Bermuda?s Monetary Authority hopes to have the licensing of persons conducting the business of fund administration come into effect as soon as next year.

The proposed Collective Investment Schemes Act which includes the licensing provision will go before Parliament at a time when the Bermuda Monetary Authority reports particularly strong growth in the mutual fund sector.

The BMA says this growth is due to heightened interest on the part of investors internationally in hedge fund products. This has been spurred by more difficult market conditions and above-average returns generated by a number of fund managers.

The BMA reported that aggregate net assets of Bermuda collective investments schemes increased to $133 billion by the end of June 2004, almost three times the level at the end of 2000. The development of the mutual fund sector has also given rise to the growth of a major local fund administration industry with a significant number of administration firms established locally and engaged in providing services both to Bermuda schemes and increasingly, to funds established in other jurisdictions.

The BMA spoke with about the proposed act on the heels of a story that appeared in the Wall Street Journal with the headline ?Bermuda May Require Hedge-Fund Licenses?.

The reporter tried to tie Bermuda?s move to regulation to a current court case over a fund based on the island that was established by an ex-convict and now controls a chunk of Russia?s infant wireless-telecom industry.

The newspaper report said the island is following the lead of the US Securities and Exchange Commission by introducing the regulations, but Superintendent of Banking, Trust & Investment Munro Sutherland says the opposite is true.

The BMA?s current collective investment scheme regulations ? which encompass both mutual and hedge funds ? were flagged way back in 2002. Earlier regulatory provisions for the sector date back to 1998.

Mr. Sutherland said: ?We first talked to the industry more than two years ago about the fact that as part of the ongoing process of updating the financial regulatory framework we needed to turn our attention next to the collective investment scheme regulations which came in in 1998.?

The proposed 2005 act will for the first time require persons conducting the business of fund administration in Bermuda to be licensed.

It specifies a set of minimum licensing criteria to be met by fund administrators. These are similar criteria detailed in other recent financial services legislation.

The Act will also require controllers, directors, senior executives and officers to meet specific ?fit and proper? tests. The companies will also have to be directed by at least two persons, and the business must be ?conducted prudently and with integrity and appropriate skill?. The BMA also wants to see a minimum capital test together with a requirement for appropriate levels of insurance cover against key risks.

The BMA completed consultations with the industry on the proposed changes this summer and Mr. Sutherland says the changes have been welcomed as a means to ensure continuing smooth development of the industry.

?They are keen to come into this sort of structure and to get the additional strength of cache of being directly regulated by the financial services regulator,? he said.