Recent changes to the law and policy governing the formation of mutual funds in Bermuda are designed to accelerate and simplify the process.

In Bermuda, unlike in other offshore jurisdictions such as the Cayman Islands and the British Virgin Islands, a company must have specific objects (business purposes) set out in the memorandum of association. Until 2003, the objects were regulated. Any company that intended to adopt objects that were not included in the Companies Act 1981 (the "Companies Act"), was required to have the objects approved in advance by the Minister of Finance (the "Minister").

The law was amended in 2003 so that the Minister would only regulate the business activities that a company carried on rather than its business purposes. At that time, the Ministry of Finance produced a list of restricted business activities that required the consent of the Minister, which included those businesses which operate as "financial institutions" as defined in the Bermuda Monetary Authority Act 1969 (the "BMA Act"). They included a collective investment scheme (i.e. a mutual fund or unit trust scheme), a licensed bank, a licensed deposit company or a company licensed to carry on trust business.

The formation of a corporate mutual fund in Bermuda is a two-stage process. A company is first incorporated under the Companies Act and then classified, or an exemption obtained, under the Bermuda Monetary Authority (Collective Investment Scheme) Regulations 1998 (the "Regulations") before commencing business. Mutual funds required the Minister's approval for incorporation, and this, as well as the other responsibilities imposed on the Minister by virtue of her office, often made the incorporation process quite time consuming.

The enactment of the Companies Act 1981 (Ninth Schedule) Amendment Order 2005 (the "Order"), which came into effect last Friday, removes the business of mutual funds from the definition of financial institution thereby no longer making it a restricted business activity.

The intention of the Order is to ensure that Bermuda mutual funds can be incorporated on an expedited basis but it is also intended to separate the process of incorporation from the application for classification which was usually undertaken concurrently. The change has been designed to permit a mutual fund to be incorporated and organised prior to the application for classification under the Regulations. Applicants may now choose to: ?incorporate a company in advance of the submission of a classification application. In this case, information pertaining to the incorporation of the company will be reviewed and considered by the compliance department of the Bermuda Monetary Authority (the "Authority") and, if approved, the company will be incorporated. The investment department of the Authority will be put on notice that the classification application will be forthcoming. Upon incorporation, the company may be organised and preparations made for the commencement of business, however the scheme may not formally carry on business until it has been classified (or exempted); or apply to have the company incorporated and classified concurrently.

The Authority also allows for the pre-notification of applications for classification under the Regulations, which may be used to vet the intended promoters and service providers of a scheme, pending submission of the final classification application.

While the business of a mutual fund is no longer a restricted business, there has been no corresponding lessening of the compliance requirements to which such funds are subject and they will continue to be vetted and approved by the Authority. Changes under the Order are designed to ensure that Bermuda mutual funds will maintain their status in relation to other offshore jurisdictions that do not have the additional vetting requirements previously required by Bermuda law.