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Digg Are you looking for a high quality of life without compromising state-of-theart infrastructure, intellectual talent and reputation? Bermuda could be the solution. Given the continued uncertainty in global markets and continued imposition of international regulation, asset managers need a domicile that combines fiscal and legislative stability, as well as providing a strong reputation and commercial awareness. The right choice of jurisdiction has to be a key consideration in the fluid global economy.
The benefits of Bermuda
Gone are the days of the stereotype of Bermuda as being slow and expensive to set up business. Bermuda is one of the world's leading international financial centres, being a sophisticated and dynamic jurisdiction of choice for insurance/reinsurance, funds, asset finance and for companies seeking to list on internationally recognised stock exchanges. Bermuda is the world's third largest reinsurance market and is home to 950 insurance companies with total assets of US$524.7bn.1 It has a Moody's rating of Aa2-Stable and S&P rating of AA-Stable. There are 1,056 funds and segregated account companies registered in Bermuda and nearly 300 unit trusts with the combined net asset value of US$160.44bn.2
Bermuda's principal attraction is its established reputation. Bermuda is a preferred jurisdiction for international business and its global client base includes the majority of FTSE 100/Fortune 500 companies due to its reputation as a successful and credible transparent offshore financial services centre. We cannot of course overlook Bermuda's exquisite pink beaches, stunning golf courses (eight courses on a 21 square-mile island), beautiful coral reef and lush vegetation.
The island is a British overseas territory (although with significant autonomy), located within a 90-minute flight of NYC and less than seven hours from the UK. It is located in the Atlantic timezone, which makes it one hour ahead of EST. The law of Bermuda is common law based, and English cases are generally persuasive before the courts in Bermuda (the Privy Council in London serves as the court of final appeal). The Bermuda courts do however, look to other jurisdictions for guidance on case law and legislative reform, normally with reference to Canadian and other commonwealth jurisdictions.
For people looking to reside in Bermuda, even periodically, the island offers an excellent standard of living with a subtropical climate. Bermuda is influenced by the US, given its proximity to the east coast, however, this is coupled with the island's British history resulting in the island having a unique and distinct fusion of cultures. It is commonplace for a businessman to spend his 15-minute commute to work in the morning on a scooter, or on the ferry, wearing Bermuda shorts. The standard of living in Bermuda is very high, and given that it is an island, goods can be expensive, but the returns are also high both in terms of quality of life and financial reward.
Bermuda has a wealth of intellectual capital in its workforce. The 'Big Four' accounting firms have been in Bermuda for over 40 years, more than 450 attorneys are admitted to the Bermuda Bar, 40 licensed administrators have a physical presence on the island and Bermuda had the fourth highest GDP per capita in the world (in 2011). Impressive for an island with a population of 68,000.
Tax
Bermuda is fiscally neutral. Under Bermuda law, investors in a Bermuda fund other than investors ordinarily resident in Bermuda are not subject to income, capital gains or withholding tax, corporation or profits tax, capital transfer tax, estate duty or inheritance tax or any return filing requirements in Bermuda. There are no local tax considerations. Promoters of a Bermuda vehicle, and the intended investors should, however, obtain professional advice from those qualified in the relevant jurisdictions in relation to the potential liability to tax of the company, under the laws of those jurisdictions in which and with which it may carry on business. Investment funds are exempt from stamp duties. An exempted company, exempted partnership or exempted unit trust is able to obtain from the Minister of Finance under the Exempted Undertakings Tax Protection Act 1966, as amended, an assurance that, in the event of there being enacted in Bermuda any legislation imposing withholding or other tax computed on profits or income, or computed on any capital assets, gain or appreciation, such tax shall not be applicable to such exempted undertaking until March 28, 2035.
Employers with locally based employees pay a minimum payroll tax of 14%.
A recent assessment report of the OECD Peer Review Group found that "Bermuda was credited for legislative changes that have demonstrated progress and global leadership in the area of transparency and tax information exchange." Bermuda currently has 30 Taxation Information Exchange Agreements (TIEA) in place, with countries such as Canada, the Netherlands, Germany, Mexico and the Republic of South Africa. The island is listed on the OECD's white list, and is currently vice-chair on the OECD Global Forum Steering Committee.
