Preface

This publication has been prepared for the assistance of those who require information about the Investment Business Act 2003. It deals in broad terms with the requirements of Bermuda law and it is not intended to be exhaustive but merely to provide information which we hope will be of use to our clients. We recommend that our clients seek legal advice in Bermuda on their specific proposals before taking steps to implement them.

Copies of the Investment Business Act 2003 and any other legislation referred to herein are available upon request.

Conyers Dill & Pearman

1. INTRODUCTION

The Investment Business Act 2003 (as amended from time to time, the "IBA") came into operation on January 30, 2004. It replaced the Investment Business Act 1998 to effect a new but similar financial services regime in Bermuda and brought Bermuda's regime more in line with international standards. The IBA is administered by the Bermuda Monetary Authority (the "BMA").

2. REQUIREMENT FOR LICENCE OR REGISTRATION

The IBA requires that any person carrying on investment business in or from Bermuda be licensed or registered under the IBA unless it has been designated as a Non-Registrable Person by the Minister of Finance (the "Minister") by order made under section 13D of the IBA.1 A person carries on investment business in or from Bermuda for the purposes of the IBA if that person (a) is incorporated or formed in Bermuda and carries on investment business, (b) is incorporated or formed outside Bermuda and carries on investment business in or from Bermuda, or (c) engages in an investment activity the doing of which constitutes the carrying on by such person of investment business in or from Bermuda under an Order made by the Minister after consultation with the BMA.

The following types of service providers carrying on investment business from a place of business in Bermuda are required to apply for a licence or registration, although this list is not exhaustive:

  1. investment managers;
  2. investment advisers;
  3. market makers;
  4. broker/dealers;
  5. market intermediaries.

The BMA is required to publish on its website a list of every person licensed or registered under the IBA (referred to herein as "investment providers") and such particulars of each licence and registration of every investment provider as the BMA may determine.

3. MEANING OF "INVESTMENT BUSINESS"

The IBA contains a wide definition of "investment business" which includes carrying on any of the following activities by way of business:

(a) Dealing in investments: buying, selling, subscribing for, or underwriting, investments, or offering or agreeing to do so, either as principal or agent. A person will be "dealing" with respect to a particular transaction only if he continuously holds himself out as carrying on that business or the transaction is a result of him continuously soliciting members of the public (i.e. any other person except licensed, registered or Non-Registrable Persons, members of the same group as the relevant person, and persons who are or propose to become, participators with the relevant person in a joint enterprise).

'Dealing' does not include:

  1. dealing by a company, in its own shares, by a unit trust in its own units, or by a partnership in its own partnership interests; or
  2. accepting or transferring an instrument acknowledging or creating indebtedness in respect of any loan, etc, by a person in respect of an instrument which he has made.

(b) Arranging deals in investments: making or offering, or agreeing to make:

  1. arrangements with a view to another person buying, selling, subscribing for, or underwriting a particular investment, being arrangements which bring about or would bring about the transaction in question; or
  2. arrangements with a view to a person who participates in the arrangements buying, selling, subscribing for or underwriting investments.

'Arranging' does not include:

  1. arrangements made by a person with a view to a transaction to which he himself will be a party as principal or agent;
  2. arrangements, the purpose of which is to provide finance to enable a person to buy, sell, subscribe for or underwrite investments;
  3. arrangements for the introduction of persons to licensed or Non-Registrable Persons, or persons whose ordinary business involves him in engaging in an investment activity and who is not unlawfully carrying an investment business in Bermuda, where such introduction is made with a view to the provision of independent advice or independent exercise of discretion in relation to investments; or
  4. arrangements with a view to a person accepting or transferring an instrument creating or acknowledging indebtedness in respect of any loan, etc., which he has made.

(c) Managing investments: managing or offering, or agreeing to manage, assets belonging to another person where those assets consist of or include investments.

(d) Investment advice: giving or offering, or agreeing to give, to persons in their capacity as clients or potential clients, advice on the merits of their purchasing, selling, subscribing for or underwriting an investment, or exercising any right conferred by an investment to acquire, dispose of, underwrite or convert an investment.

(e) Safeguarding and administering investments: safeguarding and administering, or arranging for the safeguarding and administration, or offering or agreeing to safeguard and administer, or to arrange for the safeguarding and administration of certain assets which may consist of or include investments where such arrangements have been held out as being arrangements under which investments would be safeguarded and administered.

'Safeguarding and administering' does not include: safeguarding and administering investments, or agreeing or offering to do so, by a person under arrangements where another person permitted under the IBA to provide such a service is responsible for and operates such arrangements in the course of carrying on such activities in Bermuda.

(f) Promotion of investments to the public: promotion to members of the public includes:

  1. advertising or agreeing to advertise material or information which promotes an investment to members of the public;
  2. issuing or agreeing to issue a prospectus, application form or proposal form in relation to an investment to members of the public; and
  3. distributing, circulating or agreeing to distribute, circulate or make available, material relating to an investment to members of the public,

provided that this investment activity applies to a person or agent only if he continuously solicits members of the public for the purpose of inducing them to enter as principals or agents into transactions.

4.MEANING OF "INVESTMENTS"

The IBA defines "investments" in quite broad terms. In addition to items such as shares, bonds and warrants, the definition also includes such things as options to acquire or dispose of any investment, rights under any contract, the purpose of which is to secure a profit by reference to fluctuations in the value or price of property, and rights under any contract constituting long-term insurance business (as defined in the IBA).

However, Part 3 of the First Schedule of the IBA outlines certain activities which are expressly excluded from the definition of investment business. Among these excluded activities are:

  1. certain activities carried on between members of the same group, firm or joint enterprise;
  2. certain activities carried on for the purposes of, or in connection with, the sale of goods or the supply of services;
  3. operating employee share or savings schemes;
  4. a sale of a body corporate involving the disposal and acquisition of at least fifty per cent of the voting rights, or where the object of the transaction is to acquire day-to-day control of the affairs of the body corporate;
  5. certain activities carried on by a trustee or personal representative, provided additional remuneration is not received for doing so; and
  6. general advice given in a periodical publication or broadcast.

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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.