Finance Minister Paula Cox yesterday said investment funds will face less red tape when incorporating on the Island because they are now to be deemed as an ?unrestricted business activity? under Bermuda law.

The change, which takes effect from today, means a fund no longer needs the Finance Minister?s approval to get up and running, but regulatory body the Bermuda Monetary Authority will continue to vet the fund and its ownership as part of the fund registering as a Bermuda entity.

The development comes after Government promised in September to reduce the red tape for investment funds incorporating on the Island in a bid to ?streamline processes and pare down unnecessary bureaucracy?.

Ms Cox said the change was designed to improve the efficiency of the incorporation process ?without in any way diluting Bermuda?s rigorous vetting and approval standards?.

Government?s steps, which follow consultation with industry stakeholders, are likely being taken in a bid to attract greater business from the mutual fund and hedge fund sectors ? areas where Bermuda has lost ground to other domiciles such as the Cayman Islands in recent years.

The net effect of the change is that funds incorporating in Bermuda will not only no longer need the Minister?s permission to get up and running, they will no longer have to go through the classification process before incorporation. The changes put Bermuda?s approach in line with rival offshore domiciles.

?As more countries try to replicate Bermuda?s successful model as a credible financial services centre, Bermuda faces new challenges to offer not only credible but also competitive and responsive services to retain existing clients,? Ms Cox said in a statement issued yesterday.

Those involved with hedge funds heard at an industry conference held on the Island in September that the Cayman Islands continues to attract the bulk of the fund incorporations, especially that of hedge funds.

It is understood that incorporating a fund in the Cayman Islands or British Virgin Islands can take as little as 24 hours, for those that meet requirements.

While lagging in actual fund incorporations Bermuda does however keep pace on the fund administration side. Administrators conduct services for hedge funds including accounting work and regular reports for investors. The sector is a rapidly growing one given the expansion of the hedge fund sector, which by estimates, now far exceeds $1 trillion in assets under management.

Government earlier said the changes to fast-track fund incorporations were decided after the Finance Ministry met with the BMA and a CIS sub-committee of the Bermuda International Business Association, determining Bermuda could benefit from the changes without compromising the licensing process as the BMA had sufficient expertise to carry out the full review process on its own.

In September Government reported that Bermuda currently has about 1,500 collective investment schemes based here with a net asset value of $141 billion. The Cayman Islands Monetary Authority website revealed there were 5,249 mutual funds registered in that jurisdiction, at the end of 2004. The net asset value of the funds was not disclosed.