Letter to Stakeholders on Outsourcing Guidance (2019-06-28)

Summary

This is a letter from the Bermuda Monetary Authority summarising how it has revised its proposed Outsourcing Guidance in response to industry feedback on a November 2018 consultation paper. It does not itself contain the final guidance, but explains the substantive changes the Authority will make before publishing it, and confirms the guidance still applies to all Relevant Licensed Entities (RLEs).

• Prior approval replaced: The proposed 60-day prior approval process for material outsourcing is replaced with an objection-based prior notification process, giving the Authority 20 working days to object after an RLE submits its notification.
• Intra-group outsourcing: The Authority maintains that intra-group outsourcing is not automatically lower risk, but will allow RLEs to supplement (not replace) a legally enforceable written contract with other documents such as group policies, PLAs or SLAs, provided the RLE can show the Authority these are sufficiently robust.
• Material outsourcing definition: The separate concept of critical activities is folded into the material outsourcing definition, and its scope in relation to applicable laws and regulations is narrowed.
• Attestation without a CEO: Where an RLE has no CEO, a senior executive nominated by the Board may make the required compliance attestation instead.
• Sub outsourcing: Guidance on sub outsourcing, sub contracting and chain outsourcing is expanded to mirror existing Anti Money Laundering guidance.
• Economic Substance legislation: The Authority declines to delay or revise the guidance because of the new Economic Substance legislation, noting RLEs can use the guidance as a template for any resulting new outsourcing arrangements.

The letter confirms the final, revised outsourcing guidance for RLEs (covering banks, credit unions, trust companies, the Bermuda Stock Exchange, corporate service providers, money service businesses, investment firms and fund administrators) would be published shortly after this letter, incorporating these changes.

Key obligations

• RLEs must submit a prior notification to the Authority before entering into a proposed material outsourcing arrangement, allowing the Authority 20 working days to object.
• RLEs are encouraged to engage early with the Authority in advance of formal notification submission to potentially expedite the no objection decision.
• Where an RLE relies on group policy documents, PLAs or SLAs to supplement a written contract for intra group outsourcing, it must be able to demonstrate to the Authority, if requested, that these documents are sufficiently robust.
• Where an RLE has no CEO, a senior executive nominated by its Board must make the compliance attestation for outsourcing arrangements.

Applies to

Banks, Credit Unions, Trust Companies, Bermuda Stock Exchange, Corporate Service Providers, Money Service Businesses, Investment Firms, Fund Administrators, Relevant Licensed Entities (RLEs)

Deadlines

• after 1 January 2020: Material outsourcing arrangements entered into by RLEs after this date are subject to the new objection based prior notification approach.
• prior to 3 January 2020: Timeframe referenced for RLEs making prior notification or prior approval submissions to the Authority under the transitional guidance.