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Bermuda: Business Environment

Banking and Financial Services

Due to the long-time exclusion of foreign banks, classical banking services in Bermuda were provided primarily by the three established Bermudian banks, until the biggest of them, Bank of Bermuda, was taken over by HSBC in March, 2004. These banks had in fact developed adequate international correspondent networks, and had some overseas branches. Foreign involvement was allowed in more sophisticated financial services such as securities issuance and custody, and such services are increasingly available through the Internet, reducing reliance on the local financial infrastructure.

Foreign-controlled firms can nowadays freely provide financial services (other than deposit-taking) internationally, but the Bermuda Government is protectionist as regards local activities, requiring 60% local ownership unless special permission is given. There are currently eleven trading members of the stock exchange, most being locally-owned firms, and several of them can sponsor listing. A number of foreign firms are providing electronic brokerage, dealing and trading services internationally, alongside the Stock Exchange, and in some cases with its involvement.

Bermuda's anti-money laundering legislation came into effect via the Proceeds of Crime Amendment Act 2000, from 1 June, 2001, which applies to all banking and financial institutions. With the Act in place, fiscal offences became consistent with international anti-money laundering standards, and all forms of tax evasion are now a criminal offence in Bermuda. The legislation was strengthened in 2008.

In July, 2002, the Bermuda Monetary Authority suggested that the jurisdiction's banking sector could be opened up to to a greater extent to foreign ventures.

Bank of Bermuda CEO, Henry Smith observed at the time that: 'We live on a small island, and we do have concerns about the ability of Bermuda's infrastructure to support many additional competitors.' In 2004, however, his bank was taken over by HSBC, as previously stated.

Speaking in April, 2004, the Bank of Bermuda's new CEO, Philip Butterfield predicted that the Island's banking sector was likely to expand further over the coming years. At a meeting of the Financial Planning Association of Bermuda, Mr Butterfield suggested that the government was likely to take a measured approach to the opening-up of the sector, telling delegates that: "Government clearly cannot have a free for all. If they are opening up the sector, it will be done after structured discussion. But I think it will happen."

In December 2004 Bermudian lawmakers approved measures strengthening the island's laws against terrorist financing. The Anti-Terrorism Act "makes it an offence to raise funds for terrorism, to use and possess money or other property for terrorism, and to be involved in any arrangements where money has been made available for terrorism."

The measures require businesses to report to the police any suspicions that money may be being used by terrorist groups, whilst judges have been given powers for accounts to be monitored. The law also allows the property of suspected terrorists to be seized and held for periods of up to two years during an investigation, and potentially forfeited indefinitely.

The Bermuda Monetary Authority recently launched new regulations designed to bring businesses offering money transmission and similar services directly under their supervision.

The Money Service Business Regulations 2007 were formally introduced by the Minister of Finance under section 20AA of the Bermuda Monetary Authority Act 1969, and are now in effect.

The Regulations enable entities that wish to provide money transmission, bureau de change or cheque cashing services to obtain a license to do so from the Authority. Issuing, selling or redeeming money orders or traveller’s cheques for cash and intermediating or facilitating means of payment over the Internet also come under the scope of the new Regulations.

“Our intention in introducing these new Regulations is to liberalise the provision of these services in the market, while still providing an effective and appropriate level of regulatory supervision,” explained Cheryl-Ann Lister, Chief Executive Officer of the BMA. Previously, these types of businesses had to operate under the auspices of banks or other authorised dealers. They can now apply for a license directly from the Authority, and be regulated under provisions that apply directly to them under the Bermuda Monetary Authority Act. This means that money service businesses can operate independently of banks and can apply to the Authority for a license in their own right.”

Under the new Regulations money service businesses have become regulated institutions under the Proceeds of Crime Act. This will mean that such businesses will be required to comply with Bermuda’s stringent anti-money laundering regulations.

In August, 2008, following lengthy consultation with industry, the Bermuda Monetary Authority (BMA) published the 'Revised Framework for Regulatory Capital Assessment', which sets out in a single policy document the final rules for implementation in Bermuda of Pillars 1 and 2 of the new Basel II international capital accord.

The Authority also published the new reporting form and guidance notes that institutions must use from 1st January 2009 to calculate and report their capital requirements to the Authority.

The one remaining element of the Authority's Basel II policy was its approach to market discipline and disclosure - Pillar 3 of the new accord and this was incorporated in the Revised Framework for Regulatory Capital Assessment later in 2008. These new arrangements for setting minimum capital requirements for institutions caught within scope (mainly banks but also applies to some investment firms) came into effect on 1 January 2009.

In March, 2009, as part of its continued monitoring of market conditions in Bermuda in relation to the global financial crisis and its implementation of the Basel 2 capital accord, the Bermuda Monetary Authority (BMA) reviewed capital levels across Bermuda’s banking sector.

The BMA's findings showed that Bermuda’s banks are exceeding the authority’s current capital requirements. However, the authority announced that as a precautionary measure it was requiring banks to hold an additional capital buffer to withstand a severe economic downturn.

Based on stress test results, the authority and each bank agreed on the level of capital that is required to absorb the losses simulated by the severe economic downturn; and still maintain high quality Tier 1 capital of at least 6% of risk-weighted assets, based on Basel 2 capital rules.

BMA CEO Matthew Elderfield commented: “The measures we have announced today mean that the Bermuda banking system will be ready to withstand a severe economic downturn and still be in a strong financial position. This is a precautionary measure in line with the prudent and conservative approach to managing the financial crisis which has been taken by the Authority, government and banking sector.”



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