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The Investment Business Act 2003 was materially amended by the
Investment Business Amendment Act 2022 and these amendments came
into effect on 27 July 2022 (collectively, the
IBA).
The IBA, as revised, introduced some important changes to the
investment business framework in Bermuda to better reflect the
increasingly decentralised and geographically mobile operating
model of investment providers. The aim of the revisions to the IBA
regime is to enable the Bermuda Monetary Authority
(BMA) to enhance its monitoring of the regulatory
perimeter by streamlining the regulatory and supervisory framework
of investment business and the revisions are part of the ongoing
efforts to maintain Bermuda’s reputation as a leading
international financial services centre.
A transition period of 12 months was granted to enable existing
investment businesses to either register or apply for a licence
under the IBA unless (i) the activities being carried out are
excluded pursuant to Part 3 of the First Schedule of the IBA
(Excluded Activities) or (ii) the entity carrying
out the relevant activities falls within the category of
Non-Registrable Person (see below). This transition period expires
on 28 July 2023 but applications must be submitted
no later than 26 July 2023.
Principal Change
The key change under the IBA is that it removes the former
licensing criteria of maintaining a place of business in Bermuda as
previously only entities which carried on business investment from
a physical place of business in Bermuda were in scope of the
licensing regime
The IBA now regulates the carrying on of investment business
using the following threshold tests (Threshold
Tests):
- by a Bermuda entity1 whether in or from Bermuda or
overseas; or - by an overseas entity in or from Bermuda.
A schematic of the new IBA investment business regime is set out
in Annexure A.
There is no definition of what ‘in or from
Bermuda‘ means in the IBA and previous exemptions will no
longer apply following the expiration of the transition period.
Consequently, any investment provider whose investment
activities were previously out of scope or otherwise only
subject to exemption requirements, will need to consider whether
their current investment activities will now fall within either of
the two Threshold Tests.
If the current investment activities do fall within either
Threshold Test, then an investment provider will need to be
either:
- fully licensed under the IBA; or
- registered as a Class A Registered Person (see below); or
- registered as a Class B Registered Person (see below).
It is an offence to carry on investment business in or from
Bermuda beyond the end of the transition period in breach of the
requirements to be licensed or registered under the IBA and
therefore existing investment providers must make an application by
no later than 26 July 2023. Failure to file by the
deadline could lead to significant fines and/or imprisonment.
The following are set out in Annexure B for
ease of reference:
- definition of ‘investment business‘ for the
purposes of the IBA - definition of ‘investment activities‘ for the
purposes of the IBA - the types of instruments which fall within the definition of
‘investments‘
Other Changes
- New category of Class A Registered Person: -
This new registration category is an alternative to a full licence
however it is only available for an entity which is formed or
incorporated in Bermuda (i.e. Bermuda entity) and carries on
investment business outside of Bermuda2
(i.e. it does not maintain a place of business in Bermuda2 ) but is
licensed, authorised or registered by an overseas ‘recognised
regulator’3 . Otherwise the IBA licence requirement
applies. - New Class B Registered Person: -This replaces
the former categories of persons who were eligible for an exemption
under paragraphs 1 to 3 (inclusive) of the former Investment
Business (Exemptions) Order 2004. The list of persons to whom the
Class B Registered Person applies is now set out in
Investment Business (Class B Registered Persons) Order
2022 and does not make any material changes to the persons
who were previously ‘exempt’ (for example providing
services privately to 20 or fewer persons or only to certain
prescribed classes of persons, such as high-net worth investors,
institutional investors, or investment funds). - New category of Non-Registrable Persons
(NRPs):-NRPs are entities which are licensed, registered,
or authorised by the BMA under other regimes (such as investment
funds) or do not need to be regulated due to their status as
Bermuda Government or quasi-Government authorities or public
bodies. The list of NRPs is set out in Investment Business
(Non Registrable Persons) Order 2022. A new category of
NRPs are persons who are licensed under the Digital Asset Business
Act 2018 (DABA) to carry on digital asset business
where such persons provide investment services
ancillary to the digital asset business for which
those persons are licensed. - New Investment [Activities][Business] Sandbox
Licence: – This licence will permit licensees to carry on
one or more investment activities in a ‘test’ manner and
encourages the innovation of investment business. - Other New Investment Activity: – A new
investment activity of the ‘Promotion of Investments to the
Public’ has been introduced. - Convergences with other licensed activities in
Bermuda: – Convergences between the IBA and DABA have been
streamlined (as noted above) and insurance marketplace providers
registered under the Insurance Act 1978 who arrange deals in
investments in connection with their insurance business are not
captured within the definition of investment activities. - Reporting: – Reporting requirements for
entities which are in in scope of the IBA have been
enhanced and new rule making powers for the BMA have been
introduced.
