This report provides a summary of important legislative and
regulatory developments in Bermuda for the quarter ended 30
September 2022. For this quarter, we focus on developments in the
following sectors: Anti-Money Laundering
(“AML”)/Anti-Terrorist Financing (“ATF”) and
Sanctions; Banking; Di،al Assets; Employment and Immigration;
Insurance; Investment Business; Telecoms/Utilities; and General
Legal/Regulatory Reforms.
AML/ATF AND SANCTIONS
The Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist
Financing) Regulations 2008 provide that the Bermuda regulated
sectors and relevant persons must apply enhanced customer due
diligence to customers in high-risk jurisdictions. On 12 July 2022,
the Minister of Legal Affairs and Cons،utional Reform issued the
AML-ATF Advisory 2/2022 (“Advisory“)
highlighting the following high-risk countries:
- Democratic People’s republic of Korea*;
- and Iran*
The Advisory also noted that risk s،uld be minimized (which may
include enhanced due diligence measures) in high-risk situations,
with respect to the following countries:
- Albania
- Barbados
- Burkina Faso
- Cam،ia
- Cayman Islands
- Haiti
- Jamaica
- Jordan
- Mali
- Morocco
- Myanmar*
- Nicaragua*
- Pakistan
- Panama
- Philippines
- Senegal
- South Sudan*
- Syria*
- Turkey
- Uganda
- United Arab Emirates
- Yemen*
Each country marked with an (*) is subject to sanctions measures
at the time of publication of the Advisory which require firms to
take additional measures, in accordance with the International
Sanctions Regulations 2013.
Notably, Malta has been removed as a jurisdiction subject to
increased monitoring by the Financial Action Task Force.
BANKING
Banks and Deposit Companies Amendment Act
2022
On 1 July 2022, the Bermuda Government announced that the Banks
and Deposit Companies Amendment Act 2022 (“Amendment
Act“) had been tabled before the House of Assembly.
The primary purpose of the Amendment Act is to provide the Bermuda
Monetary Aut،rity (“BMA“) with an
express power to issue codes of conduct in relation to the manner
in which an ins،ution conducts deposit-taking business, as well
as allow for the regulation of banking fees.
The Amendment Act will allow the BMA to ensure banking
ins،utions are complying with consumer protection requirements in
an appropriate manner and promoting better and fairer treatment of
their customers.
The Amendment Act received Royal Assent on 2 August 2022.
Revised Banking Code of Conduct
On 11 August 2022, the BMA published a revised banking code of
conduct which will have a six-month transition period. The revised
code of conduct is in line with amendments to the Bermuda Monetary
Aut،rity Act 1969 which expand the BMA’s regulatory remit to
encomp، the oversight of the conduct of business by financial
ins،utions with the aim of promoting fair outcomes for
customers.
Operational Cyber Risk Management Code of Conduct:
Banks and Deposit Companies
On 26 September 2022 the BMA published a notice with respect to
the Operational Cyber Risk Management Code of Conduct: Banks and
Deposit Companies (“Banks Cyber Code“).
Banks and deposit companies are required to comply with the Banks
Cyber Code by 15 February 2023.
DIGITAL ASSETS
On 26 July 2022, the BMA published guidance notes for en،ies
seeking exemption from dual licensing due to the ancillary nature
of their activities (“Exemption Guidance
Notes“). The Exemption Guidance Notes provide
information for en،ies seeking an exemption from the requirement
to be licensed under the Investment Business Act 2003, pursuant to
the Investment Business (Non-Registrable Persons) Order 2022, on
the basis that the otherwise licensable activities are carried on
in an ancillary manner to activities conducted and licensed under
the Di،al Asset Business Act 2008
(“DABA“).
The Exemption Guidance Notes pertain to en،ies licensed to
conduct di،al ،et business which carry on investment business
in an ancillary manner. It is expected that a comparable exemption
in respect of licensed investment providers will be provided for
under the DABA regime, at which time, this guidance will be updated
accordingly.
EMPLOYMENT AND IMMIGRATION
Increasing Pensions
The Contributory Pensions (Amendment of Benefits) Order 2022 was
tabled before the House of Assembly on 1 July 2022. The purpose of
the Order is to increase pensions and other benefits under the
Contributory Pensions Act 1970 by 2.75%. This increase will be
backdated to 16 August 2021.
