The Senate has approved a Bill that will fine appointed investment fund auditors $25,000 for failing to make required reports to the Bermuda Monetary Authority.

The Investment Funds Amendment Act 2023 aims to bring the 2006 Investment Funds Act into line with the rest of the world. The Act was last updated in 2017.

Auditors are now criminally liable if they fail to report investment sum insolvency, or evidence of illegal activity, such as fraud, theft or misappropriation of assets.

The Act also penalises auditors for failing to report a significant weakness in the Government’s framework that leaves the investment fund vulnerable to risk.

“These enhanced supervisory powers will strengthen the authority’s ability to take targeted action when breaches are identified and will maintain Bermuda’s reputation as a well-regulated jurisdiction when conducting investment business,” Owen Darrell, the Government Senate Leader, told the Senate yesterday.

He said the enforcement powers in the 2006 Act tended to prioritise severe breaches that could cause the BMA to petition the courts to wind up a noncompliant fund.

This legislation allowed the BMA to target lesser investment fund issues.

Kiernan Bell, the Senate vice-president, supported the Bill, but questioned why it had been made a criminal offence for auditors to fail to comply.

“Is that consistent with approved auditors’ obligations with insurance legislation as well?” she asked. “I was surprised to see there was a criminal penalty attached.”

The Investment Funds Amendment Act 2023 seeks to clarify the obligations of operators of investment funds. It allows investment fund operators the chance to seek extensions on the time frame for meeting their statutory obligations, and would introduce late fees for noncompliance with time-bound requirements. These penalties would range from $200 to $1,000 depending on the class of the fund and the section of the law it fails to comply with.

“The proposed late fees will land in mid range compared to other jurisdictions,“ Mr Darrell said.

He said as of December 31, 2022, Bermuda had 804 funds with a combined net asset value of $292 billion, a 33.29 per cent increase from the previous year, which was mainly driven in the increase in professional closed funds registered that year.

“There was an increase in the total number of funds on the register, partly due to a widening of the definition of investment funds,” Mr Darrell said.

He added that 53 of these funds were being monitored for issues of late compliance, mostly because of late audits or other late filings.

“Some cases of the noncompliance are directly attributed to service providers or operators,” he said.

Douglas De Couto, an Opposition senator, also supported the Bill. He said: “Cayman has 29,000 open or closed funds, and 8,000 hedge funds, the BVI 2,400 registered funds, Guernsey 900 odd funds, and Ireland 3,200 investment funds. That shows the room Bermuda has for growth. If this legislation makes us more attractive while maintaining our standards, that would be a good thing.”