Investment Funds Act 2006 — Bermuda
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Operating an investment fund in or from Bermuda is an offence unless the Bermuda Monetary Authority (BMA) has authorised, registered or designated it (s. 5). Authorised funds fall into four classes. Registered funds are private funds of up to 20 participants and three professional classes open only to qualified participants: Class A, Class B and the Professional Closed Fund.
Scope and the core mechanism
An investment fund is defined in s. 3. Participants share in profits from property they do not control day to day, and contributions are pooled or the property is managed as a whole. The fund must be open-ended or closed-ended (s. 3(3A)). The Minister, on the BMA's advice, may order that specified arrangements are not investment funds (s. 3(4)). That order-making power is the Act's route for excluding arrangements from scope.
Operating a fund outside the three permitted routes is an offence under s. 5(3) and (4). On indictment the penalty is a fine of up to $200,000, imprisonment for up to five years, or both. Every operator must also run the fund prudently, in line with the minimum criteria in the Schedule (s. 5(2A)).
The registration side has changed shape over time. The Act as first passed had an exempted-fund route, and transitional s. 76(6) still refers to funds "exempted under section 7". Act 2013 : 28 repealed and substituted s. 7, which now sets the Professional Class B fund. Act 2019 : 46 added the Professional Closed Fund (ss. 8B and 8C) and Overseas Fund designation (ss. 5A to 5E) from 1 January 2020.
In practice: classification is a continuing condition, not a launch label. Each registered class carries an annual certificate to the BMA within six months of year end, extendable to nine months on application. A failure to file on time attracts a late fee under s. 17A.
Key provisions
| Provision | What it says | The practical point |
|---|---|---|
| Private fund (s. 6). | No more than 20 participants and no invitation to the public generally. It appoints a local service provider regulated by the BMA, and an officer, trustee or representative resident in Bermuda with authority to access the books and records (s. 6(2A), (2D)). | An open-ended private fund also needs a custodian and a fund administrator (s. 6(2B), (2C)). The annual filing includes NAV information and accounts (s. 6(3E)). |
| Professional Class A (s. 6A, s. 6B). | Qualified participants only. The investment manager holds an Investment Business Act 2003 licence or a recognised foreign licence. Alternatively, it does business in or from Bermuda or a recognised jurisdiction. It then needs gross assets under management of at least $100 million, alone or across its group. | Registration is filed on or before the fund starts business, with the offering document. |
| Professional Class B (s. 7, ss. 8 and 8A). | Qualified participants only, with an investment manager, fund administrator, auditor and custodian or prime broker that the BMA considers fit and proper. | The operator needs BMA approval before appointing a director or service provider (s. 8A(8)). |
| Professional Closed Fund (s. 8B, s. 8C). | A closed-ended fund for qualified participants, who receive an investment warning before buying. It appoints an auditor, and either a BMA-licensed local service provider or an officer, trustee or representative resident in Bermuda with access to the books and records (s. 8B(2)(d)). | The annual filing includes NAV information on the fund and its underlying assets and a statement of material changes to the terms of offering (s. 8C(3)(b)). |
| Qualified participants (s. 9). | Includes individuals with income above $200,000 in each of the last two years, or $300,000 jointly with a spouse. They must reasonably expect the same this year (s. 9(3)). Net worth above $1,000,000, alone or jointly with a spouse, also qualifies, excluding the home and insurance benefits. | Companies, partnerships and trusts qualify with total assets of at least $5 million, or where every owner or beneficiary qualifies (s. 9(2)). Sophisticated private investors also qualify. |
| Disqualifying event (s. 9A). | The operator notifies the BMA within 14 days of becoming aware that a registration requirement has been breached. Within 45 days it explains the cause and its plan to rectify. | Missing either notice brings a default fine of $5,000 plus $500 a day. The BMA may direct that the fund no longer qualifies for its class (s. 9A(4) and (5)). |
