Consultation Paper - General Regulatory Sandbox Guidance Note (2021-11-24)

Summary

This is a Bermuda Monetary Authority (BMA) consultation paper setting out draft guidance for its General Regulatory Sandbox (GRS) and Innovation Hub. The GRS lets licensed financial institutions and start ups with novel or unclear business models test innovative products, services and delivery mechanisms in a controlled environment, with the BMA able to modify or waive certain regulatory requirements for the duration of the test.

• Who can use it: Financial institutions licensed under Bermuda regulatory acts, start ups whose business model does not clearly fit an existing licensing framework, and applicants who may need dual licences.
• Application process: Applicants email sandbox@bma.bm with a Sandbox Application, together with the requisite fee; the Authorisation and Licensing Committee reviews applications weekly and can approve, defer or decline.
• Proof of concept phase: Typically lasts six to twelve months; companies must give regular progress updates to the BMA, notify clients they are testing in the sandbox, obtain written client acknowledgement of risks, and keep a complaints log available to the Authority.
• Deployment: On completion, the company submits a final report on testing outcomes and client feedback; the BMA then decides whether the company may apply for a full licence to operate outside the sandbox.
• Extension or exit: Extension requests require Authority approval and payment of an extension fee at least one month before expiry; companies exiting must fully settle existing and future client obligations, and the Authority may terminate participation for breaches, misrepresentation, unviability, unresolved risk flaws, or loss of fit and proper status.

As a consultation paper, this document is a proposed guidance note; feedback was invited via a comment form sent to policy@bma.bm before the consultation period closed, so the final guidance note may differ from this draft.

Key obligations

• Applicants must submit a sandbox application (with requisite fee) demonstrating they meet the eligibility criteria before being admitted to the GRS
• Companies in the GRS must comply with applicable AML/ATF laws including the Proceeds of Crime Act 1997, Anti-Terrorism (Financial and Other Measures) Act 2004 and Proceeds of Crime (AML/ATF) Regulations 2008
• Companies must notify clients that products/services are being tested in a sandbox, disclose key risks, and obtain a written client acknowledgement of those risks
• Companies must maintain a client complaints log and make it available to the Authority on request
• Companies must provide the BMA with regular progress reports (written submissions and/or calls) at an agreed frequency during the proof of concept phase
• Any material change to agreed testing parameters or a request to extend the testing period must be approved by the Authority in advance
• Companies must apply for any extension and pay the applicable extension fee at least one month before the sandbox expiration date
• Upon completion of proof of concept, the company must submit a final report to the Authority on testing outcomes and client feedback
• Before exiting the sandbox, the company must fully extinguish all existing and future obligations to its clients
• Promoters and officers of the sandbox company must remain fit and proper on an ongoing basis

Applies to

financial institutions licensed under Bermuda regulatory acts, start-ups seeking licensing, Financial Services/Technology (FST) hybrid companies, GRS licence applicants and holders, financial technology industry participants (Innovation Hub)

Deadlines

• one month before the expiration date: Deadline by which a company must apply for, and pay the fee for, an extension of its sandbox period
• six to twelve months: Typical duration of the proof-of-concept phase within the sandbox
• within two weeks of initial contact: Timeframe in which the Authority typically responds to an application or requests further information
• prior to the discussion/consultation period closing: Deadline for stakeholders to submit comments on this consultation paper via the BMA comment form to policy@bma.bm