Bermuda's financial services sector can expect increased regulation in the foreseeable future.

The Bermuda Monetary Authority said yesterday that future legislative changes will include introducing formal standards for counter-terrorist financing procedures, in addition to further amendments to anti-money laundering legislation, the Companies Act and the various laws governing the insurance, banking, trusts, mutual funds and securities industries in Bermuda.

In a wide ranging Press conference to present the Authority's 2003 annual report yesterday, Cheryl-Ann Lister, chairman and CEO of the BMA said that international regulatory standards are continually changing and Bermuda had to be prepared to deal with those changes.

"We are a small jurisdiction but we must keep up to ensure that our regulatory regime remains strong and is not compromised," said Mrs. Lister.

She was joined at the Press conference by Jeremy Cox, supervisor of insurance, and Munro Sutherland, superintendent of banking, trust and investment.

The proposed regulatory measures to counter terrorism financing will likely come under further amendments to provisions of Bermuda's proceeds of crime legislation.

The proposals are based on Financial Action Task Force (FATF) global recommendations on money laundering, which specifically set out a basic framework for the detection, prevention and suppression of financing terrorism. Bermuda has historically cooperated with and implemented FATF recommendations.

The recommendations include criminalising the financing of terrorism and related money laundering, freezing and confiscating terrorist assets, international cooperation for information exchange purposes, licensing of money transfer or remittance services companies such as bureaux de change and reviewing the adequacy of laws governing entities that could be abused for financing terrorism such as non-profit organisations.

The BMA report states that the Government is also considering FATF recommendations regarding extending anti-money laundering measures to non-financial businesses and professions, including real estate agents, jewellery dealers, accountants and lawyers, something that has to an extent been expected by the local business sector for some time.

Mrs. Lister said she was keenly aware that implementation of these proposals may stretch resources at the BMA, which now has greater supervisory, regulatory, investigative and enforcement powers than ever before.

"Over the past year the Authority has worked hard to ensure that we are equipped to carry out our growing functions effectively and appropriately, expanding staff resources and developing the experience and expertise of individual staff. We will continue to do so in the coming year," she said.

Mrs. Lister cited the ongoing changes in international standards as one of the biggest challenges for the Authority and Bermuda.

She admitted there may also be the perception in the market that Bermuda could be over-regulated, and that client confidentiality is being eroded as the BMA enhances its cooperation with regulators in other jurisdictions in terms of exchanging information in enforcement matters.

However she said that: "The cost of cooperation is high, but the cost of non-cooperation is higher.

Bermuda operates in a global context and we have to approach things with that perspective to a large degree.

"And the regulatory changes we are making here are not way out of line compared to other jurisdictions. We just have to make sure that we have an appropriate, effective supervisory and regulatory regime that is in line with international standards, but that is also appropriate for Bermuda.

"So that means we don't simply take legislation from anywhere else and put it on our books.

"We take the time to ensure it's appropriate for Bermuda, in extensive consultation with both the industry here and the Government, prior to moving forward towards implementation."

"And we're not turning business away or putting them off," Jeremy Cox added. "Bermuda continues to attract quality businesses. Certainly from the insurance perspective the name alone now attracts attention at conferences and similar events, and the general feeling is if you want to be a player in the industry you must be in Bermuda."

Mr. Sutherland said the pace and scope of changing legislation here and in other jurisdictions should be viewed as a way "to try and level the playing field in terms of applying high standards across jurisdictions", a philosophy that was not unfamiliar to Bermuda, which had always focused on attracting quality over quantity in terms of businesses located here.

The continued round of legislative changes that took place over the past year were highlighted in the BMA annual report, including successfully introducing the new Investment Business Act 2003, preparing provisions to criminalise insider dealing and price manipulation in securities markets, developing a framework for a new Collective Investment Schemes Act and further updates to the Proceeds of Crime Act and regulations.

With respect to the financial standing of the BMA, Mrs. Lister said that net income for the year amounted to $2.4 million, an increase of 36 percent over the $1.76 million achieved in 2002.

She said that consistent with previous practice in recent years, 50 percent of the Authority's net income was allocated to the Government's Consolidated Fund. Revenues increased by 22 percent, reflecting growth in licensing fees (primarily annual fees from licensed insurance companies), and this was offset to some degree by a six percent decrease in investment income.

The Authority's investment income earning assets grew moderately during 2003 reaching $116.29 million, but earnings were affected by significant falls in yields on the portfolio of fixed income securities.

Expenses increased by 19 percent over 2002, reflecting the impact of increased staff numbers which resulted in higher salary and infrastructure costs.

There was also an increase in professional fees incurred.