Consultation Paper - Enhancements to the Investment Business Regime (2021-06-10)

Summary

This is a Bermuda Monetary Authority consultation paper proposing wide-ranging reforms to the Investment Business Act 2003 regime. It sets out illustrative draft legislation (an Investment Business Amendment Bill and a new Registered and Non-Registrable Persons Order) and invites feedback before the changes are finalised and brought into force.

• Scope expansion: Replaces the current place-of-business test for 'carrying on investment business in or from Bermuda' with a broader test based on incorporation/formation in Bermuda or activity in or from Bermuda, bringing more Bermuda-formed entities into scope.
• New categories: Creates 'Class A Registered Persons' (Bermuda entities operating exclusively abroad under a recognised foreign regulator), 'Class B Registered Persons' (replacing certain current exemptions, e.g. those serving sophisticated/high-net-worth clients or 20 or fewer clients), and 'Non-Registrable Persons' (e.g. investment funds, registered insurers/intermediaries acting incidentally, government bodies) who have no obligations under the framework.
• Sandbox and licence types: Introduces class F (full-term) and class T (temporary/sandbox) licences to support fintech-style testing of new investment business technologies and products.
• Cross-sector alignment: Proposes exempting digital asset business licensees whose investment services are ancillary to their DABA activity, and insurance marketplace providers arranging deals in investments tied to their insurance business, from separate investment business licensing.
• Other measures: Widens the definition of 'company'/'controller' to accommodate LLCs, ISACs and similar structures; strengthens ongoing reporting, audit, client-money and code-of-practice obligations for investment providers; and expands AML/ATF supervisory reach.
• Transitional arrangements: On commencement, existing investment providers would automatically be deemed Class F licence holders, while currently unlicensed or exempted persons (other than Non-Registrable Persons) would need to apply to become licensed or registered within a set transitional window or risk being treated as non-compliant.

The Authority intended the new provisions to take effect from 1 January 2022, with further consultations planned later in 2021 on supporting Regulations, Codes, Statements of Principles and Guidance. As a consultation paper, this document does not itself impose binding requirements; it describes proposed changes and seeks stakeholder input.

Key obligations

• Licensed persons and other interested parties must submit comments on the proposals to policy@bma.bm no later than 16 July 2021
• If enacted as proposed, unlicensed or exempted investment business persons (other than those designated Non-Registrable Persons) would be required to apply to the Authority to become licensed or registered within twelve months of the operative date of the amended Act, or be deemed non-compliant
• If enacted, persons wishing to operate as Class A Registered Persons would need to first secure the requisite licence, authorisation or registration from a recognised foreign regulator before applying to the Authority, and must notify the Authority forthwith if that foreign approval is not secured
• If enacted, Class B Registered Persons would need to obtain formal Authority approval before undertaking investment business under that designation, and would be prohibited from holding clients' money
• If enacted, investment providers would be required to submit audited financial statements and the auditor's management letter (with management's response) to the Authority in the prescribed manner, and to adhere to any code of practice for safeguarding clients' money

Applies to

investment business licensees, investment providers, Class A Registered Persons, Class B Registered Persons, Non-Registrable Persons, digital asset business licensees (DABA), insurance marketplace providers, investment funds, insurers and insurance intermediaries providing incidental investment services

Deadlines

• 16 July 2021: Deadline for licensed persons and interested parties to submit comments on the consultation proposals to policy@bma.bm
• 1 January 2022: Date by which the Authority intended the new investment business regime provisions to enter into force (subject to finalisation)
• twelve months of the operative date of the Act: Proposed transitional window within which unlicensed or exempted persons (other than Non-Registrable Persons) conducting investment business must apply to become licensed or registered