Fund Administrators - Information for Prospective Applicants and Guidance Notes (February 2011)

Summary

This is Bermuda Monetary Authority guidance explaining the licensing regime for fund administrators under Part III of the Investment Funds Act 2006. It sets out who needs a licence, what applicants must submit, the fitness and propriety standards applied to controllers and officers, prudent conduct requirements, and the Authority's ongoing supervisory and reporting expectations.

• Who needs a licence: Any company carrying on fund administration business (as defined in section 2(2) of the Act) in or from Bermuda, including applying subscription monies, processing unit issues/redemptions, calculating NAV, maintaining fund accounts, or distributing dividends/distributions.
• Applicant eligibility: Applications may be made by a Local or Exempted Company under the Companies Act 1981 or an Overseas (Permit) Company licensed to conduct business in Bermuda.
• Application requirements: Applicants must submit an application form (FA Form 1), a business plan, and Institutional/Personal Questionnaires (FA Forms 2 and 3) for each controller, director and senior executive, plus prescribed fees.
• Fit and proper assessment: The Authority assesses competence, probity, soundness of judgment, diligence, reputation and character of controllers, directors and senior executives before and during licensing.
• Prudent business conduct: Licensed companies must conduct business prudently, maintain minimum net assets of $50,000, hold adequate insurance (e.g. errors and omissions, D&O, fidelity, computer crime, business interruption), and maintain proper systems, controls and trained staff.
• AML/ATF compliance: Licensed fund administrators must comply with the Proceeds of Crime Act 1997 and the Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulations 2008, including client verification, suspicious transaction reporting, KYC record-keeping and staff AML training.
• Ongoing notifications: Licensees must notify the Authority of any change of director, senior executive or controller, and of proposals to extend business lines or make significant operational or control changes.
• Annual reporting: Each fund administrator must submit an annual statement confirming compliance with Part III of the Act (or disclosing any failure), plus annual financial statements.

Failure to give required notices or file the annual compliance statement is a criminal offence carrying a fine of up to $10,000 on summary conviction. The Authority also conducts periodic compliance visits, including review of AML/ATF and KYC record-keeping, and may act on short notice where investor interests or financial soundness are at risk.

Key obligations

• A company carrying on fund administration business in or from Bermuda must hold a licence under Part III of the Investment Funds Act 2006.
• Applicants must submit a completed application (FA Form 1), a business plan, prescribed fees, and Institutional/Personal Questionnaires (FA Forms 2 and 3) for each controller, director and senior executive.
• A licensed company must give written notice to the Authority of any change of director, senior executive or controller within fourteen days of becoming aware of the change; failure is an offence punishable by a fine of $10,000.
• A licensed company must maintain minimum net assets of $50,000 to be regarded as conducting business in a prudent manner, and must alert the Authority of any breach or expected breach.
• A licensed fund administrator must hold adequate insurance coverage appropriate to the scale, composition and complexity of its business.
• A licensed fund administrator must comply with the Proceeds of Crime Act 1997 and the AML/ATF Regulations 2008, including client identity verification, suspicious transaction reporting, KYC record retention and staff AML training.
• Each fund administrator must submit an annual statement to the Authority confirming compliance with Part III of the Act (or disclosing any non-compliance); failure to do so is an offence punishable by a fine of $10,000.
• Fund administrators must submit annual financial statements to the Authority within 4 months of each financial year end.
• Fund administrators must notify the Authority of proposals to extend business lines, make significant operational or control changes, or of any breaches of regulatory requirements or expected standards of behaviour.
• Companies conducting fund administration business at the date the Act took effect may continue for 12 months, or until a licence application made within that period is disposed of or withdrawn.

Applies to

fund administrators, prospective licence applicants for fund administration business, controllers, directors and senior executives of licensed fund administrators

Deadlines

• 14 days: A licensed company must give written notice to the Authority of any change of director, senior executive or controller within fourteen days after becoming aware of the relevant fact.
• within 4 months of each financial year end: Annual financial statements must be submitted to the Authority.
• annually: Each fund administrator must submit a statement confirming compliance with Part III of the Act or indicating any failure to comply.
• 12 months from date of implementation of the Act: Transitional period during which those already conducting fund administration business may continue without a licence, or until a licence application made in that period is disposed of or withdrawn.