Financial Crime World

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BERMUDA: BANKING REGULATIONS COMPLIANCE KEY CHANGES AND NEXT STEPS FOR REPORTING FINANCIAL INSTITUTIONS

The Bermuda Government has updated the International Cooperation (Tax Information Exchange Agreements) Act 2005 and issued the highly anticipated Common Reporting Standard (CRS) Regulations, outlining the CRS obligations that Bermuda Reporting Financial Institutions must comply with. This bulletin highlights key changes and provides reminders of existing obligations for Bermuda Reporting Financial Institutions.

Key Changes

Notification

  • By July 14, 2017, Bermuda Reporting Financial Institutions must notify the Ministry of their status as a reporting entity, including submission of contact details of a principal point of contact for CRS purposes.

Written Policies and Procedures

  • Establish, implement, and comply with written policies and procedures to cover all obligations under the CRS. This requirement remains even if the CRS compliance or reporting role has been delegated to a third-party service provider.

Maintenance of Records

  • Collect, keep, and maintain information and records relating to steps undertaken in the performance of their CRS procedures.

Excluded Accounts include Dormant Accounts

The CRS Regulations contain new provisions stating that dormant depository accounts are excluded accounts if they meet certain criteria. These include:

  • The account has a balance of less than $1,000.
  • It is treated as dormant under the Reporting Financial Institution’s typical operating procedures.
  • The account holder has not initiated a transaction for the previous three years and has not communicated with the Reporting Financial Institution for the previous six years.

UK FATCA/CDOT

The CRS Regulations include a provision to allow UK FATCA/CDOT reporting on the Electronic Reporting Portal, allowing the Ministry of Finance to exchange information received on UK persons with the UK this year, easing the administrative burden on Bermuda Reporting Financial Institutions during this transitional year.

Offences and Penalties

  • The TIEA Act updates and CRS Regulations introduce anti-avoidance measures, various offences, and penalties, including for contravention of the Regulations, providing materially inaccurate self-certifications, tampering with information, and hindering the Ministry of Finance in its functions, with fines or penalties of up to $10,000.
  • The Regulations include a reasonable excuse defence but insufficient funds or reliance on an agent are not considered reasonable excuses.

The ‘Wider Approach’ to Due Diligence

Bermuda opted to take the ‘Wider Approach’ to due diligence required under the CRS, details of which are found in Appendix 5 of the OECD’s CRS book (often referred to as the ‘Purple Book’). Under the CRS, Reporting Financial Institutions must identify and report financial accounts held by individuals or entities that are resident in a Reportable Jurisdiction.

Next Steps for Bermuda Reporting Financial Institutions

Become Familiar with Regulations and Guidance

  • Ensure that all Bermuda Reporting Financial Institutions are familiar with the CRS Regulations and Guidance.

Written Policies and Procedures

  • Have in place (or put in place as soon as possible) adequate written CRS policies and procedures and ensure their on-boarding procedures are CRS compliant.

Review Third-Party Contracts

  • If Bermuda Reporting Financial Institutions are delegating their CRS due diligence obligations, they should ensure that the relevant service agreement sufficiently states the scope of services and provides for liability for failure to comply with CRS obligations.

Notify/Register on the Electronic Reporting Portal

  • Register with the Ministry of Finance via the Electronic Reporting Portal once registration becomes available this summer. The deadline for registration or notification is July 14, 2017.

File CRS Reports or Nil Returns (if applicable)

  • The first CRS reporting by Bermuda Reporting Financial Institutions is due by August 30, 2017, and the Ministry of Finance is expected to be exchanging information with its CRS partner jurisdictions by the end of September 2017. In subsequent years, the annual CRS reporting deadline for Bermuda Reporting Financial Institutions will be May 31.

Complete Due Diligence on Pre-Existing Entity and Low-Value Individual Accounts

  • Complete due diligence on relevant pre-existing entity and low-value (<$1,000,000) individual accounts by December 31, 2017.

Bermuda Reporting Financial Institutions are advised to speak with their tax and legal advisors if they are uncertain about any of their obligations under the CRS.