Investment Business (Prudential Standards) (Standard Licences, Test Licences, and Class A Registered Persons) (Capital, Net Assets and Liquidity) Rules 2022

Summary

These Rules, made by the Bermuda Monetary Authority under the Investment Business Act 2003, set out the minimum net asset, capital and liquidity requirements that investment providers holding standard or test licences, and Class A registered persons, must maintain to be considered as conducting business in a prudent manner.

• Minimum net assets: Standard and test licensees must maintain minimum net assets of $100,000 (agents), $250,000 (principals), or $12,000 (neither agent nor principal).
• Increased requirements: The Authority may determine that the standard minimum is not appropriate for a particular investment provider (e.g. due to principal trading, non-investment business, or margin lending) and impose a higher fixed threshold or a fluctuating market risk-based capital requirement.
• Risk-based capital: Where a fluctuating market risk-based requirement applies, the investment provider must hold at least 8% of risk weighted assets (RWA) and not less than $250,000, with at least 6% of RWA as tier 1 capital and up to 2% as tier 2 capital.
• Liquid assets: Investment providers acting as principal or agent must hold liquid assets equal to three months of annual expenditure; others must hold at least one month of annual expenditure, calculated using defined methods and asset categories.
• Class A registered persons: Those subject to a recognised regulator's capital and liquidity requirements must meet those requirements; those not subject to any such requirements must satisfy capital and liquidity levels determined by the BMA.
• Notification duty: Investment providers and Class A registered persons must notify the Authority forthwith if they breach, or expect to breach, any applicable capital or liquidity requirement, or if a subsidiary's or parent's liabilities exceed its assets.

The Rules commenced on 27 July 2022 and remain in force, forming part of the BMA's prudential framework for investment business licensees and Class A registered persons.

Key obligations

• Standard and test licensees must maintain minimum net assets of $100,000 (agents), $250,000 (principals), or $12,000 (neither agent nor principal), unless the Authority determines otherwise.
• Where the Authority determines a fluctuating market risk-based capital requirement applies, the investment provider must maintain at least 8% of RWA (minimum $250,000), with at least 6% as tier 1 capital and up to 2% as tier 2 capital.
• Investment providers acting as principal or agent must maintain liquid assets equal to three months of annual expenditure; other investment providers must maintain at least one month of annual expenditure in liquid assets.
• Class A registered persons subject to a recognised regulator's capital and liquidity requirements must comply with those requirements.
• Class A registered persons not subject to a recognised regulator's requirements must satisfy capital and liquidity requirements as determined by the BMA.
• Investment providers and Class A registered persons must notify the Authority forthwith upon breaching, or expecting to breach, any applicable capital or liquidity requirement, or where a subsidiary's or parent company's liabilities exceed its assets.

Applies to

investment providers holding a standard licence, investment providers holding a test licence, Class A registered persons

Deadlines

• 27 July 2022: Commencement date of these Rules.
• forthwith: Investment providers and Class A registered persons must notify the Authority immediately upon breach or anticipated breach of capital or liquidity requirements, or if subsidiary/parent liabilities exceed assets.

Related documents

• This document is made under Investment Business Act 2003