Bermuda Stock Exchange
Bermuda is a sophisticated offshore jurisdiction, and boasts it own stock exchange, which is open to both domestic and foreign issuers of debt and equity. The Bermuda Stock Exchange (BSX), established in 1971, is a full member of the World Federation of Exchanges, and affiliate member of IOSCO, recognised by the US Securities and Exchange Commission as a "Designated Offshore Securities Exchange", and by the UK Financial Services Authority as a "Designated Investment Exchange" (although not bound by the European Union Listings Directive or the US SEC regulations). The BSX utilises a customised electronic trading system, which is fully automated, facilitating real time trading by trading members. Once executed, trade information is disseminated to Bloomberg and Reuters for distribution. In addition, for some 11 years, Bermuda has had a national securities depository. The BSX has not only main board listings, but also a mezzanine market which, similar to AIM in the UK, is an incubator listing and permits start ups and emerging companies to list on a more lightly regulated platform. Participants in the mezzanine market are limited to qualified investors.
The BSX is highly motivated and commercially aware, encouraging growth and listings with quick turnaround on applications (two days for comments to the draft prospectus) and is internationally recognised for non-onerous but prudent oversight. It is keen on listing offshore funds, accepting applications from funds domiciled in, inter alia, Bermuda, BVI, Isle of Man, Jersey, Guernsey and the US.
At the end of 2011 the BSX reached over US$3bn in listed catastrophe bonds and insurance linked securities (ILS) on the exchange. The BSX has been working hard to promote itself as the go-to listing destination for ILS and cat bonds and thanks to changes made by the Bermuda Monetary Authority (BMA) to make the island a more attractive domicile for these securities, their efforts seem to be working.
Immigration
Given its small size, Bermuda has a strong immigration policy, which precludes persons that do not hold Bermuda status from engaging in gainful employment without a permit issued by the Ministry of Immigration. This being said, persons may arrive in Bermuda to conduct board meetings without the need for a permit.
Bermuda recognises the importance of international business and the department of immigration works closely with international business to try and quicken the turn around time for work permits (when necessary) and continuing to expand the key man exemptions.
Initiatives
The Foreign Account Tax Compliance Act, the Dodd-Frank Act and the EU Alternative Investment Fund Managers Directive (AIFMD), which subjects managers of alternative investment funds to regulation in the EU, are all on the horizon, which create challenges for the entire offshore world, including Bermuda. Increased exposure to foreign regulators who, it appears, will be able to make demands to see documentation, which it is envisioned will have a tangible impact on systems, controls and costs. Although no-one can with any certainty accurately predict the effect of the AIFMD, committees are in place to effectively respond and manage the potential and realised effect of AIFMD before implementation in 2015, or earlier and Bermuda is strengthening its regulations to satisfy global regulatory agencies.
The Bermuda Government established a taskforce to promote Bermuda as an asset management jurisdiction and has established a committee designed to provide rapid response capability with respect to implementing the Government's critical initiatives. The Committee is empowered to make determinations regarding, inter alia, outside regulation and developing sustainable industry initiatives.
The Bermuda International Managers Association also makes Bermuda receptive and responsive to the needs of the asset management space in order to meet the demands of that industry.
Government, the regulators and industry are actively working together to promote a beneficial environment for growth of the asset management industry. Legislation is constantly under review to ensure that it is as nimble and efficient as possible so that it provides Bermuda with effective market regulation while ensuring that it is not hindering business.
Bermuda continues to look at Latin American funds, particularly Brazil and Mexico, and is in a prime position to capture more business from this growing sector.
Overview of Bermuda's financial services industry
The Investment Funds Act 2006 (IFA), the Investment Business Act (IBA) and the Companies Act 1981 provide the framework for regulation and supervision of the funds and securities industries. The IFA regulates open-ended funds incorporated in Bermuda, and, if not exempted or excluded under the IFA, provides for four classes of investment funds:
(a) institutional fund;
(b) administered fund;
(c) specified jurisdiction fund (newly inserted as a result of industry lobby and allows for investment by Japanese retail funds); and
(d) standard fund.
All funds authorised under the IFA must appoint an investment manager, who does not need to be situated in Bermuda. To the extent an investment manager is changed, the BMA's prior consent must be obtained. In considering an application made to the regulator for an investment manager, the promoters must demonstrate to the BMA's satisfaction the investment manager's experience and expertise.
