Corporate Governance Policy for Trust (Regulation of Trust Business) Act 2001, Investment Business Act 2003 and Investment Funds Act 2006 (October 2013)

Summary

This is the Bermuda Monetary Authority's finalized Corporate Governance Policy (October 2013), issued together with its response to industry consultation comments, for entities licensed under the Trust (Regulation of Trust Business) Act 2001, the Investment Business Act 2003, and the Investment Funds Act 2006. It sets out nine principles-based corporate governance requirements covering board practices, senior management, risk management, and reporting, and confirms that compliance with the Policy will be considered by the Authority when assessing the statutory minimum licensing criterion requiring governance policies and procedures.

• Scope: Applies to trust companies licensed under the Trust Act, investment business licensees (investment providers) under the Investment Business Act, and fund administrators licensed under the Investment Funds Act. Investment funds themselves and Corporate Service Providers are explicitly excluded from scope at this time.
• Approach: Adopts a principles-based (not comply-or-explain) model; the Authority applies a proportionality principle based on an institution's size, complexity, structure and risk profile, and larger/complex institutions may look to bank/deposit company governance guidance for reference.
• Board and direction requirements: Confirms the existing minimum licensing criterion that business be effectively directed by at least two individuals, with limited scope for the Authority to approve single-person direction, and requires oversight by such number of non-executive directors as the Authority considers appropriate.
• Legislative amendments: Attached Amendment Orders insert new corporate governance paragraphs into the Schedules of the Trust Act, Investment Business Act, and Investment Funds Act, embedding these governance and direction requirements as licensing criteria, effective 1 January 2014.
• Transition: The Authority commits to working with licensed entities over the twelve months following the Policy's issuance to support full implementation.

Institutions unable to meet a particular Principle due to their nature, size, complexity or risk profile must be able to justify the adequacy of their governance arrangements to the Authority if challenged. The Policy does not replace or reduce existing statutory requirements, including conflict-of-interest provisions under the Companies Act 1981.

Key obligations

• Licensed entities must implement corporate governance policies and processes appropriate to their nature, size, complexity, structure and risk profile.
• The business of a licensed entity (company or firm/partnership) must be effectively directed by at least two individuals, unless the Authority approves direction by one person having regard to the circumstances and scale of operations.
• Licensed entities must be under the oversight of such number of non-executive directors as the Authority considers appropriate given the entity's nature, size, complexity and risk profile.
• An institution that does not meet a particular Principle must be able to justify the adequacy of its governance arrangements to the Authority's satisfaction if and when challenged.
• Boards of Bermuda-licensed subsidiaries with non-Bermuda-licensed parents must evaluate group-level decisions or practices to ensure they do not breach Bermuda laws, regulations or the Policy, and structure the subsidiary board to allow independent evaluation.

Applies to

trust companies licensed under the Trust (Regulation of Trust Business) Act 2001, investment providers licensed under the Investment Business Act 2003, fund administrators licensed under the Investment Funds Act 2006

Deadlines

• 1 January 2014: Commencement date of the Trust, Investment Business and Investment Funds Amendment Orders 2013 inserting the new corporate governance licensing criteria into the respective Schedules.
• 12 months from October 2013: Transition period during which the Authority will work with licensed entities to achieve full implementation of the Corporate Governance Policy framework.