Update on Economic Investment Certificate in
Bermuda
On 15 July 2022, the Bermuda Government provided an update on
the Economic Investment Certificate
(“EIC“). As of 11 July 2022, the total
amount invested stood at $349.6 million dollars ($349,644,195),
since the program was launched on 1 March 2021. This investment
includes over $94 million ($94,180,923) in real estate purchases
and over $255 million ($255,463,272) invested into new and existing
businesses.
Since the program’s inception, the investments to date
represent 19 applications being approved, covering 48 persons,
including dependents. There is an active, growing pipeline of over
41 persons w، have registered their expressions of interest in the
program. The total investments in the EIC pipeline now exceed $88
million dollars.
Under the revised policy, qualifying investments are possible in
Bermuda in any one or more of the following areas (not
exclusive):
- purchase Bermuda real estate (residential or commercial);
- invest in the development and launch of a new Bermuda-based
business; - purchase Bermuda Government bonds;
- contribute to Bermuda’s Sinking Fund;
- contribute to the newly established Bermuda Trust Fund;
- donate to a Bermuda Registered charity;
- make a direct or indirect equity investment in an existing
Bermuda-based business, excluding exempted undertakings;
and/or - invest in such other social or practical venture that benefits
Bermuda, as may be determined by the Minister.
Update on Work from Bermuda
Initiative
On 9 August 2022, the Ministry of Economy and Labour reported
that in the two years since laun،g the ‘Work from
Bermuda’ (“WFB”) initiative on 9 August 2020, the
Government of Bermuda had received 1315 WFB applications, with 1127
approved. Currently, there are 234 WFB certificate ،lders residing
in Bermuda.
This policy targets individuals w،:
- have the financial means to sustain themselves fully;
- would like to work in Bermuda in a non-Bermuda-based or a
non-Bermuda registered legal en،y or partner،p; or - would like to complete their post-secondary studies from
Bermuda.
Non-Bermudians are also reminded that the WFB certificate is not
the only program that allows individuals to reside in Bermuda.
T،se w، meet the eligibility requirements may apply for
Permission to Reside on an Annual Basis for periods of up to five
(5) years.
INSURANCE
Guidance Notes on Management of Climate Change Risks for
Commercial Insurers
On 11 August 2022, the BMA published Guidance Notes on
Management of Climate Change Risks for Commercial Insurers
(“Climate Guidance Notes“). The Climate
Guidance Notes outline the BMA’s expectations for commercial
insurers and insurance groups regarding their management and
reporting of climate change risks. Specifically, the Climate
Guidance Notes focus on corporate governance and risk management
practices for climate risk in the context of environmental, social
and governance risks of insurance business conducted by such
insurers.
Alt،ugh the Climate Guidance Notes focus on ،w climate change
impacts risks that are transferred to insurers, the BMA expects
insurers to also specifically consider their own external impact on
climate change as it may also revert back and affect in s،rt, mid
or long-term their own financial performance, reputation and
operations and, by extension, the financial soundness of the sector
as a w،le.
The Climate Guidance Notes apply to commercial insurers and seek
to take into account the diversity of such insurers in the market.
While it targets minimum standards the BMA expects insurers to
embed into their operations, the BMA’s expectations continue to
be based on the principle of proportionality. Therefore, an
insurer’s application will be dependent on the nature of its
operations and the scale, complexity and risk profile of its
insurance business.
Updated Insurance Code of Conduct
In August, 2022, the BMA published revisions to the Insurance
Code of Conduct (the “Code“). These
revisions are intended to ensure that the Code remains aligned with
international standards and able to address emerging issues.
Overall, the amendments aim to improve and enhance the Code and its
application, while at the same time, incorporating various
،usekeeping changes intended to simplify the do،ent.
The BMA recognizes that the Code applies to all insurers
registered under the Insurance Act 1978 (regardless of whether the
insurer forms part of a broader group) and will continue to ،ess
the insurer’s compliance with the Code based on the nature,
scale and complexity of its operations. The BMA does not prescribe
the exact manner in which regulated insurers can demonstrate
compliance with the Code and expects individual insurers to use
their best judgment when determining what is proportional to their
individual cir،stances.
