HAMILTON, Bermuda–(HedgeWorld.com) Incorporation and classification of collective investment ventures (which includes mutual fund companies and unit trusts) involve careful vetting of applications by the Bermuda Monetary Authority to ensure that promoters and service providers are suitable and that these ventures meet the high standards applied in Bermuda. Applications in relation to mutual funds (and unit trusts) are frequently time-critical, and concerns have been expressed that the necessary vetting process may delay an application. Accordingly, the BMA (in collaboration with the Ministry of Finance) recently implemented a number of changes with a view to expediting the incorporation process.
Up until recently, at the same time the application is made to form the mutual fund application also was required for classification of the mutual fund as a Bermuda standard, scheme, Bermuda institutional scheme or Bermuda-recognized scheme. The establishment and launch of a mutual fund in Bermuda involves two separate vetting processes by the BMA–the first in relation to the incorporation of the mutual fund company, which mirrors the approach taken in respect of all company incorporation applications in Bermuda, and the second is in relation to classification (or, exceptionally, exemption from classification) which is a much more intensive, and therefore possibly time consuming, process.
Persons submitting applications to the BMA may now either:
seek to have the company incorporated in advance of submission of the related classification application, or
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ask to have the incorporation and classification applications processed simultaneously.
In cases where the applicant seeks to have the company incorporated in advance of submission of the related classification application, the BMA will complete the standard incorporations-related due diligence process. In this regard, the BMA only reviews information submitted on the initial shareholders and the ultimate beneficial owners. Typically, this information would relate to the entity, which would normally comprise founders or manager shares that intends to subscribe for the initial share capital. It also is typical that the initial shareholder will be the sponsor, promoter or, if different, the investment manager. It also could be a charitable or purpose trust established in Bermuda or another qualifying jurisdiction. The establishment of a mutual fund requires the consent of the Minister of Finance and the BMA will submit the application forthwith to the Minister of Finance. Where incorporation is approved, the promoters will then be in a position to prepare quickly for the scheme to begin operations, by holding the necessary organizational meetings at which any necessary bank and/or brokerage accounts may be opened and other steps that are normal following establishment of a new company may be taken. Of course, the scheme cannot operate as a fund until it is appropriately classified (or gains exemption from classification). Consequently, a separate launch board meeting will have to be held to approve the various material contracts appointing the service providers and the offering document for distribution to potential investors.