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Bermuda’s Banking Regulations: A Safeguard for Financial Stability

In the wake of the global financial crisis, regulatory bodies have been working tirelessly to ensure the stability and integrity of the financial system. In Bermuda, the Banking (Special Resolution Regime) Act 2016 and the Banking (Deposits and Lending) Act 1999 provide a robust framework for regulating banks and protecting depositors’ assets.

Resolution Regime

Bermuda’s resolution regime for banks reflects its unique circumstances. Unlike some other jurisdictions, Bermuda does not have a lender of last resort or a deposit insurance scheme. Instead, the Banking (Special Resolution Regime) Act 2016 provides for a special resolution regime that allows the Bermuda Monetary Authority (BMA) to impose restrictions on bank licenses and impose conditions to protect depositors’ assets.

Client Asset Protection

In the absence of a deposit insurance scheme, clients’ assets and cash deposits are protected through statutory obligations imposed by the BMA. These obligations include:

  • Maintaining adequate liquidity
  • Imposing restrictions on deposit acceptance or prohibiting solicitation of deposits
  • The BMA may also restrict a bank’s license to ensure the protection of depositors’ assets

Bail-in Tool

At present, Bermuda does not have a bail-in tool in its banking resolution regime. However, the country is moving towards implementing Basel III standards, which include the introduction of a bail-in tool.

Capital Requirements

The BMA requires banks to hold capital adequate for their risk profile. The primary and predominant form of regulatory capital is:

  • Common Equity Tier 1 (CET1)
  • Additional Tier 1 capital also allowed
  • Total capital must be at least 8% of Risk-Weighted Assets (RWAs) at all times

The introduction of the digital asset business regulatory regime in 2018 has attracted a significant number of fintech organizations to Bermuda, which is now actively engaged in the market. The Government of Bermuda has also established an innovative sandbox regime to facilitate innovation and adapt to new technologies.

Cyber Risk Management

In response to the growing threat of cyber attacks, the BMA has issued a consultation paper on a proposed Cyber Risk Management Code of Conduct for banks, corporate service providers, trust businesses, money service businesses, investment businesses, and fund administration businesses. The code aims to mitigate financial, reputational, and operational costs to financial services firms and Bermuda as a jurisdiction.

Threats to Success

The financial sector in Bermuda faces significant challenges, including:

  • Adapting to innovative digitalization and data processing technology
  • Ongoing impact of the COVID-19 pandemic on tourism and the economy

To succeed, the sector must prioritize innovation, cybersecurity, and regulatory compliance.