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Bermuda’s Banking Regulations: A Balanced Approach to Risk Management

In a move to ensure the stability of the banking sector, Bermuda’s regulatory authorities have implemented a range of measures aimed at protecting depositors and maintaining confidence in the financial system. According to industry experts, the criteria set out in the Banking (Deposits and Lending) Act 1999 (BDCA) continue to be fulfilled, with banks required to maintain adequate liquidity and capital levels.

No Restrictions on Foreign Shareholdings

Unlike some other jurisdictions, Bermuda does not impose specific restrictions on foreign shareholdings in its banks. However, banks must still comply with the ownership requirements set out in the BDCA.

Systemically Important Banks

Bermuda’s banking regulator, the Bermuda Monetary Authority (BMA), assesses the level of systemic risk posed by each bank and applies a capital surcharge buffer to those deemed to be systemically important. This buffer is designed to ensure that these institutions have sufficient capital to withstand potential shocks to the financial system.

Resolution Regime

In the event of a bank failure, Bermuda’s resolution regime provides for the winding up of the institution in an orderly manner. The Banking (Special Resolution Regime) Act 2016 sets out the procedures for resolving failed banks and ensuring that depositors are protected.

Client Asset Protection

As there is no deposit insurance scheme in place, clients’ assets and cash deposits are protected through a range of statutory obligations and prudential regulations. Banks are required to maintain adequate liquidity and must not accept deposits without first obtaining permission from the BMA.

No Bail-in Tool

Bermuda has not implemented a bail-in tool as part of its banking resolution regime, instead relying on traditional resolution methods.

Capital Requirements

The BMA requires banks to hold a minimum level of capital, with CET1 being the primary form of regulatory capital. The Basel III framework is also applied in Bermuda, with minimum capital levels set at 4.5% for CET1 and 6.0% for Tier 1 capital.

Recent Trends

In recent years, Bermuda has seen an influx of fintech companies drawn to the jurisdiction by its well-regulated environment. The introduction of a digital asset business regulatory regime in 2018 has been particularly successful, with many innovative financial services businesses establishing operations in Bermuda. The BMA is currently consulting on a new regulatory regime for fintechs and other innovative businesses.

Cyber Risk Management

The increasing threat of cyber attacks has led the BMA to propose a Cyber Risk Management Code of Conduct (CRM Code) for banks and other financial institutions. The CRM Code aims to mitigate the risks associated with cyber attacks and ensure the continued stability of the financial system.

Threats to Success

Despite these efforts, the financial sector in Bermuda faces significant challenges, including the impact of digitalization and data processing technology, as well as the ongoing effects of the COVID-19 pandemic.