The Amendment Act brings within scope closed-ended investment funds and overseas investment funds. A person operating a closed-ended fund or an overseas investment fund prior to 1 January 2020 may continue to operate the fund without the fund being authorised, registered or designated under the Funds Act for a period of 6 months. Operators of funds should use the transition period to assess whether the changes to the Funds Act are applicable to them.
CLOSED-ENDED INVESTMENT FUNDS
As noted above, closed-ended funds will be brought within the scope of the Funds Act effective 1 January 2020. Closed-ended funds were previously outside the scope of the Funds Act as the Funds Act only applied to certain arrangements which entitled participants to have their units redeemed in accordance with the fund’s constitution and offering document at a price determined in accordance with the constitution and offering document (open-ended investment fund).
The definition of investment fund has been amended to include both open-ended investment funds and closed-ended investment funds. A closed-ended investment fund means an arrangement in which the participants are not, at their election, entitled to have their units redeemed.
Open-ended investment funds are currently required to be classified as one of the Authorised Funds or Registered Funds under the Funds Act.
- Authorised Funds: Institutional Fund; Administered Fund; Standard Fund; Specified Jurisdiction Fund
- Registered Fund: Professional Class A fund; Professional Class B Fund; Private Fund
The Amendment Act also introduced a new class of fund for closed-ended investment funds namely Professional Closed Fund. Effective from 1 January 2020, new closed-ended investment funds will need to be authorised or registered under one of the existing categories of Authorised Funds or Registered Funds or alternatively registered under the new category of Professional Closed Fund. Existing closed-ended investment funds will have a six month transition period to comply with the Funds Act.
CRITERIA FOR PROFESSIONAL CLOSED FUND
A fund may register as a Professional Closed Fund if it satisfies the following requirements:
(a) it is a closed-ended investment fund;
(b) it is open only to qualified participants;
(c) the qualified participants are provided with an investment warning prior to the time of the purchase of units;
(d) its operator has appointed a licenced local service provider or an officer, trustee or representative resident to Bermuda who has access to its books and records;
(e) its operator has appointed an auditor; and its financial statements are prepared in accordance with recognised standards (i.e. IFRS or GAAP).
The Professional Closed Fund will be subject to continuing obligations and will be required to certify on or before 30 June annually that it satisfies the requirements of section 8B(2) of the Funds Act.
OVERSEAS INVESTMENT FUNDS
Effective from 1 January 2020, new overseas investment funds that are managed or carry on promotion in or from within Bermuda will be required to be designated as an Overseas Fund by the Bermuda Monetary Authority (BMA). Existing overseas investment funds will have a six month transition period to comply with the new provisions.
An overseas investment fund is defined under the Amendment Act as an investment fund incorporated or established in a jurisdiction outside of Bermuda.
Promotion for that purpose means either:
(b) issuing an offering document, application form or proposal form stating the method of issue; or
(c) circulating or making available promotional material including a description of the general nature of the material and the persons to whom, and the manner in which, it will be circulated or made available.
CRITERIA FOR OVERSEAS FUND
An investment fund qualifies for designation by the BMA as an Overseas Fund if it:
(a) is an overseas investment fund;
(b) complies with the applicable rules and requirements of the overseas regulatory authority in the country in which it is incorporated or established; and
(c) complies with the requirements of section 5A of the Funds Act and any conditions imposed on it by the BMA.
The operator of an overseas investment fund shall notify the BMA in writing prior to the overseas investment fund being managed or promoted in or from within Bermuda, and such notification will be in such form as may be determined by the BMA and shall contain such information as the BMA may require. The operator shall also file the following with the BMA at the time of notification:
(a) a copy of the offering document;
(b) details of any regulatory approval given by, or notification given to the overseas regulatory authority in the country or territory in which the overseas fund is incorporated or established; and
(c) the prescribed notification fee.
The Overseas Fund will also be subject to continuing obligations and will be required to certify on or before 30 June annually that it satisfies the requirements of section 5A(2) of the Funds Act.
REASON AND SUMMARY OF CHANGES
The Amendment Act follows the enactment of the Bermuda economic substance regime introduced in 2018 and has been introduced as a response to global pressures on jurisdictions to (i) provide enhanced supervisory and regulatory requirements to apply to registered or authorised investment funds that operate segregated accounts; (ii) provide for the designation requirements for overseas investment funds that are managed or carry on promotion in or from within Bermuda; (iii) provide for the classification requirements for Professional Closed Funds; (iv) provide for the enhanced supervisory and regulatory requirements to apply to “closed ended funds”; and (v) provide for the enhancement of fit and proper requirements.