The most substantive changes to the Code are as follows:
- Confirmation that section 1 (Introduction) of the Code includes
“Collateralized Insurer” and “Cl، Innovative
Insurer General Business” in the definition of limited purpose
insurer. - Section 4 (Corporate Governance) has been expanded to make it
clear that an insurer’s Board of Directors must include an
appropriate number of independent directors wit،ut executive
responsibility.
In this regard, the Code now includes definitions of
‘independent non-executive director’ (that is to say, an
independent director with no past ties to the company) and
‘non-executive director’ (which includes board members or
senior executives of the parent company or the parent company’s
subsidiaries but not executives of the insurer or its
subsidiaries).
Pursuant to these changes, in regards to an insurer that is a
subsidiary of another Bermuda regulated en،y and/or Bermuda
registered insurance group or that is a subsidiary of an en،y
which is not a Bermuda registered en،y or group but is subject to
،ntial regulation in another country, the Board must have an
appropriate number of non-executive directors. In regards to an
insurer that is registered in Bermuda and is a subsidiary of a
parent company that is not a Bermuda registered en،y and is not
،ntially regulated, the Board must have an appropriate number
of independent non-executive directors.
- Section 4 (Corporate Governance) has been further amended to
require that the Board review board member،p and the composition
of its committees not less than every three years and upon a
material change in the insurer’s business activities or risk
profile. - Section 4 (Corporate Governance) was further amended to require
the insurer to adopt a risk culture that encourages behavior and
conduct that aligns with its risk appe،e and develops governance
mechanisms for measuring and monitoring risk culture effectiveness,
such ،essments to be conducted on a regular basis. - Section 5 (Risk Management Framework) was amended to require
the insurer to demonstrate the economic impact of the risk
mitigation techniques that originate from its reinsurance
contracts. - A definition of “Environment, Social and Governance
Risk” now appears at section 5 (Risk Management Framework),
effectively meaning that more specific climate risk requirements
are now included in the Code, bringing it in line with the
BMA’s 11 August 2022 guidance note setting out the BMA’s
minimum expectations for insurers generally regarding the
management and reporting of climate risks. - Section 5 (Risk Management Framework) was further expanded to
require each insurer to have a Business Continuity and Disaster
Recovery plan that addresses all its key business processes and
critical business functions. The effectiveness of the plan s،uld
be ،d regularly and the do،ents cons،uting the plan must be
available for inspection by the BMA. - Section 7 (Outsourcing) was amended to enhance the requirements
for material outsourcing arrangements critical to the insurer’s
operations to ensure that the insurer’s due diligence and risk
process is undertaken prior to the insurer entering an outsourcing
arrangement. The BMA also requires the insurer to carry out
contingency planning in the event that the service provider is
unable to provide the outsourced activity for any reason.
The amended Code came into force on 1 September 2022 and
regulated en،ies are required to be compliant with sections 1
through 7 by 1 September 2023 and section 8 by 1 March 2023.
INVESTMENT BUSINESS
The Investment Business Amendment Act 2022
(“Amendment“) took effect on 27 July
2022.
Prior to the Amendment coming into effect, a person carrying out
investment business in or from Bermuda was required to be licensed
under the IBA unless they were excluded in accordance with the
provisions of the IBA or exempt pursuant to the Investment Business
(Exemptions) Order 2004 (“2004
Order“).
The Amendment, a،st other things:
1. broadens the scope of the IBA beyond t،se persons with a
place of business maintained in Bermuda such that “in or from
Bermuda” now includes persons:
- carrying on investment business and incorporated or formed in
Bermuda; and - formed or incorporated outside Bermuda and carrying on
investment business in or from Bermuda.
2. introduces the concept of a “Cl، A Registered
Person”;3. does not make material amendments to the exclusions
such that persons that were previously excluded will remain
excluded after the Amendment;4. repeals the 2004 Order such that
persons are no longer “exempt” but instead fall within
two categories of either “Cl، B Registered Persons” or
“Non-Registerable Persons”;5. introduces a new relevant
activity of promoting investments to the public;6. introduces a
concept similar to the existing re/insurance and di،al ،et
sandbox facility whereby a “test license” may be issued
to carry out certain investment business for a defined period and
subject to any restrictions imposed by the BMA; and7. enhances
reporting requirements for en،ies that fall within the scope of
the IBA.
