Mutual fund administrators have less than four months to comply with the new licensing regime under the Investment Funds Act 2006 ("the Act").

Under the Act, which came into force on March 7 this year, current administrators must obtain a licence — or have applied for a licence — by March 7, 2008.

New administrators must be licensed before commencing business.

The requirement to be licensed under the Act applies to any person providing any one or more of the following services to a fund in or from Bermuda:

? applying the subscription monies received by the fund

? processing the issue, conversion and redemption of interests in the fund

? applying the income of the fund

? calculating the net asset value (NAV) and the issue, conversion and redemption prices

? maintaining the accounts of the fund

? distributing dividends or other distributions declared by the fund.

The license application involves the submission to the Bermuda Monetary Authority ("BMA") by the administrator of a business plan and information in respect of its shareholders, directors and senior executives, together with the application fee and such other information as the BMA may request.

The BMA seeks to ensure that those responsible for the management of the administrator are "fit and proper persons" to hold their positions.

In this determination, the BMA will look at probity, competence, soundness of judgment and diligence applied to such person's responsibilities as well as the person's reputation and character.

The BMA considers, amongst other things, whether the person has a criminal record involving convictions for fraud or dishonesty.

The BMA is also concerned that the administrator's business is carried out in a prudent manner.

"Prudent manner" includes compliance with the Act and any codes of conduct made under it (at present there is a consultative draft code in circulation).

The BMA reviews the accounting and other records of the business, as well as the systems of control in place, to ensure that these are kept in a responsible manner with well-defined procedures to enable the administrator to comply with its regulatory requirements.

Employed staff must be suitable, adequately trained and properly supervised.

The administrator must also maintain minimum net assets of $50,000 and insurance to cover the risks inherent in the operation of its business.

Administrators that process the subscriptions and redemptions of a fund have always been "regulated institutions" under Bermuda's anti-money-laundering (AML) legislation and, as such, have to comply with Bermuda's Proceeds of Crime Act 1997, Proceeds of Crime (Money Laundering) Regulations 1998 and Anti-Terrorism (Financial and other Measures) Act 2004.

The administrator's AML duties of vigilance include verification, recognition and reporting of suspicious transactions, the keeping of "know your client records" and delivering AML training to staff.

The BMA will expect all licensed administrators to ensure that their procedures enable them to determine and verify the true identity of clients and investors in the funds they administer.

The BMA's supervision involves meetings with senior management, reviews of the administrator's financials and periodic compliance visits.

The fund manager's choice of administrator is an important one.

The administrator has, of course, a pivotal role in the smooth operation of the fund through its provision of shareholder services, the independent NAV calculation and corporate secretarial functions.

The required "know your customer" verifications performed by the administrator have also taken on an increasing importance in today's AML environment.

Investors do consider the quality of service providers when selecting a fund and will derive comfort from the fact that the fund is well managed, and is also properly valued.

When choosing a fund administrator, fund managers should consider an administrator's reputation, which is enhanced when the country from which the administrator is operating has a proper degree of regulation.

Many of the administrators in Bermuda's thriving and well-regarded administration industry were already maintaining the standards formalised by the new licensing regime.

Still, the BMA's oversight of Bermuda administrators should lead to an enhanced reputation in the industry as fund managers and investors are comforted by this additional degree of regulation.

Attorney Michele Connell is Counsel in the Funds and Investment Services Team within the Corporate and Commercial Practice Group at Appleby. A copy of Ms Connell's column can be obtained on the Appleby website at www.applebyglobal.com.

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.