The Island?s international business sector has commended the Bermuda Government for the positive outcome of talks with Swiss authorities over recently introduced taxation policies which placed Bermuda funds at a disadvantage over funds located in other jurisdictions such as Cayman Islands.

The Bermuda International Business Association approached government this summer after the Swiss introduced home rules related to the new European Union Savings Directive. While Cayman Islands, as one of the third party jurisdictions, was able to negotiate to have 98 percent of its funds exempted from the directive, Bermuda-regulated funds doing European business through Swiss paying agents, were required under Switzerland?s home rules to disclose information on the savings income of European Union citizens. Since the directive came into effect, more than 80 funds from Bermuda and other jurisdictions have since moved to Cayman as a result of its exemption from the rules.

Switzerland however has since confirmed that funds exempted from Bermuda?s Collective Investment Scheme Regulations 1998 would be out of scope of the EUSD in Switzerland. There are currently only about 100 unregulated funds in Bermuda, but Government has recently modified its regulations in order to allow some 800 non-retail funds on the Island to also seek exemption from classification and continue with their European business through Swiss paying agents with less disruption. The funds which may be exempted from regulation are offered exclusively to sophisticated investors and will have to meet minimum criteria including appointing an auditor, appointing a recognised fund administrator and reassigning a local representative in Bermuda.

BIBA CEO, Deborah Middleton said: ?This is a perfect example of the private and public sector partnership in action. We took our concerns to the Ministry of Finance regarding the potential of the Directive to negatively impact our funds industry. The Government then met with Swiss representatives to discuss the Directive?s implications on Bermuda?s financial services community. As a result, today we have a successful resolution of the matter and a revitalised funds sector.?

While the Directive did not affect business flowing in from other parts of the world, it was cause for concern as far as it affected Bermuda?s traditional markets of Europe and the United States. Bermuda?s fund business has grown from $46 billion dollars under management in 2000 to $178.58 billion under management in 2005. By December, twenty-five funds representing a net asset value of almost $6 billion had discontinued in Bermuda as a result of unanticipated outcomes of the directive.

?While this represents a fraction of the funds domiciled here, we value all of our clients and do not like to see them go,? Ms Middleton said. ?We also know that they were very reluctant to leave for they specifically chose Bermuda over other countries for our reputation as a well-regulated jurisdiction and our expertise in fund administration. Needless to say, we are delighted that this issue can now be put behind us and we can move forward again with the development of our funds sector.?

Switzerland?s home rules related to the directive were viewed as most problematic of all the EU countries, however home rules in other countries such as Ireland have also caused problems. This newspaper understands that Government is continuing to talk with other jurisdictions about the impact of their rules on Bermuda funds.