Funds Update

Maintaining an attractive jurisdiction for funds means successfully developing a sound framework for regulatory supervision that gives confidence to investors.

The Investment Funds Act 2006, received the Governor’s assent 28 December 2006, introduces a new regulatory framework for collective investment schemes (now known as "investment funds") in Bermuda. The Act is the result of consultation between the Bermuda Monetary Authority, the Minister of Finance and local financial and legal service providers.

The Investment Funds Act introduces the following major changes:

• Persons carrying on the business of fund administration in or from Bermuda are required to be licensed as fund administrators
• Licensed fund administrators are required to maintain:
• minimum net assets
• adequate accounting and systems of control of their business and records
• insurance coverage
• The legal definition of 'investment fund' has expanded to include partnerships for the first time.
• With the licensing of fund administrators, a new class of funds known as 'administered funds' has been created whose level of regulation is conditional upon the fact that the administrator is based in Bermuda, and is subject to codes of conduct and fund rules.
• Another example of Bermuda's proactive approach to the evolution of the global fund industry is the creation of 'launch and list funds'. This option creates the opportunity to establish a fund and simultaneously list on the Bermuda Stock Exchange. The Bermuda International Business Association reached an understanding with the Bermuda Monetary Authority and the Bermuda Stock Exchange that these vehicles would be approved on a fast-track basis. This represents another positive fund option for clients which might derive benefits from listing on the Bermuda Stock Exchange.

Historically, Bermuda partnership law has largely followed general English partnership law principles; partnerships were not legal entities separate from their partners although, for all practical purposes, a partnership functioned as an entity and could sue, be sued and carry on business in its own name.

The Partnership Amendment Act 2006 came into effect on 28 August 2006 and provides that a partnership shall have legal personality if it so elects. In the event that such an election is made, the partnership shall continue regardless of whether all the partners die or are declared bankrupt, or there is a change in its constitution. A partnership may elect to have legal personality provided that the election to do so is made within 12 months of the act coming into force. This election is irrevocable and failure to make such an election is final. The election option is not open to Bermuda's overseas partnerships.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.