Consultation Paper - Fund Administration Provider Business Act 2019 (Code of Practice and Statement of Principles) (2020-03-31)

Summary

This is a Bermuda Monetary Authority consultation paper releasing draft versions of a Code of Practice and a Statement of Principles under the Fund Administration Provider Business Act 2019. The Code would replace the 2008 Code of Conduct for Fund Administrators and set out detailed conduct, governance and risk management standards for licensed fund administration providers, while the Principles would clarify how the Authority interprets licensing criteria and exercises its enforcement powers. Both documents are in draft form and open for industry comment; they are not yet in force.

• Proportionality: Providers with higher risk profiles (based on nature, scale and complexity) would need more comprehensive governance and risk management frameworks.
• Investor communication: Providers handling communication with fund investors/shareholders must ensure it is timely, accurate and professional, and maintain complaint-handling records.
• Non-compliant funds: Providers must stay alert to funds no longer complying with legal or offering document requirements and assess whether to continue services or report concerns.
• Transfers of administration: On transfer to a new provider, records must be handed over as soon as practicable and no later than 30 days after termination of services, unless otherwise agreed.
• Client due diligence: Providers must have AML/CFT-compliant client due diligence procedures, verify source of assets, conduct background checks on new fund clients, and ensure adequate disclosure in offering documents.
• Integrity, disclosure and controls: Providers must act with integrity, protect client confidentiality, maintain clear marketing communications, and have the board review internal control effectiveness at least annually.
• Operational requirements: Providers must ensure prompt execution of client instructions, competent management and staff training, robust cybersecurity policies, sound outsourcing arrangements, appropriate risk management frameworks, responsible advertising, and open cooperation with the Authority.

Comments on both draft documents were requested by the Authority by 14 May 2020, after which the Code and Principles may be revised before formal issuance under sections 6 and 7 of the Act.

Key obligations

• Providers must have arrangements ensuring timely, accurate and professional communication with fund investors/shareholders and maintain complaint records
• On transfer of administration, records must be transferred to the new provider as soon as practicable, and no later than 30 days from termination of the previous provider's services, unless otherwise agreed
• Licensed undertakings must have client due diligence procedures compliant with Bermuda's AML/ATF legislation, including verifying identity and source of assets
• Providers must conduct adequate background checks on new fund clients, operators and controllers before agreeing to provide services
• Providers must ensure offering documents adequately disclose the nature and scope of the provider's functions and role
• The board must review and assess the effectiveness of its internal control framework at least annually and document and resolve material deficiencies
• Providers must maintain confidentiality arrangements for client and investor information and advise engaged persons in writing of confidentiality obligations
• Providers must have robust policies, procedures and controls to identify, assess and manage cybersecurity risks
• Providers must implement an appropriate risk management framework and comply with outsourcing requirements
• Providers must deal openly and cooperatively with the Authority and must not frustrate its supervisory or regulatory functions
• Submit comments on the draft Code of Practice and Statement of Principles to the Authority by 14 May 2020

Applies to

fund administration providers, licensed undertakings holding fund administration provider business licences

Deadlines

• 14 May 2020: Deadline for industry comments on the draft Code of Practice and Statement of Principles
• 30 days from termination of the previous provider's services: Latest point by which records must be transferred to a new fund administration provider on transfer of administration, unless otherwise agreed
• at least annually: Frequency at which the board must review and assess the effectiveness of its internal control framework, and at which AML/ATF internal compliance monitoring should occur