Excluded Activities
The list of Excluded Activities is set out in Part 3 of
the First Schedule to the IBA and includes investment
activities by groups, firms, joint enterprises, employee share
schemes, trustees, and personal representatives.
Licensed or Registered
Persons wishing to be licensed or subject to this licensing
requirement under the revised IBA will apply for a standard licence
to carry on one or more investment activities which may be issued
subject to such limitations as may be imposed by the BMA. The grant
of a test licence will be determined using the BMA’s
General Regulatory Sandbox and Innovation Hub Application
and Approval Guidelines.
Registration as a Class A or Class B Registered Person will
involve the making of an application to the BMA to be registered in
the appropriate category and will involve compliance with the
applicable regulatory requirements of that category and certain
ongoing reporting. In the case of Class B Registered Persons given
the nature of their clientele it is expected that these
requirements will remain proportional and mainly comprise
submission of an annual return and confirmation of compliance with
minimum criteria. It is also expected that the BMA will be flexible
in allowing for modification or disapplication of certain aspects
of the regulatory framework in instances where the BMA deems it is
appropriate, including those related to holding client money.
The minimum criteria for licensing and registration are
(inter alia):
- Controllers/officers are fit and proper persons.
- Investment providers to observe proper corporate governance
policies & processes. - Business to be conducted in a prudent manner.
- Full cooperation where there is consolidated supervision.
- investment providers must demonstrate integrity and skill.
Mind and Management in Bermuda
Each licensed person must maintain a place of business in
Bermuda as its principal place of business.
In the case of a Class A Registered Person it is recognised that
it may not have the necessary mind and management in Bermuda and it
is therefore required to appoint an individual in Bermuda to serve
as its point of contact. That person is required to maintain an
office in Bermuda and there are a number of obligations under the
IBA which include notifying the BMA of various material
changes.
In the case of a Class B Registered Person, it has a similar
requirement to licensed persons regarding a principal place of
business but this will be determined on a proportional basis.
At BeesMont Law Limited we strive to provide the highest
standard of legal service for our clients through our responsive,
thorough, and innovative approach. We have a friendly and dynamic
team who are approachable and sensitive to the commercial and
practical needs of our clients, for whom we seek to provide
tailored solutions. BeesMont Law Limited is a professional company
incorporated with limited liability in Bermuda.
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Footnotes
1. An entity which is formed or incorporated in
Bermuda.
2. Section 13(4) of the IBA defines ‘maintains
a place of business’ as:
- in the case of a sole trader, if that person carries on
investment business from premises it occupies in Bermuda for that
purpose; and - in any other case, if it carries on investment business
from premises it occupies in Bermuda for that purpose, at which it
employs staff and pays salaries and other expenses in connection
with that business.
3. Is a regulatory authority recognised by the BMA
to be empowered by law to supervise entities conducting investment
business in a country or territory outside of Bermuda, which
imposes standards equivalent to those established by, or under the
IBA or any other statute on persons conducting investment business
in Bermuda. It is expected that the BMA will recognise other
competent authorities which are ordinary members of the
International Organisation of Securities Commissions.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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