The Investment Business Act 1998 (the Investment Act) prohibits the conduct of investment business in or from within Bermuda without a licence or an express exemption under the said Act.

In essence, investment professionals, located in Bermuda or elsewhere, who conduct investment business from within Bermuda, are now required to obtain a licence under the Investment Act or to obtain, upon notification, an exemption. The licensing authority responsible for the supervision of the investment industry in Bermuda is the Bermuda Monetary Authority (BMA).

Investment business is defined very broadly in the Investment Act to include any dealing in, arranging deals in, managing or offering securities or providing advice on securities. As a result of this broad definition of investment business, the Investment Act catches any person who provides investment management, investment advice, brokerage or similar services.

How broadly the Investment Act will be applied is unclear, but on a strict reading, it will apply to any person who provides any type of investment services to clients in or from within Bermuda.

Traditionally, overseas investment banks have regularly come to Bermuda to meet with clients and to solicit business from the Bermuda market place. To the extent that these investment banks are directly soliciting new business in Bermuda, they will have to comply with the Investment Act.

Investment professionals who come to Bermuda to conduct investment business should note that an express exemption exists if (i) such entities are subject to the supervision of a regulator outside Bermuda that is recognised by the BMA and (ii) such entities conduct business in Bermuda in conjunction with investment professionals licensed under the Investment Act.

Overseas investment professionals who have been invited to Bermuda to deliver presentations or seminars to their clients are not required to hold a licence under the Investment Act, since such activities are not considered to be within the scope of "investment business'' as that term is defined. Care must be taken that such presentations and seminars are general and educational in nature and not intended to lead persons to invest in any particular security.

Although the Investment Act draws a distinction between business conducted by an overseas company in Bermuda and business conducted "in conjunction with'' a local licensed investment professional, the Bermuda Companies Act, 1981 makes no such distinction. Under the Companies Act, overseas companies shall not engage in a trade or business in or from within Bermuda without a Permit under Section 133 of the Companies Act. Thus, overseas investment companies that conduct business in or from within Bermuda will also have to comply with the permit provisions of the Companies Act.

Overseas companies which send representatives to Bermuda to advise, to conduct seminars or to make presentations are advised to secure temporary work permits for their representatives who are expected to be in Bermuda For more than six business days, if the host company is unaffiliated with the visiting company; or For more than 15 business days, if the host company is an affiliate of the visiting company.

A business visitor permit may be obtained for shorter stays. The local sponsor, the host company, must seek work permits of any sort.

Investment professionals seeking to be licensed under the Investment Act must demonstrate, to the satisfaction of the BMA that: Those responsible for the investment business are fit and proper persons to carry on the investment business; They have the requisite knowledge, skill, experience and personnel to conduct the relevant investment business; The applying company's objects authorise the carrying on of investment business; The applicant has an approved auditor, particularly where the business includes holding clients' assets; The applicant has sufficient capital to carry on the investment business as well as adequate insurance in respect of the business; and The applicant has record-keeping systems and controls sufficient to carry on the investment business in a prudential manner.

Investment professionals licensed under the Investment Act are required to comply with the general business conduct and practice code of conduct, and the advertising code of conduct. The codes of conduct function to ensure that licensed professionals act with integrity and fair dealing, and with due skill and diligence, in the conduct of investment business that they provide or indicate a willingness to provide. The comprehensive new Bermuda investment legislation regulates institutions representing themselves as investment professionals as well as the form and content of advertisements of investment business.

An investment professional operating in or from within Bermuda must disclose the identity of its licensing body in all advertisements and correspondence to clients and potential clients. Licenses granted under the Investment Act must be kept on display at the investment provider's principal place of business or registered office.

From January 1, 2000, all persons carrying on new investment business in or from within Bermuda must hold a licence granted under the Investment Act, unless they are exempted from doing so. Investment businesses already existing on January 1, 2000 were given until July 1 of this year to comply with the Investment Act. Exemptions and exclusions provided for under the Act are as follows: Persons who are not market intermediaries and who carry on business only with: sophisticated, high net worth or high income private investors as defined below; corporations in which all shareholders are sophisticated, high net worth or high income investors; partnerships in which all partners are sophisticated, high net worth or high income investors; trusts in which all beneficiaries are sophisticated, high net worth or high income investors; persons who carry on business for corporate bodies, unincorporated associations or trusts that have total assets of not less than five million dollars; persons who only advise collective investment schemes that have been approved and classified under the BMA (Collective Investment Scheme Classification) Regulations 1998; Persons who do not hold themselves out as investment providers (by way of public marketing or advertising) and who have no more than 20 clients at any time; Entities which are licensed by a recognised regulatory authority and that only carry on business from Bermuda not within; A barrister or attorney who engages in investment business which is a necessary part of other advice or services provided in the course of practicing that profession; A trustee or personal representative who engages in investment business as a necessary part of his activities, unless he holds himself out as being in investment business or is remunerated for providing such services in addition to any remuneration he receives for discharging his duties as trustee or personal representative; or An insurer registered under the Insurance Act 1978, which carries on long term insurance business as defined in section 3(2) of the Act.

Those wanting to avail themselves of an exemption from the Investment Act provisions must notify the BMA by completing and submitting an exemption notification form obtained from the Authority.

Investment licences Definitions : Sophisticated private investor means an individual who has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of the prospective purchase of securities; and who, in respect of each transaction deals in amounts of not less than $100,000.

High net worth private investor means an individual whose net or joint net worth with that person's spouse at the time of purchasing the securities exceeds $1,000,000; and "net worth'' in this context means the excess of total assets at fair market value over total liabilities; High income private investor means an individual who had an individual income in excess of $200,000 in each of the previous two years or had a joint income with that person's spouse in excess of $300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year.

Lynda Milligan-Whyte N.B.

This is the exact same Law Matters supplement that ran in The Royal Gazette on 20th September, 2000. However do the printing problems that affected the quality of the print, it was pulled from the circulation and did not appear again until the 9th October, 2000.