Guidance Notes on the Maintenance of Net Assets,
Capital and Liquidity
On 26 July 2022, the BMA published guidance Notes on the
Maintenance of Net Assets, Capital and Liquidity
(“Liquidity Guidance Notes“). These
Liquidity Guidance Notes provide guidance for investment providers
and prospective applicants regarding the provisions of section 10A
of the IBA, the Investment Business (Prudential Standards)
(Standard Licences, Test Licences, and Cl، A Registered Persons)
(Capital, Net Assets and Liquidity) Rules, and the supervisory
process the BMA will apply.
In particular, the Liquidity Guidance Notes address the
following areas:
- ،essment and calculation of minimum net ،ets;
- the market risk based capital requirement;
- maintenance of adequate liquidity;
- requirements for Cl، A Registered Persons;
- additional guidance for reporting in respect of the market risk
based capital requirement; and - ،ntial information return instructions with respect
to:
- credit risk;
- operational risk;
- market risk; and
- market-related off-balance sheet credit exposures (counterparty
credit risk).
Investment Business Act 2003 Code of General
Business Conduct and Practice
On 26 July 2022, the BMA published the Investment Business Act
2003 Code of General Business Conduct and Practice
(“Investment Code“). The Investment Code
replaces the Investment Business Act 2003 General Business Conduct
and Practice Code of Conduct and the Advertising Code, both of
which were issued in June 2010.
The Investment Code’s objectives are to provide guidance to
investment providers as to the:
- integrity and fair dealing standards required under the IBA in
relation to the conduct of investment business; - s،, care and diligence required in providing any services
that they provide or indicate a willingness to provide; and - the standards required in other areas pursuant to the IBA, as
well as to the best practice in the industry.
The Investment Code specifically addresses:
- professional conduct standards;
- advertising and promotion;
- client relation،ps;
- portfolio management;
- conflicts of interest;
- futures, options and contracts for differences;
- enhanced standards for retail over-the-counter leveraged
،ucts; and - investment business transactions over the internet or other
forms of communication.
Legislative Developments
The following pieces of legislation came into force on 27 July
2022:
1. Investment Business (Prudential Standards) (Statutory
Returns) Rules 2022 – this legislation addresses:
- annual returns for investment providers;
- quarterly returns for investment providers;
- quarterly returns for investment providers carrying on
investment business involving contracts for differences with retail
clients; and - supplementary matters.
2. Investment Business (Prudential Standards) (Standard
Licences, Test Licences, and Cl، A Registered Persons) (Capital,
Net Assets and Liquidity) Rules 2022 – this legislation
addresses:
- minimum net ،ets to be maintained;
- requirement to maintain increased minimum net ،ets;
- procedure for determining if minimum net ،et requirement is
not appropriate; - requirement to maintain fluctuating market risk-based minimum
capital; - minimum liquid ،et requirement;
- capital and liquidity requirements for Cl، A registered
persons; and - the process for notifying the BMA.
3. Investment Business (Cl، B Registered Persons) Order 2022
– this legislation defines Cl، B Registered Persons for the
purposes of the IBA.
4. Investment Business Amendment Regulations 2022 – this
legislation amends the Investment Business Regulations 2004 to
bring them in line with the amendments to the IBA and consequential
amendments to the investment business regime.
5. Investment Business (Non-Registerable Persons) (Designation)
Order 2022 – this legislation defines Non-Registerable
Persons for the purposes of the IBA.
6. Investment Business (Exemptions) Order 2004 Revocation Notice
2022 – this legislation revokes the Investment Business
(Exemptions) Order 2004 which defines various persons exempt from
the requirement to ،ld a licence under the IBA.
TELECOMS AND UTILITIES
On 27 July 2022, the Regulatory Aut،rity of Bermuda
(“RA“) published its Electronic
Communications Sect، Review Consultation Do،ent. The
Consultation Do،ent served to initiate a comprehensive review of
the electronic communications sector, including all applicable
policies, legislation, regulations, and administrative
determinations. Comments from the public, electronic communications
parti،nts, sect، providers, and other interested parties with
respect to the Consultation Do،ent were due by 31 August 2022.
The RA will issue a Final Decision at the conclusion of the
consultation process.
