BERMUDA: An Introduction to Corporate & Finance
In Bermuda, 2023 was a year of continued growth following the previous years of uncertainty. This being said, there were a number of new challenges, which caused a pause for thought this year and for the outlook for the year ahead.
Governments, professionals and multinationals around the world continue to be mindful of the international sanctions that exist due to the war in Ukraine. As a British Overseas Territory, Bermuda typically implements the same international sanctions as the UK and relies on the UK’s framework for sanction implementation. The Russia (Sanctions) (EU Exit) (Amendment) Regulations 2022 impose financial, trade, aircraft, shipping and immigration sanctions for the purpose of encouraging Russia to cease actions which destabilise Ukraine, or undermine or threaten the territorial integrity, sovereignty or independence of Ukraine. The largest sectors affected in Bermuda are aircraft and shipping.
Over the course of 2023, we have seen central banks around the world increase interest rates to tackle inflation. As the United States is one of Bermuda’s largest trade partners, Bermuda is exposed to any volatility in the US economy. Global trends inevitably affect Bermuda, and the effects of ongoing wars, rising energy, food and commodity prices and soaring inflation worldwide have been experienced in Bermuda.
Current Economic Conditions
There have not been any significant legislative or regulatory changes affecting the rights of lenders or secured creditors over the past year, nor any that would affect Bermuda’s status as a leading creditor-friendly jurisdiction. While Bermuda is a major international financial centre and Bermuda entities are used in a variety of cross-border structures and transactions, there is no real loan market to speak of in Bermuda, because such deals are mostly originated in one of the major onshore jurisdictions. As such, deals featuring Bermuda entities are inevitably susceptible to market trends and developments in such jurisdictions.
As a leading jurisdiction for the fintech and digital assets sector, Bermuda continues to enhance its associated regulatory framework. The Bermuda Monetary Authority (BMA) continues to ensure that the digital asset legislative framework is fit for purpose and keeps pace with the digital asset business environment, which continues to evolve rapidly.
The combination of flexible corporate structuring options, tax neutrality, and compliance with international standards including FATCA/CRS and the EU Securitisation Regulation has ensured that Bermuda is not only the global market leader in insurance-linked securities but also the “blue-chip” jurisdiction of choice for corporate entities entering into secured finance transactions.
New Legislation
Bermuda has seen legislative and regulatory developments in the following sectors: anti-money laundering (AML) and anti-terrorist financing (ATF), digital assets, investment business, investment funds and privacy.
AML and ATF
The BMA released an updated version of its Anti-Money Laundering and Anti-Terrorist Financing Guidance Notes, which provide financial institutions with guidance on how to comply with its regulatory requirements. The Guidance Notes reflect a continued focus on strengthening AML/ATF compliance and mitigating financial crime risks.
Digital Assets
In April 2023, the BMA issued a notice advising that it would allow a period of six months from the date of issue (April 2023) for institutions licensed pursuant to the Digital Asset Business Act 2018 to become compliant.
Investment Business
The Investment Business Amendment Act 2022 took effect on 27 July 2022 with a transition period of 12 months, which introduced changes to the Investment Business Act 2003 (IBA). The changes will affect all entities conducting investment business in or from Bermuda. The IBA is now broadened beyond those persons with a place of business maintained in Bermuda such that “in or from Bermuda” now includes persons: (a) carrying on investment business and incorporated or formed in Bermuda and (b) formed or incorporated outside Bermuda and carrying on investment business in or from Bermuda.
The amendment has effectively removed the “maintain a place of business” exclusion, and all persons conducting investment business in or from Bermuda must either be licensed, registered or exempted. The amendment introduces the concept of a Class A or Class B registered person. It does not make material amendments to the exclusions such that persons that were previously excluded will remain excluded after the amendment.
The amendment introduces a new relevant activity of promoting investments to the public and introduces a concept similar to the existing (re-)insurance and digital asset sandbox facility whereby a “test licence” may be issued to carry out certain investment business for a defined period and subject to any restrictions imposed by the BMA and enhances reporting requirements for entities that fall within the scope of the IBA.
The transition period ended on 26 July 2023. Pursuant to Section 12 of the Investment Business Act 2003, a person shall not carry on, or purport to carry on, investment business in or from Bermuda unless that person is for the time being – licensed, registered or designated as a non-registrable person by the Minister by order made under section 13D.
Investment Funds
The BMA issued a consultation paper in April 2023 in relation to proposed enhancements to supervisory powers within the Investment Funds Act 2006. The BMA is committed to enhancing its regulatory regimes to ensure they remain appropriate for the financial sectors it regulates and supervises. The proposed enhancements seek to create additional powers including: (a) the power to impose additional penalties and late fees, (b) broadening the range of actions that the BMA may, by giving directions, require be taken in respect of a fund, and (c) additional powers regarding the communication of information to the BMA by an appointed auditor.
Privacy
On 16 June 2023, the Personal Information Protection Amendment Act 2023 was introduced to harmonise the Personal Information Protection Act 2016 (PIPA), the Public Access to Information Act 2010 and the PATI Regulations 2014. The enactment of the Personal Information Protection Amendment Act 2023 will bring Bermuda’s existing privacy laws into effect on 1 January 2025.
PIPA sets out a comprehensive regime to protect a broad range of personal information, including information that may disclose an individual’s address and contact information, family status, financial circumstances and their physical and mental health.
Companies that use any form of personal information in Bermuda must ensure by 1 January 2025 that they: (a) understand both the privacy rights of individuals and the obligations and requirements of their organisations under PIPA; (b) develop a critical path to adopt and implement the compliance measures and policies that will be required; and (c) train their employees in the systems, activities and procedures that must be adopted and implemented to ensure their compliant use of personal information.
Outlook
There may be new challenges on the horizon, such as higher interest rates, rising inflation and increased regulation; however, Bermuda remains one of the pre-eminent offshore jurisdictions for cross-border transactions and fund products, with a reputation for high-quality clients and innovative structures, and is emerging as a popular jurisdiction for digital asset and crypto funds given Bermuda’s highly regarded fintech regulatory framework.