| Authorised classes (s. 11). | Institutional, administered, specified jurisdiction and standard. An institutional fund is open only to qualified participants or sets a $100,000 minimum investment. | The standard fund is the residual class for any authorised fund that fits no other (s. 11(7)). |
| Authorisation requirements (s. 14). | Audited annual accounts, an investment manager, auditor and fund administrator, and an independent custodian regulated in Bermuda or to an equivalent standard abroad. | The constitution must cover valuation, the NAV calculation, dealing terms and redemption suspension (s. 14(3)). |
| Reports to the BMA (s. 26). | An authorised fund files an annual compliance statement, with particulars of any breach. It is due within six months of year end, or up to nine months if the BMA allows (s. 26(1)(b)). | A service provider aware that assets were not invested materially in line with the offering document notifies the BMA within 14 days of the occurrence. It also reports in writing to the operator (s. 26(2) and (3)). |
| Overseas Fund (s. 5A, s. 5B). | A fund formed abroad needs BMA designation before it is managed or promoted in or from Bermuda. The operator notifies the BMA first, with the offering document and its home-regulator details. | Designation brings its own annual certificate of continued compliance (s. 5B(1)). |
Amendment history
| Date | Instrument | What changed |
|---|---|---|
| 28 Dec 2006 (assent); 7 Mar 2007 (operative) | Investment Funds Act 2006 (2006 : 37). | From the operative date, repealed the BMA (Collective Investment Scheme Classification) Regulations 1998 (s. 75). Funds approved under them became standard or institutional schemes (s. 76(1)). |
| 22 Dec 2010 | Act 2010 : 61 (annotation). | Inserted s. 2A on controllers and associates, and substituted the authorisation requirements in s. 14(1). |
| 3 Oct 2013 | Act 2013 : 28 (annotations). | Inserted the Professional Class A fund (ss. 6A, 6B) and the disqualifying-event notice (s. 9A). Substituted s. 7. |
| 28 Oct 2016 | Act 2016 : 32 (annotations). | Inserted the BMA statement of principles (s. 2B), urgent directions (s. 31A) and civil penalties (s. 67A). |
| 31 Dec 2019 | Act 2019 : 32 (annotation). | Repealed the Part III licensing of fund administrators and deleted the former definition of fund administrator. |
| 1 Jan 2020 | Act 2019 : 46 (annotations). | Inserted a new definition of fund administrator pointing to the Fund Administration Provider Business Act 2019 (s. 2). Added Overseas Fund designation (ss. 5A to 5E), the Professional Closed Fund (ss. 8B, 8C), fit and proper and codes of conduct (ss. 4A, 4B) and registration revocation (ss. 10A to 10D). |
| 21 Jan 2021 | Act 2021 : 4 (annotation). | Required a private fund to appoint an officer, trustee or representative resident in Bermuda (s. 6(2D)), and amended the professional fund requirements. |
| 29 Sep 2023 | Act 2023 : 25 (annotation). | Introduced late fees for missed filings (s. 17A), auditor reporting to the BMA (s. 63A) and other changes. |
What it works with
The Act regulates the fund. A Class A fund's investment manager may be licensed under the Investment Business Act 2003 (s. 6A(2)(b)), and fund administrators now fall under the Fund Administration Provider Business Act 2019. Detailed operating and offering-document rules come from the BMA under ss. 37 and 38.
For the Cayman and BVI equivalents, see the Cayman Mutual Funds Act, the Cayman Private Funds Act and the BVI SIBA. Mauritius has an expert-fund category with its own requirements and exemptions under its CIS Regulations 2008 (regs 78 to 81). Bermuda's BMA fee date is listed in the regulator annual fee deadlines, and annual return dates in the fund annual return deadlines.
In practice: a registered fund that drifts outside its class triggers two clocks, 14 days for the first notice and 45 days for the rectification plan. Missing either brings a daily fine, and ignoring a resulting BMA direction exposes the operator to a civil penalty of up to $100,000 (s. 9A(6)).
To verify
- Exclusion orders: which orders the Minister has made under s. 3(4) taking arrangements outside the definition of an investment fund.
- Administered fund test: how the BMA applies s. 11(4), which still refers to an administrator licensed under the repealed Part III.
- Current fund rules: the BMA's fund rules and offering document rules in force under ss. 37 and 38, per the BMA's investment funds rules page.
- Post-2023 amendments: whether any Act after 2023 : 25 has amended the Act, per the consolidated text on Bermuda Laws Online.
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