Consultation Paper – Proposed Enhancements to the Investment Business Regime: Rules and Guidance on Net Asset and Liquidity Requirements, Statutory Return Rules and the Statement of Principles (October 2021)

Summary

This is a Bermuda Monetary Authority consultation paper seeking industry feedback on proposed new rules and guidance governing the capital, net asset, liquidity and statutory reporting requirements applicable to investment providers licensed or registered under the Investment Business Act 2003. It also proposes revisions to the existing Statement of Principles (SoP) to reflect the transposition of certain requirements into binding rules.

• Capital, Net Assets and Liquidity Rules: Draft Investment Business (Capital, Net Assets and Liquidity) Rules 2022 would codify minimum net asset thresholds (varying by whether a provider acts as agent, principal, or neither), allow the Authority to require increased net assets or a market risk based capital requirement (8% of Risk Weighted Assets, minimum $250,000, with at least 6% as Tier 1 capital), set minimum liquid asset requirements (one or three months of annual expenditure depending on role), and impose specific capital/liquidity treatment for Class A and Class B Registered Persons.
• Notification duty: Investment providers would be required to notify the Authority immediately of any breach or anticipated breach of capital or liquidity requirements, or where a subsidiary's or parent's liabilities exceed its assets.
• Statutory Return Rules: Draft Investment Business (Statutory Returns) Rules 2022 would consolidate and formalise annual statutory reporting obligations, clarifying what information each class of licensed or registered investment provider must submit, with filing dates to be set via amendment to the Investment Business Act 2003.
• Guidance Notes and Statement of Principles: Accompanying draft Guidance Notes explain how providers can meet the net asset, capital and liquidity rules (including the market risk based methodology), and the Statement of Principles is proposed to be amended to remove provisions now transposed into rules.

As a consultation paper, none of these rules are yet in force; the Authority invited stakeholder comments before finalising the instruments, though the illustrative draft rules themselves state an intended commencement date of 1 January 2022 once made.

Key obligations

• Stakeholders wishing to comment must submit feedback to policy@bma.bm by close of business on 12 November 2021
• Under the proposed rules, investment providers must maintain minimum net assets of $100,000 (acting as agent), $250,000 (acting as principal), or $12,000 (neither agent nor principal)
• Under the proposed rules, where required by the Authority to meet a market risk based capital requirement, an investment provider must maintain net assets of at least 8% of Risk Weighted Assets (minimum $250,000), with at least 6% as Tier 1 capital
• Under the proposed rules, investment providers must maintain minimum liquid assets equivalent to one month's annual expenditure (if neither principal nor agent) or three months' annual expenditure (if principal or agent)
• Under the proposed rules, an investment provider must notify the Authority forthwith of any actual or anticipated breach of capital or liquidity requirements, or where a subsidiary's or parent company's liabilities exceed its assets
• Under the proposed rules, Class A Registered Persons must maintain capital and liquidity as required by their recognised regulator, or as determined by the Authority if not otherwise subject to a capital requirement
• Under the proposed Statutory Return Rules, investment providers must submit an annual statutory return comprising the information schedules specified by the Authority

Applies to

investment providers, licensed persons under the Investment Business Act 2003, Class A Registered Persons, Class B Registered Persons

Deadlines

• close of business on 12 November 2021: Deadline for industry and stakeholders to submit comments on the consultation paper to policy@bma.bm
• 1 January 2022: Proposed commencement date stated in the illustrative draft Investment Business (Capital, Net Assets and Liquidity) Rules 2022