Act will classify collective investment schemes into three groups and allow them to be marketed locally in Bermuda.

The two pieces of legislation, which were tabled in the House of Assembly last week, are also a step toward moving the supervision of collective investment schemes -- also known as mutual funds and unit trusts -- from The Companies Act to the Bermuda Monetary Authority (BMA).

Finance Minister Grant Gibbons said additional amending legislation would be required later on to complete the job. The proposed legislation is the outcome of discussions among the Bermuda International Business Association, the BMA, and the Ministry of Finance.

Once passed, the Bermuda Monetary Authority Amendment Act 1997 would give the Minister of Finance a "new power to regulate mutual funds and unit trust schemes''.

Dr. Gibbons said the amendment would set out three classes of schemes: UK recognised schemes, institutional schemes, and standard schemes. He likened the move toward splitting the investment schemes into three to the decision to classify insurers and reinsurers into seven classes under a 1995 amending act.

"The new classifications are a recognition that one size doesn't fit all,'' he said. "You would be able to choose from different classes of regulation.'' Most collective investments would fall under the standard scheme designation.

The UK-recognised classification is for funds and unit trusts marketed in the UK, and which need to meet that country's requirements. Funds and trusts falling under the institutional classification will have lighter regulation.

Such schemes are for more sophisticated investors who don't need as much consumer protection as others, Dr. Gibbons said.

The Companies Amendment Act 1997 would allow collective investment schemes to be marketed to local investors. Currently mutual funds and unit trusts incorporated in Bermuda cannot be marketed locally unless they are either listed on the Bermuda Stock Exchange or the Finance Minister grants special permission.

Dr. Gibbons said the two pieces of legislation would make it more attractive for mutual fund and unit trust companies to incorporate in Bermuda. The changes might help lessen the impact of rule changes proposed by the US Treasury which could attract offshore administrative business from Bermuda back onshore.

"There is a certain urgency to passing the legislation because of the changes proposed by the US Treasury,'' he said.

Fund laws proposed A set of current regulations, known in the industry as the "Ten Commandments'' allow non-US residents to invest in US-based investment funds without being subject to federal income tax as long as the administrative services are based offshore.

The ten rules turn on the location of various back office and other ancillary functions relating to the fund's operation, including maintenance of the fund's records and books of account, communication with investors and the general public, and solicitation of sales of funds interests.

Under the US Treasury proposals, the principal office requirement would be eliminated, making it unnecessary for investment funds to keep administrative jobs in offshore tax havens such as Bermuda.

Dr. Gibbons said Government had communicated its concerns about the proposed changes to members of Congress and the Senate.

Grant Gibbons