Investor Protection To Be Strengthened Under New Bermuda Licensing Proposals

by Amanda Banks, for LawandTax-News.com, London

14 September 2005

Draft legislation has been drawn up in Bermuda intended to improve the quality of Bermuda's financial service providers and raise the level of protection for investors, according to the legal firm Appelby Spurling Hunter.

The Collective Investment Schemes Act 2005 (CISA 2005) will, if enacted, require Bermuda-based fund administrators to be in possession of a license unless otherwise exempted. However, the new legislation will not extend to those entities whose registered office is in Bermuda, but which conduct business from a place outside Bermuda.

The proposed legislation confers the power on the Bermuda Monetary Authority (BMA) to revoke the license of a fund administrator if it is deemed by the BMA that the minimum criteria have not been fulfilled, or if the licensed fund administrator has failed to comply with any obligations imposed on it.

The CISA 2005 will also require fund administrators to maintain adequate accounting records, systems and controls and insurance coverage.

The application process is expected to be similar to that already required of investment managers doing business in Bermuda.

The new legislation will also widen the legal definition of collective investment schemes. Under the proposals, such schemes are defined as any undertaking that may continuously issue securities that are redeemable at the option of investors. The new definition means that partnerships will fall within the definition of collective investment schemes for the first time. It also means that there will be no need to refer to other legislation in order to determine the definition of a collective investment scheme.

In addition, the proposals, which are still subject to industry comment, will require any entity carrying on business as a collective investment scheme to be registered unless exempted.

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