Kane LPI discusses recent regulatory changes that will serve to enhance Bermuda’s standing in the fund sector
There have been a number of regulatory changes recently in Bermuda impacting the fund sector. Firstly, can you outline the recent amendments to the Partnership Law?
Bermuda has introduced a number of amendments to the Partnership Law to help broaden the island’s appeal as a prime location for conducting international business. One of the most significant changes allows partnerships from any jurisdiction to relocate and continue business operations in Bermuda without having to dissolve the existing structure.
Changes to the law now mean that it is also possible to convert a partnership into a company or a company into a partnership without having to wind up or dissolve it to change its legal status.
Further, the amendments have expanded Bermuda’s safe harbour provisions, providing additional flexibility in terms of managing and operating a Bermuda partnership. A limited partner can now make enquiries about the affairs of the business without being seen as influencing or participating in the operations of the entity and thereby avoiding any potential liability.
Limited liability company (LLC) legislation has also been tabled in the House of Assembly in Bermuda. How significant is this development?
The proposed LLC legislation is modelled on the Delaware LLC legislation. This is another tool for attracting US business as the Delaware structure is something which US counsel and investment fund managers are very familiar with. It is tried, tested and trusted. By modelling the Bermuda LLC on this it will ensure confidence in the structure from the outset.
Also, currently the structures and constitutional documents of the onshore Delaware limited partnership (LP) and the offshore Bermuda limited company are very different. With the introduction of the Bermuda LLC, which in substance is very similar to a Delaware LLC, this will help provide a level of consistency between the onshore and offshore documents, making the process of establishing such entities far more straightforward.
Bermuda’s application for EU passporting rights for alternative investment fund managers is pending. What are the implications of this if approved?
The application will allow Bermuda-based alternative investment funds to market their funds and services throughout the EU without the need to secure individual member state approval. Bermuda is one of nine potential early adopters of the passport, along with Australia, Canada, Cayman Islands, Hong Kong, Isle of Man, Japan, Singapore and the US and is working closely with the European Securities and Markets Authority on this. If the application is successful it will significantly elevate the island’s standing in the eyes of fund managers as a jurisdiction to launch offshore funds.
Updates to the Proceeds of Crime Act were also introduced on January 1. What are the knock-on effects of these?
The updates increase the scrutiny applied to the movement of money through fund structures, both in terms of money entering and exiting the structure. From a service provider’s perspective, it places a greater onus on us to ensure we have a robust anti-money laundering/anti-terrorist funding (AML/ATF) framework and that we conduct stringent tests to maintain the reliability and integrity of our risk management functions and internal controls. Additionally, we have to enhance the scope of the audit that we carry out on our AML/ATF programs.
In recent weeks, the draft Bribery Act 2016 has also been published for consultation. This is modelled on the UK Bribery Act 2010 and the consultation period ends on August 15.