishment of investment funds.

    Conyers' Elizabeth Denman is a member of the Asset Management Committee of the Bermuda Business Development Corporation, which worked with the Bermuda Government to introduce these changes to the Investment Funds Act.

    Conyers Dill & Pearman

    BM

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