Bermuda: Review of Recent Events Affecting The Bermuda Funds Industry

• Bermuda to fast track the incorporation process for collective investment schemes
• Relaxation of Exchange Control Regulation
• Bermuda Stock Exchange designation

Bermuda to fast track the incorporation process for collective investment schemes

The Minister of Finance has announced that following an amendment to the Companies Act 1981 (the "Companies Act") the business of collective investment schemes in Bermuda (more commonly known as mutual funds) is now designated as an unrestricted business activity under the Companies Act, with effect from 25th November 2005.

James Keyes, Partner in Appleby’s Funds and Investment Services Team commented, "The main impact of these changes will be to speed up the incorporation process for funds as they will no longer require the approval of the Minister of Finance. The Bermuda Monetary Authority (the "BMA") will now have sole responsibility for approving fund incorporations. This follows an earlier change that allowed funds to be incorporated (and therefore establish bank and brokerage accounts) prior to receiving their

Collective Investment Scheme Classification from the BMA. This is all part of an ongoing initiative by the BMA to enhance Bermuda’s competitive and responsive position in the offshore world."

The Minister has emphasized that the change to the Companies Act is intended to make the process more efficient without in any way diluting Bermuda’s rigorous vetting and approval standards for mutual funds.

On 1 June 2005, the BMA published new general permissions under the Exchange Control Act 1972 to limit the circumstances where the BMA’s prior consent to issue and transfer shares and other securities is required. This will not change the present policy whereby free issuance and transferability is normally given to mutual fund company investor shares regardless of whether or not the fund is listed on an appointed stock exchange.

In summary, general permissions have now been given by the BMA in connection with the issue and transfer of securities, which includes equity securities, notes and convertibles, from and or to non-residents of Bermuda for as long as the company's equity shares (being shares which give the holder the right to appoint directors to the company) are listed on an appointed stock exchange, which includes, among others, New York, London and Bermuda.

General permissions have also been given for the issue and transfer of debt instruments and non-voting shares to persons who are non-resident for exchange control purposes with respect to companies whose equity shares are not listed.

BMA approval is required in relation to the issue and transfer of equity shares in the case of a company whose shares are not listed, except that general permission has been given, subject to certain qualifications, with respect to the transfer of equity securities between nominee holders of equity securities, in circumstances where the transfer does not result in the change in ultimate beneficial ownership of the equity shares. Transfer of equity shares between companies which are affiliated is also permitted without the need for prior consent from the BMA.

Furthermore, general permission has been given for the transfer of shares in connection with the enforcement of a secured lender's (being a licensed bank or licensed lending institution in an approved jurisdiction) rights under a share charge or share mortgage.

For more specific details of the BMA’s notice to the public please visit our website www.applebyglobal.com

The Bermuda Stock Exchange ("BSX") announced on 1 August 2005 that it has been granted Designated Investment Exchange (DIE) status by the UK Financial Services Authority with effect from 1 September 2005.

This follows the news in July that the BSX had been granted Approved Stock Exchange status by the Australian tax authorities.

According to the BSX, the importance of the designation is that:

- The DIE list provides UK investors and their brokers with a reference point for those non-UK exchanges which, while not carrying on a regulated activity in the UK, have appropriate standards of investor protection;

- Under certain rules, UK authorized firms may treat transactions effected on a DIE in the same way as transactions on a recognized investment exchange. The direct consequences for firms is that these transactions will attract a significantly lower position risk requirement and reduce their costs; and

-A third benefit is that UK authorized firms may take advantage of the exemptions granted under Rule 30.10 of the US Commodity Futures Trading Commission’s Rules and sell investments listed on a DIE to customers located in the USA.

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.