Bermuda
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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