The recent Economic Substance Act, 2018 (“ESA”), passed in December 2018, included within it a series of amendments to the Investment Funds Act, 2006 (the “IFA”). These amendments to the IFA are for the purpose of enhancing Bermuda’s regulatory framework with respect to certain categories of unregulated investment funds, namely, the private Excluded funds and the Class A and Class B Exempt funds.

This alert deals solely with the amendments to the IFA. For information on the broader implications of the ESA for Bermuda entities, please refer to the Conyers alerts on Economic Substance.

The original IFA framework

Qualifying investment funds previously had the option to register with the Bermuda Monetary Authority (the “BMA”) as authorised/regulated funds or in one of three non-regulated categories of funds: (i) the private Excluded fund; (ii) the Class A Exempt fund; and (iii) the Class B Exempt fund. This group of non-regulated funds was exempted from the requirement to be authorised under the IFA and the BMA’s focus was largely on self-certification by the fund operator. That has now changed to an application and registration process.

The amendments to the IFA

The various amendments to the IFA primarily relate to the replacement of the existing “Excluded”, “Class A Exempt” and “Class B Exempt” fund designations with “Private fund”, “Professional Class A funds” and “Professional Class B funds”, respectively. This group is now referred to collectively as “registered funds”.

The amendments generally seek to increase BMA oversight of these entities and bring them more in line with the BMA’s oversight of authorised and regulated funds. In summary, the amendments include (among other things) extending the BMA’s powers to make and modify/waive rules, require the production of information or documents and conduct investigations in relation to such funds. The amendments also expand the matters in respect of which the BMA may make rules to include obligations with respect to depositary functions and safekeeping obligations and additional requirements related to reports to the BMA, public disclosure and disclosure to investors.

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