Ultimate management of a Bermuda incorporated fund is carried out by the board of directors/general partner/trustee, depending on the type of entity. The investment manager of a Bermuda company does not generally owe a direct contractual duty under Bermuda law to the investors. The investment management agreement would be the usual instrument in which any fiduciary duties would be explicitly set out. This would normally cover matters such as the full and proper disclosure of fees and commissions, the method by which conflicts of interest are to be resolved, segregation of client assets and the duty of the investment manager to ensure that its own deals are not aggregated with client deals, namely 'piggy-backing'. An investment manager remains responsible for the performance of services by any sub-adviser. Further duties may be imposed by the IBA, which imposes specific fiduciary duties if subject to the licensing regime promulgated thereunder.
The IBA regulates persons carrying on investment business in or from Bermuda if such person carries on investment business from a place of business maintained by such person in Bermuda.
Generally speaking, a licence would only be required if the investment manager has or should have a physical presence in Bermuda, occupying premises for that purpose, at which it employs staff and pays salaries and other expenses in connection with that business. The IBA allows persons to whom the requirement for a licence would otherwise apply to be exempt if they fall within the scope of the Investment Business (Exemptions) Order 2004 (the Exemption Order).
The IBA provides a minimum criteria for licensing, expressing that controllers and officers of an 'investment provider' (which would include an investment manager) must be a fit and proper person to hold the particular position which he holds or is to hold. Inter alia, in determining whether a person is in fact a fit and proper person, the BMA will have regard to his probity, to his competence and soundness of judgment for fulfilling the responsibilities of that position. For example, the BMA will review and have regard to the previous conduct and activities in business or financial matters of the person in question, to any evidence that he has, for example, committed an offence involving fraud or other dishonesty, engaged in any business practices appearing to the BMA to be deceitful, oppressive or otherwise improper etc.
Application for a full licence can be dealt with in approximately 8-12 weeks. The investment business regime is based on a risk-based approach.
Fund structures
Bermuda has a range of fund structures available (including companies, partnerships, unit trusts, Private Act structures, fund of funds, master/feeder, real estate funds, infrastructure funds and ILS (showing the convergence between the insurance and fund sectors).
In addition, Bermuda was one of the first jurisdictions to pass segregated accounts legislation enabling companies to legally separate the assets and liabilities of one account from the assets and liabilities of another and from creditors of the other accounts within the same company. The Segregated Accounts Companies Act 2000 (the 'SAC Act') has several advantages over traditional routes to creating legal divisions between accounts. It also avoids issues of time, solvency and perfection in relation to charges.
In the context of mutual funds, the utility of legal segregation of accounts is obvious, as different programmes can be offered to investors under the same corporate structure. Legally segregated accounts are particularly attractive for umbrella or multi-class funds, which would afford each class the same limited liability that would be obtained if separate corporate bodies were used for each category of investor. The SAC Act provides specifically that accounts can be the account owner of another account, making it of particular relevance to umbrella structures and allowing for a master/feeder structure to exist within the same company.
A number of specific provisions have been included in the SAC Act in order to facilitate the use of legislation for funds (simplifying the redemption of shares and the payment of dividends or other distributions).
Anti-money laundering and antiterrorist financing legislation
Since 1997, Bermuda has had anti-money laundering legislation and since 2008, anti-terrorist financing legislation, which collectively, set out the statutory framework for the prevention of money laundering and terrorist financing related activities. The BMA has, pursuant to applicable legislation, been provided with statutory powers to monitor financial institutions for compliance with the regulations promulgated and to impose penalties for noncompliance. Bermuda is a member of the Caribbean Financial Action Task Force, the regional body of the Financial Action Task Force, which sets international standards for combating money laundering and the financing of terrorist activities.
Summary
Bermuda is not just an idyllic holiday destination. It is an international focal point for financial services
Bermuda not only keeps pace with global change, it employs flexibility needed to stay ahead and meet the demands of constant global economic change. The island is proud of its reputation, and constantly, through input from international business and stakeholders, seeks to improve and make itself more attractive. It offers a high standard of living with an intelligent and established infrastructure. If you are considering a move, consider Bermuda.
Footnotes:
1 As at December 31, 2010, figures released by the Bermuda Monetary Authority on February 21, 2012.
2 Bermuda Monetary Regulatory Update, January 2012.
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.
Specific Questions relating to this article should be addressed directly to the author.
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