European and Japanese markets to Bermuda-registered mutual funds and unit trusts.

Bermuda-based collective investment schemes, as they are called, are currently barred from trading in those markets because the Island lacks legislative regulations which deal with investor protection.

Discussions are on-going between Government officials and the international business community to determine what the next step should be. The Bermuda International Business Association's sub-committee on Mutual Funds is currently examining regulations set up by other jurisdictions.

There are currently about 300 Bermuda-registered collective investment schemes, of which slightly more than a dozen are certified by UK class schemes -- meaning they can trade in the UK.

Bermuda Monetary Authority general manager Mr. Malcolm Williams made it clear yesterday that "if Bermuda wishes to continue to be recognised as a centre for collective investment schemes, it must take whatever steps are necessary to make sure it remains in line with international progress''.

That means introducing regulations and rules of conduct to ensure investor protection, he said.

"We should seriously think of introducing something that would give Bermuda a better competitive position,'' he said. "The market is receptive to some form of supervision. What content that will take is yet to be determined.'' He said it would help Bermuda to look at other jurisdictions in establishing regulations and rules of conduct, adding that a summary of what is in place elsewhere should be ready in the next few months.

While there has been one report of Bermuda-registered mutual fund companies moving the administration of the funds to Luxembourg in order to trade in Europe, Mr. Williams said he was not aware of that.

Both Europe and Japan have set up strict entry requirements that must be fulfilled before collective investment schemes registered in other jurisdictions are permitted to trade there.

In order to gain entry to the European market, for example, Bermuda-registered mutual funds and unit trusts must be regulated by a locally-based permanent supervisory authority that is established by law.

The only other requirement is that collective investment schemes be deemed financial institutions, but that was fulfilled under the BMA Act which was amended in July 1990.

While the BMA has its own procedures and practices governing mutual funds and unit trusts, European authorities insist that those practices must be set down in law.

"Luxembourg is softening its attitude,'' Mr. Williams said. "We have pointed out to them the thoroughness of our legislation and supervision, which allows for a lot of involvement by the BMA not just in the setting up stages but on an on-going basis.'' But Mr. Williams also said that while Luxembourg might have a better appreciation of Bermuda than it first did, it was unlikely they would wave their requirements for Bermuda.

Similarly, the Japanese market stipulates that companies must first be registered in an OECD country, and secondly be sponsored by a Japanese bank or financial institution.

While Bermuda was granted OECD status early last year, Mr. Williams said that territories like Bermuda, which fall under the umbrella of the UK, are not deemed by Japan to be "real'' OECD members.

The Isle of Man, however, has been given permission by Japanese authorities to trade there, but it has also established regulations to protect investors.

Mr. Malcolm Williams.