Consultation Paper on New Legislative Framework for Fund Administrators (Fund Administration Provider Business Act 2019)

Summary

This is a Bermuda Monetary Authority (BMA) consultation paper proposing a new stand alone Fund Administration Provider Business Act 2019, which would replace the fund administration provisions currently in Part III of the Investment Funds Act 2006 (IFA). It sets out the proposed scope, licensing criteria, reporting and code of conduct changes, and invites industry comment on a draft Bill annexed to the paper.

• Scope of licensing: Clarifies when a person is treated as carrying on fund administration business in or from Bermuda (e.g. occupying premises, holding out an address, website or letterhead), and confirms Bermuda incorporated companies cannot conduct fund administration business anywhere without a Bermuda licence.
• Safekeeping of other assets: Proposes allowing licensed fund administrators to apply to provide safekeeping of clients' non financial instrument assets, subject to additional insurance, capital/liquidity, outsourcing and conflicts of interest requirements, plus annual audited financial statements.
• Minimum licensing criteria: Updates the Schedule criteria to add explicit record keeping, systems of control, and stand alone corporate governance requirements alongside the existing fit and proper and prudent conduct tests.
• Outsourcing: Introduces clearer legislative, code of practice and guidance based expectations for oversight of outsourced fund administration functions, particularly cross border arrangements.
• Statement of Principles: Requires the Authority to publish a Statement of Principles on how it will interpret licensing criteria and exercise licensing, information gathering and enforcement powers.
• Reporting enhancements: Expands the annual statement of compliance (to be signed by two directors, including the CEO or equivalent), allows the Authority to grant filing extensions, and adds annual audited financial statement and auditor appointment requirements for administrators approved to hold clients' other assets.
• Code of Conduct revision: Amends handover provisions so records and information must transfer to a new fund administrator as soon as practicable, and no later than 30 days after termination of the previous administrator's services, unless otherwise agreed.
• Transition: Existing licensed fund administrators would be grandfathered as licensed under the new Act, with one year to comply with all its requirements; unlicensed entities must review whether the broadened scope brings them within the licensing requirement.

As a consultation paper, none of these proposals are yet in force; the BMA invited written comments on the proposals and the draft Bill by 23 May 2019, after which a finalised Act, code of practice and prudential rules would follow.

Key obligations

• Industry stakeholders wishing to comment must submit views to policy@bma.bm no later than 23 May 2019
• Once enacted, fund administrators would need to submit an enhanced annual statement of compliance signed by two directors, one of whom must be the chief executive or equivalent officer
• Fund administrators approved to hold clients' other assets would need to appoint an auditor and file annual audited financial statements with the Authority
• Existing licensed fund administrators, once grandfathered under the new Act, would have one year from commencement to comply with all requisite provisions of the Act
• Fund administrators would need to ensure handover of client records to a successor administrator occurs as soon as practicable and no later than 30 days after termination of services, unless otherwise agreed
• Entities not currently licensed must review their business practices against the broadened definition of carrying on fund administration business in or from Bermuda to determine if a licence becomes required

Applies to

fund administrators, licensed fund administration providers, investment funds industry participants regulated under the Investment Funds Act 2006

Deadlines

• 23 May 2019: Deadline for industry and interested parties to submit comments on the Consultation Paper and draft Fund Administration Provider Business Act 2019 to policy@bma.bm
• one year from commencement of the new Act: Transition period for existing grandfathered fund administration licensees to comply with all requisite provisions of the new Act
• no later than 30 days from termination of services: Proposed Code of Conduct requirement for transferring fund records/information to a new fund administrator after termination, unless otherwise agreed