Financial Crime World

Bermuda’s Banking Regulations: A Guide

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The Bermuda Monetary Authority (BMA) is responsible for regulating the country’s banking sector, ensuring that institutions operate safely and efficiently. In this article, we will explore some of the key regulations and requirements governing banks in Bermuda.

Change of Control Notice

When a proposed change of control occurs at a bank, the BMA must be notified within three months. If the BMA does not respond within that timeframe, it is deemed to have given consent. Additional information may be required from the institution, which will extend the notice period.

Eligible Owners and Fit and Proper Test

Bermuda’s banking regulations require eligible owners of banks to meet specific criteria, including being a fit and proper person to become a shareholder. The BMA must also assess whether the proposed change of control would threaten the interests of depositors or potential depositors.

Foreign Shareholdings

There are no specific restrictions on foreign shareholdings in Bermuda banks, but institutions must comply with ownership requirements set out by the Banking (Depositor Compensation) Act 1997 (BDCA).

Systemically Important Banks

The BMA assesses the systemic risk posed by each bank and applies a capital surcharge buffer to those deemed systemically important. The size of this buffer varies between 0.5% and 3% depending on the level of risk.

Sanctions for Violations

In the event of a violation, the BMA can impose:

  • Civil penalties
  • Public censure
  • Prohibition orders
  • Publishing information about the matter

Resolution Regime

Bermuda’s resolution regime reflects the fact that there is no lender of last resort and no deposit insurance scheme. The Banking (Special Resolution Regime) Act 2016 allows for the resolution of failed banks, with a focus on minimizing disruption to the financial system.

Capital Adequacy

The BMA adopts the Basel III regulatory minimum capital levels, requiring:

  • CET1: at least 4.5% of Risk-Weighted Assets (RWA)
  • Tier 1 capital: at least 6.0% of RWA
  • Total Capital: at least 8.0% of RWA

The digital asset business regulatory regime has attracted Fintech organizations to Bermuda, leading to increased innovation in the financial sector. The BMA is also implementing a sandbox regime to facilitate testing of innovative products and services before licensing.

Focus on Information Security

In addition, there is a growing focus on information security, particularly in relation to managing cyber risk. The BMA has issued a consultation paper proposing a Cyber Risk Management Code of Conduct for banks and other financial institutions.

Biggest Threat to the Financial Sector

The biggest threat to the success of the financial sector in Bermuda is the need to adapt to recent and developing challenges created by digitalization and data processing technology, as well as the ongoing impact of the COVID-19 pandemic on tourism and the broader economy.