Whether you are looking to set up a new fund vehicle, want to promote an overseas investment fund in Bermuda or have existing closed- or open-ended structures, here's what you need to know.
- Effective 18 February 2020, Bermuda was upgraded to European Union's (EU) 'cooperative jurisdiction' status
- Closed-ended funds are now in scope and must register with BMA – transition period ends 30 June 2020
- Overseas investment funds managed or promoted in or from within Bermuda must register with BMA – transition period ends 30 June 2020
- Fund Rules now apply to all authorised and registered funds
- Upcoming filing deadlines
Effective 18 February 2020, the EU's Economic and Financial Affairs Council (ECOFIN) announced that Bermuda had met its commitments to implement legislative changes and was a 'cooperative jurisdiction' with respect to the EU's tax governance principles and therefore removed it from Annex II of the EU list.
Existing Bermuda private equity funds and other closed-ended investment funds whose participants are not, at their election, entitled to have their units redeemed must now register with the Bermuda Monetary Authority ("BMA") under the Investment Funds Act ("IFA") as either a "private fund" (if it has less than 20 participants and does not promote itself by communicating an invitation or inducement to the public generally) or as a "professional closed fund".
A private fund:
- requires the appointment of a local regulated service provider, which can be provided by Walkers Professional Services, as a licensed corporate service provider;
- other service providers are not prescribed for a closed-ended private fund but must meet be "fit and proper" persons; and
- does not require an auditor to be appointed.
Once registered as a private fund, the operator of the fund must certify to the BMA annually that the fund continues to satisfy the qualifying criteria (participants less than 20).
Professional Closed Fund
A fund qualifies as a professional closed fund if:
- it is a closed-ended investment fund;
- the fund is only open to "qualified participants" (i.e. accredited/sophisticated/HNW);
- all participants are provided with an investment warning prior to the time of the purchase of units, containing such information as the BMA deems appropriate;
- the operator of the fund has
- a local service provider who is licensed by the BMA (which can be provided by Walkers Professional Services); or
- an officer, trustee or representative resident in Bermuda, who has authority to access the books and records of the fund;
- an auditor (please see further details below); and
- the financial statements of the fund are prepared in accordance with IFRS or GAAP.
An auditor need not be local and there is no requirement for local auditor sign off. There is scope to apply to the BMA for a waiver to this requirement. The BMA will consider an audit waiver application on a case by case basis, provided the fund has suitable methodology to determine the value of the fund assets in the absence of an audit and if all investors have agreed in writing that no audit is required.
Professional closed funds must file an annual certification confirming the registration requirements continue to be met.
Operators of both a professional closed fund and a private fund must also:
- designate responsibility for segregating and safekeeping the investment fund property to a fit and proper person to act as such, based on the nature of the investment fund property (this can be waived for a feeder fund in a master/feeder structure). The name of such designate must be disclosed to the BMA and to investors; and
- provide annual valuations. The valuation and pricing method adopted by an investment fund must be disclosed to investors in the offering documents and must be consistently applied (unless change is desirable in the interests of investors).
Overseas investment funds
Effective 1 January 2020, an operator of an overseas investment fund (being a fund formed in a jurisdiction outside of Bermuda) must notify the BMA in writing prior to such fund being managed or promoted in or from within Bermuda. Where the BMA is satisfied that an overseas investment fund has met the qualifying requirements, set out below, the BMA will designate such fund as an "Overseas Fund". Existing overseas investment funds that are being managed or promoted in or from within Bermuda have until 30 June 2020 to apply for designation.
To be designated by the BMA as an Overseas Fund, the requirements are that the fund:
- is an overseas investment fund;
- complies with the applicable rules and requirements of the overseas regulatory authority in the country or territory in which it is incorporated or established; and
- complies with (i) all requirements of the IFA, i.e. notification application to the BMA; and (ii) any conditions imposed on it by the BMA.
At the time of notification, the operator must submit to the BMA a copy of the offering document and details of any regulatory approval mentioned in (b) above, together with the prescribed fee.
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Originally Published 16 April, 2020
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.