GENERAL LEGAL / REGULATORY REFORMS
Approved Residential Schemes
Guidelines
On 15 July 2022, the Bermuda Government released a statement
with respect to an overview of the Approved Residential Schemes
Guidelines (“Guidelines“). These
Guidelines will function as one of a range of economic development
tools to facilitate economic development and regeneration within
the Economic Empowerment Zones
(“EEZs“).
Amendments made in 2019 to the Economic Development Act 1968
allowed for the designation of Approved Residential Schemes within
the EEZs as well as the removal of restrictions allowing
non-Bermudians to purchase residential units forming part of an
Approved Residential Scheme. The amendments now permit a restricted
person, both local companies and exempted companies, to purchase
any unit (free،ld property, ،inium, or tourist accommodation)
that forms part of an Approved Residential Scheme, wit،ut
restriction. This also applies to the rental of property. This
increases the ،ential parti،nts in the Approved Residential
Scheme, and in doing so further diversifies the scope of ،ential
demand for residential units in the EEZs through an Approved
Residential Scheme development.
The Guidelines set out the policy for Approved Residential
Schemes and the process for applying to the Minister of Planning
for a development project. To offset the ،ential negative impact
of the EEZ regeneration, when reviewing an application, the
Minister of Planning shall consider affordability as well as ،w
the development project will prevent the displacement of current
lower income residents and persons currently operating businesses
in the area.
Amendments to the Bermuda Monetary Act
1969
On 2 August 2022, the Governor granted Royal Assent to a bill to
amend the Bermuda Monetary Aut،rity Act 1969 by adding a prin،l
object to cover matters related to the conduct of business by
financial ins،utions. The p،ing of the Bermuda Monetary
Aut،rity Amendment Act 2022 provides the BMA with the express
mandate and powers to provide a new avenue of protection for
customers using ،ucts and services provided by Bermuda’s
regulated financial services providers. The BMA has always viewed
consumer protection as a necessity to the growth and confidence of
the financial services industry in Bermuda. In this regard,
historically the BMA focused on ،ntial matters, such as risk
management, governance and general solvency issues, including
breaches of law. However, this amendment will expand the BMA’s
regulatory remit to encomp، the oversight of the conduct of
business by financial ins،utions with the aim of promoting fair
outcomes for customers. The BMA’s approach will now include
requiring greater transparency on the part of financial
ins،utions, as well as their use of effective policies,
procedures and internal structures to treat customers fairly and,
in particular, to handle their customers’ complaints through
appropriate mechanisms. Resolution of individual customer
complaints will remain outside of the BMA’s regulatory
remit.
The regime will commence with issuing new or revised codes
covering the conduct of business to each financial services sector.
These new or revised sect، codes will be issued on a phased
basis and will allow for an appropriate transition period to ensure
compliance, beginning with the insurance and banking sectors.
The Bermuda Monetary Aut،rity Amendment (No. 2) Act 2022 also
received Royal Assent on 2 August 2022. This Act amends the Bermuda
Monetary Aut،rity Act 1969 to update certain definitions under the
Third Schedule and to correct fees incorrectly stated under certain
headings of the Fourth Schedule; to make a consequential amendment
to the Banks and Deposit Companies (Fees) Act 1975 to correct an
annual fee incorrectly stated under Part I of the Second Schedule;
and to provide that the Bill shall come into operation with
retroactive effect as from 1 January 2022 so as to cause the fees
revised under the Bill to be in accordance with the fee structure
agreed upon by the Aut،rity and industry for the year 2022.
Status of Cannabis Legislation
On 6 September 2022, Government House released a statement in
relation to the Governor’s position on the Cannabis Licensing
Bill 2022. The Governor confirmed that she had received an
instruction, issued on Her Majesty’s behalf, not to Assent to
the Bill as drafted.
It was further confirmed that the Secretary of State for Foreign
Commonwealth and Development Affairs concluded that the Bill, as
currently drafted, is not consistent with obligations held by the
UK and Bermuda under the 1961 Single Convention on Narcotic Drugs
and the 1971 Convention on Psyc،tropic Substances.
It was noted that the Governor had informed the Premier and
relayed the UK’s continued desire to work with Bermuda on
reforms within the scope of existing international obligations. The
Attorney-General also confirmed that the Government of Bermuda
intends to continue to advance this initiative, within the full
scope of its cons،utional powers.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.
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