Bermuda
19 January 2011
As one of the longest-established offshore administration centres, Bermuda has made a name for itself as a reliable, technical strong jurisdiction. But the competition keeps coming.
Image: Shutterstock
When comparing Bermuda to other jurisdictions, there is one mistake overseas visitors make and that’s to mix the jurisdiction in with the likes of the Cayman Islands and its neighbours. One thing needs to be made clear: Bermuda is not part of the Caribbean. However, it’s often compared to the islands close by when it comes to looking for a domicile by fund managers and more often than not, Bermuda is the one that’s chosen.
And it’s not hard to see why. Bermuda has been offering fund services for decades and in that time it has built up a loyal and educated workforce, a strong technical infrastructure - even if communications costs are comparatively high - and a regulatory and tax infrastructure that can attract most investors. When it comes to the North American timezone, Bermuda is at the top of the hill.
In the current market environment, reputation is everything. And with funds seeking the safest possible domicile for their investments, Bermuda has done reasonably well during the downturn with as investors fly to quality. “When we’re pitching to clients, we don’t have to sell Bermuda as a domicile,” says one administrator. “That’s a given. All we have to do is pitch ourselves.”
In addition to the huge investment funds market, Bermuda is also home to an enormous reinsurance and captive insurance industry, and the servicing of these markets is often inextricably linked to fund management. The past decade has seen a number of high profile moves to the island - Invesco, with $500 billion AUM moved in 2007, thanks to the Bermuda’s reputation and the number of similar types of firms already domiciled there.
While the US and, to a lesser extent, Canada have long been the focus of the Bermudan fund administration, these are mature markets. So while there will always be large amounts of business to be done, there is unlikely to be high growth. And as investors’ eyes have turned towards the hot Asian economies there has been the fear that Bermuda’s geography will make it too difficult to effectively service that region.
However, some forward-looking providers are casting their eyes towards newer markets. The Latin American funds sector is growing at a rapid rate, particularly in Brazil and Mexico, and Bermuda has set itself up to be in a prime position to capture more of the business. “Latin America is a growth area and this may be an alternative market that managers could tap into,” says Peter Hughes, managing director at Apex Fund Administration Services.
Regulation
The country recently introduced amendments to the Investment Funds Act 2006. The Investment Funds Amendment Act 2010 received assent at the end of 2010 and has the aim of aligning “the regulatory framework for funds and fund administrators more closely with the requirements that exist in other regulatory legislation in Bermuda, while ensuring that the framework overall remains risk-based and recognises the unique nature of the funds industry [in Bermuda].”
Under the Act, the definition of service provider has been expanded to include auditors appointed to a fund - previously it only applied to custodians, fund administrators, investment managers and registrars, as well as people and businesses that those providers outsourced their services. This means that auditors now have to comply with the jurisdictions rules on fit and proper persons.
n addition, section 9 of the Act sets out the criteria for exemption of a fund and includes the requirement to have a recognised fund administrator, an auditor and a Bermuda resident officer or trustee or resident representative who has access to the books and records of the investment fund. To bring exempted funds into line with authorised funds, the Amendment Act introduces the additional requirements for exempted funds to appoint an investment manager, registrar, custodian and/or prime broker. All such additional service providers will be included in the vetting process per section 7(1) of the Act in the same way as authorised funds.
The Amendment Act act also establishes that fund administrators are now required to notify the Bermuda Monetary Authority (the “Authority”) in advance when there is a prospective change of control. The Authority now has power under sections 45 of the Act to object to a change in control to prevent it happening or to object to existing controllers where, in the opinion of the Authority, they are no longer fit and proper to be controllers. These amendments mirror the provisions which already exist in Bermuda for other licensed entities such as banks and investment businesses.
Section 55 of the Act has been amended to provide a right of appeal in circumstances where the Authority has exercised its power to object under section 45. The person who is the subject of the Authority’s objection may appeal to a Tribunal constituted under section 56. This right of appeal provides that proper judicial review of the authority’s exercise of its powers in accordance with section 45 is provided for under the Act.
And it’s not hard to see why. Bermuda has been offering fund services for decades and in that time it has built up a loyal and educated workforce, a strong technical infrastructure - even if communications costs are comparatively high - and a regulatory and tax infrastructure that can attract most investors. When it comes to the North American timezone, Bermuda is at the top of the hill.
In the current market environment, reputation is everything. And with funds seeking the safest possible domicile for their investments, Bermuda has done reasonably well during the downturn with as investors fly to quality. “When we’re pitching to clients, we don’t have to sell Bermuda as a domicile,” says one administrator. “That’s a given. All we have to do is pitch ourselves.”
In addition to the huge investment funds market, Bermuda is also home to an enormous reinsurance and captive insurance industry, and the servicing of these markets is often inextricably linked to fund management. The past decade has seen a number of high profile moves to the island - Invesco, with $500 billion AUM moved in 2007, thanks to the Bermuda’s reputation and the number of similar types of firms already domiciled there.
While the US and, to a lesser extent, Canada have long been the focus of the Bermudan fund administration, these are mature markets. So while there will always be large amounts of business to be done, there is unlikely to be high growth. And as investors’ eyes have turned towards the hot Asian economies there has been the fear that Bermuda’s geography will make it too difficult to effectively service that region.
However, some forward-looking providers are casting their eyes towards newer markets. The Latin American funds sector is growing at a rapid rate, particularly in Brazil and Mexico, and Bermuda has set itself up to be in a prime position to capture more of the business. “Latin America is a growth area and this may be an alternative market that managers could tap into,” says Peter Hughes, managing director at Apex Fund Administration Services.
Regulation
The country recently introduced amendments to the Investment Funds Act 2006. The Investment Funds Amendment Act 2010 received assent at the end of 2010 and has the aim of aligning “the regulatory framework for funds and fund administrators more closely with the requirements that exist in other regulatory legislation in Bermuda, while ensuring that the framework overall remains risk-based and recognises the unique nature of the funds industry [in Bermuda].”
Under the Act, the definition of service provider has been expanded to include auditors appointed to a fund - previously it only applied to custodians, fund administrators, investment managers and registrars, as well as people and businesses that those providers outsourced their services. This means that auditors now have to comply with the jurisdictions rules on fit and proper persons.
n addition, section 9 of the Act sets out the criteria for exemption of a fund and includes the requirement to have a recognised fund administrator, an auditor and a Bermuda resident officer or trustee or resident representative who has access to the books and records of the investment fund. To bring exempted funds into line with authorised funds, the Amendment Act introduces the additional requirements for exempted funds to appoint an investment manager, registrar, custodian and/or prime broker. All such additional service providers will be included in the vetting process per section 7(1) of the Act in the same way as authorised funds.
The Amendment Act act also establishes that fund administrators are now required to notify the Bermuda Monetary Authority (the “Authority”) in advance when there is a prospective change of control. The Authority now has power under sections 45 of the Act to object to a change in control to prevent it happening or to object to existing controllers where, in the opinion of the Authority, they are no longer fit and proper to be controllers. These amendments mirror the provisions which already exist in Bermuda for other licensed entities such as banks and investment businesses.
Section 55 of the Act has been amended to provide a right of appeal in circumstances where the Authority has exercised its power to object under section 45. The person who is the subject of the Authority’s objection may appeal to a Tribunal constituted under section 56. This right of appeal provides that proper judicial review of the authority’s exercise of its powers in accordance with section 45 is provided for under the Act.
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