Financial Crime World

Bermuda’s Banking Regulation: A Look into the Criteria for Foreign Shareholdings

Introduction

In a move to ensure the stability of its banking sector, Bermuda’s regulatory body has outlined specific criteria for foreign shareholdings in local banks. According to the Banking (Deposits and Lending) Act 1999 (BDCA), there are no specific restrictions on foreign shareholders in Bermuda banks, but institutions must comply with ownership requirements.

Systemically Important Banks

The Bermuda Monetary Authority (BMA) uses a range of metrics to determine whether a bank is systemically important. The BMA applies a capital surcharge buffer, ranging from 0.5% to 3%, depending on the level of systemic risk posed by each Domestic-Systemically Important Bank (D-SIB). Each D-SIB is advised directly by the BMA.

Sanctions for Violations

In cases where banking regulations are breached, the BMA has the authority to:

  • Imposed civil penalties
  • Publicly censure banks
  • Make prohibition orders
  • Publish information about any matter related to a decision notice

These sanctions aim to ensure compliance with regulatory requirements and maintain public trust in the financial system.

Resolution Regime

Bermuda’s resolution regime for banks reflects its unique financial landscape, which does not include a lender of last resort or deposit insurance scheme. Instead, the BMA relies on prudential regulation and supervision through the Banking (Special Resolutions) Act 2016 to ensure the stability of the banking sector.

Client Asset Protection

Bermuda banks are required by law to:

  • Maintain adequate liquidity
  • Protect depositors’ assets

The BDCA allows the BMA to restrict licenses and impose conditions on banks to safeguard their assets and depositors.

Bail-In Tool

Currently, Bermuda does not have a bail-in tool in its banking resolution regime. However, the country is working towards implementing measures to enhance its financial stability framework.

Capital Adequacy Requirements

The BMA requires Bermuda banks to:

  • Hold common equity Tier 1 capital (CET1) as the primary and predominant form of regulatory capital
  • Maintain additional Tier 1 and Tier 2 capital

This ensures their ability to absorb losses on a “gone concern” basis.

Bermuda’s financial sector has seen significant growth in recent years, driven by:

  • The inception of its digital asset business regulatory regime
  • The formation of its fintech regulatory framework
  • The introduction of an innovative sandbox regime
  • Consultation on a proposed Cyber Risk Management Code of Conduct

These initiatives aim to create a safe and transparent environment for innovative financial services companies.

Threats to Financial Sector Success

The biggest threats to Bermuda’s financial sector are likely to be:

  • Challenges posed by digitalization, data processing technology
  • Ongoing impact of the COVID-19 pandemic

To maintain its reputation as a stable and well-regulated jurisdiction, the sector must adapt to these changes.

Conclusion

By ensuring compliance with regulatory requirements and adopting innovative solutions, Bermuda aims to maintain its position as a leading financial hub in the region.