Letter to Stakeholders - Investment Business Regime Changes (2022-07-22)

Summary

This is a BMA stakeholder letter summarising feedback received on its consultation papers for enhancing Bermuda's investment business regulatory regime, and confirming that the Investment Business Amendment Act 2021 and supporting instruments take effect on 27 July 2022. It explains key policy decisions taken in response to consultation and flags a transition period for entities newly brought into scope.

• New regime commencement: The amended framework, including new statutory instruments, rules, codes and guidance, comes into force on 27 July 2022.
• 12 month transition period: From commencement, entities currently exempted from or outside the regime's scope have 12 months to regularise their position by becoming licensed or registered.
• New classes of persons: Introduces Class A Registered Persons (regulated overseas by a recognised regulator), Class B Registered Persons (serving specified sophisticated clients, now including qualifying LLCs), and Non Registrable Persons (NRPs).
• New activity captured: Formally introduces 'Promotion of Investments to the Public' as a regulated investment activity, carried on continuously and targeted at members of the public.
• Ongoing requirements: Class A and Class B Registered Persons must submit an annual return confirming compliance with the minimum criteria; Class A persons are largely monitored via information sharing with their recognised regulator rather than routine on site inspection, but all must meet Bermuda AML/ATF obligations.
• CFD and OTC leveraged products: Investment providers dealing in OTC leveraged products (including CFDs) with retail clients must file a new Schedule III supplemental quarterly return; no leverage limits have been prescribed at this stage.
• Digital assets interface: Digital asset derivatives remain regulated solely under the Digital Assets Business Act; DABA licensees carrying on investment business ancillary to their licensed activity (broadly, generating no more than 25% of gross revenue from it) may qualify for NRP treatment.

The letter also notes that persons anticipating difficulty achieving full compliance are encouraged to notify the Authority early and may apply under section 10B(1) of the amended Act to modify or disapply specific requirements, including those relating to client money.

Key obligations

• Entities currently exempted from or outside the investment business regime's scope must apply to become licensed or registered within the 12 month transition period beginning 27 July 2022
• Class A Registered Persons must submit an annual return and confirm compliance with the minimum criteria under the Act
• Class B Registered Persons must submit an annual return and confirm compliance with the minimum criteria under section 44 of the Act
• Class A and Class B Registered Persons must comply with all applicable Bermuda anti-money laundering and anti-terrorist financing obligations
• Investment providers carrying on business involving OTC leveraged products (including CFDs) with retail clients must file the new Schedule III Supplemental Quarterly Return as part of their quarterly statutory return
• Persons anticipating challenges meeting the amended Act's requirements should notify the Authority as soon as possible and may apply under section 10B(1) for modification or disapplication of specific requirements

Applies to

Investment business licensees, Class A Registered Persons, Class B Registered Persons, Non-Registrable Persons, Investment providers, Digital Assets Business Act (DABA) licensees carrying on investment business

Deadlines

• 27 July 2022: New investment business regime, including the Investment Business Amendment Act 2021 and supporting instruments, comes into effect
• 12-month transition period from 27 July 2022: Period for entities currently exempted from or outside the regime's scope to regularise their status by becoming licensed or registered under the amended framework