Funds classified as Exempt Funds under the Investment Funds Act 2006 of Bermuda have until 3 October 2016 to be reclassified as Class A Exempt Funds or Class B Exempt Funds (the New Classes). The process is fairly straightforward and involves Bermuda lawyers filing an application with the Bermuda Monetary Authority (the BMA) via their online ERICA system.

The requirement for the reclassification of Exempt Funds is as a result of the Investment Funds Amendment Act 2013 (the Amendment Act) which amended the Investment Funds Act 2006 (the Act) with effect from 4 October 2013. The Amendment Act introduced the New Classes and allowed for the existing Exempt Funds classification to continue in accordance with the repealed provisions for a transition period of three years.

Fast forward three years and the transition period for Exempt Funds under the old regime will end on 3 October 2016, leaving any Exempt Funds still in existence on 4 October 2016 as no longer qualifying for an exemption.

The New Classes allow for funds to be launched on a fast-track basis and are considered to be user-friendly, more efficient and cost effective for funds. The New Classes are exempt from the requirement to be authorised and are deemed to be registered as qualified funds. The criteria which funds must meet to be classified as a Class A Exempt Fund or a Class B Exempt Fund:

Class A Exempt Funds

Class A Exempt Funds operate as self-certification funds. They can be registered and operational on the same day and require no regulatory approval to launch.

Criteria for Class A Exempt Funds
 

  1. Only open to qualified participants (sophisticated investors)
  2. Must appoint an investment manager who:
    1. Is licensed under the Investment Business Act 2003 of Bermuda
    2. Is authorised or licensed by a foreign regulator recognised by the BMA; or
    3. Is carrying on business in or from Bermuda or in a jurisdiction recognised by the BMA, being a person who a) has gross assets under management of not less than BD$100 million or b) is a member of an investment management group that has consolidated gross assets under management of not less than BD$100 million.
  3. Must appointed an officer, trustee or representative resident in Bermuda who has authority to access the books and records
  4. Must appoint:
    1. an administrator
    2. a registrar
    3. an auditor, and
    4. a custodian or prime broker; and
  5. Must prepare financial statements in accordance with any of (i) IFRS, (ii) GAAP in Bermuda, Canada, UK or USA or (iii) such other GAAP as the BMA may recognise.

Class B Exempt Funds

Class B Exempt Funds require only minimal regulatory approval and are available to funds which do not satisfy all the requirements for Class A Exempt Funds.

Criteria for Class B Exempt Funds

  1. Only open to qualified participants
  2. Must appoint an officer, trustee or representative resident in Bermuda who has authority to access the books and records
  3. Must appoint:
    1. an investment manager
    2. an administrator
    3. a registrar
    4. an auditor, and
    5. a custodian or prime broker, being persons who, in the BMA's view, are fit and proper; and
  4. prepare financial statements in accordance with any of (i) IFRS, (ii) GAAP in Bermuda, Canada, UK or USA or (iii) such other GAAP as the BMA may recognise.

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.