While Bermuda is not directly affected by the Directive, which seeks to facilitate the sharing of information about individuals' overseas savings income with their home states, funds domiciled in Bermuda can be adversely impacted if they have 'paying agents' located in EU member states or third party countries (such as Switzerland) that have signed up to the legislation.

However, Minister Cox confirmed last week that funds exempted from Bermuda’s Collective Investment Scheme Regulations 1998 would be out of scope for the purposes of the EUSD in Switzerland.

There are currently 1,220 funds regulated under Bermuda's Collective Investment Scheme Regulations 1998 (CIS) which would fall within the scope of the Swiss home rules, but modifications to the CIS Regulations by the Bermudian government will mean that that non-retail funds offered only to sophisticated investors can seek exemption from the regulations.

As a result, this will enable about two-thirds of regulated funds registered with the BMA to apply for exemption from regulation when the amended CIS regulations come into force at the end of the year.

The measure will alleviate fears of an exodus of funds to rival jurisdictions, notably the Cayman Islands which, as a third party to the European Savings Tax Directive, was able to negotiate to exempt about 98 percent of its funds from the reporting obligations of the directive. Nonetheless, home rules applied in other countries which are subject to the directive, such as Ireland, are also causing problems, and it is believed that Bermuda is currently talking to a number of governments to raise awareness of the problems being experienced in the jurisdiction's fund sector.

More than 80 funds have transferred to the Cayman Islands since the EUSD went into effect on July 1, 2005, including 25 from Bermuda representing a net asset value of almost $6 billion. While this has caused concern amongst the defenders of Bermuda's funds industry, the number so far represents only a small fraction of the $178.58 billion under management in the jurisdiction in 2005.