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 a Bermuda Monetary Authority (BMA) policy paper, following a 2013 consultation, that sets out a Corporate Governance Policy applicable to entities licensed under the Trust (Regulation of Trust Business) Act 2001, the Investment Business Act 2003, and fund administrators licensed under the Investment Funds Act 2006. It responds to industry comments on the December 2012 consultation draft and confirms the final approach, together with statutory amendment orders that embed a corporate governance licensing criterion into each Act's licensing schedule.

• Scope: Applies to trust companies, investment business licensees (investment providers), and fund administrators; it does not apply to investment funds themselves or to Corporate Service Providers (CSPs), which are excluded pending a future CSP regime.
• Approach: Adopts a principles based (not comply or explain) framework of nine principles covering board practices, senior management, risk management, and reporting, applied proportionately to an institution's size, complexity, structure and risk profile.
• Statutory basis: The Policy underpins a pre existing statutory minimum licensing criterion requiring licensees to have corporate governance policies and procedures; compliance with the Policy will be considered by the Authority in assessing that criterion.
• Legislative amendments: Trust, Investment Business, and Investment Funds Amendment Orders 2013 insert a new paragraph 1A into the relevant Schedules requiring the licensed undertaking, investment provider, or fund administrator to implement corporate governance policies and processes, to be effectively directed by at least two individuals (or one person if approved by the Authority), and to have appropriate non executive director oversight.
• Transition: The Authority will work with licensed entities over a 12 month period to support full implementation of the Policy.

The paper also clarifies group governance expectations for Bermuda licensed subsidiaries of foreign or group parents, and notes that unincorporated licence holders (partnerships/individuals) should apply the principles with 'board of directors' read as 'partners or owners' as appropriate.

Key obligations

• Licensed trust companies, investment providers, and fund administrators must implement corporate governance policies and processes appropriate to their nature, size, complexity and risk profile.
• The licensed business 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.
• The licensed business must be under the oversight of such number of non-executive directors as the Authority considers appropriate given its nature, size, complexity and risk profile.
• Institutions must be able to justify to the Authority's satisfaction the adequacy of their governance arrangements if challenged, including any departure from a Principle.
• Boards of Bermuda licensed subsidiaries with non-Bermuda parents must evaluate group level decisions/practices to ensure they do not breach Bermuda laws or the Policy, and ensure board composition allows 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 corporate governance licensing criterion.
• 12 months: Transition period during which the Authority will work with licensed entities to achieve full implementation of the Corporate Governance Policy.