Questions have been raised over whether or not Government may be over involved in the process of bank licensing. Opposition Leader Grant Gibbons fears Government may be in conflict with banking legislation.

Although Government once granted bank licences, efforts to bring Bermuda's financial services sector in line with international standards led to legislative changes in 1999.

The Banks and Deposit Companies Act 1999 took bank licensing and control of the sector out of the hands of Government and turned it over to the Bermuda Monetary Authority (BMA).

At that time, BMA chair Cheryl Lister said: "A key aspect of this new regulatory framework is that licensing powers and the exercise of powers to intervene and deal with any problems lie with the Authority rather than with the Minister as has been the case since 1969."

But questions put to the Ministry this week revealed that Government is involved in the licensing process and Opposition Leader and Shadow Finance Minster Dr. Grant Gibbons has questioned if it may be going too far.

The Act does spell out some involvement by the Finance Minister, as it is his job to set the economic framework within which the BMA would grant licences. But the Minister's involvement, under the Act, is limited to making sure the granting of a new licence would be "in accordance with the economic and financial policy of the Government."

Although Government's policy is yet to be made public, Ministry officials this week said its aim was to "set out the kind of entities that Bermuda would like to encourage to set up and do business."

Financial Secretary Donald Scott this week said the BMA and the Ministry do have a close working relationship: "Communication flows back and forth between the Ministry and the Bermuda Monetary Authority." And Government's economic advisor Dr. Andrew Brimmer pointed out that there is a dedicated tray within the Ministry for messages and mail destined for the Authority.

But the Ministry said their was nothing improper in the interaction between two bodies. Indeed Assistant Financial Secretary Ifor Hughes said it would be difficult to avoid: "There is a built-in mechanism by which there is going to be interaction between the Authority and the Ministry.

A company wanting to seek a bank licence would also have to incorporate. And a company incorporating with the intention to perform banking activity would require the consent of the Minister, so the file would need to come for the Minister's consideration and approval.

That relates to the company's registration rather than the actual decision to issue the license itself. But clearly there would be interactions between Government and the Bermuda Monetary Authority on any granting of bank licences."

But Dr. Gibbons said it would appear that the Ministry could be getting too involved in the process : "It seems to me that the Ministry may be trespassing on the clear directions of the Act as it is not for the Minister to set criteria."

Dr. Gibbons said the Banks and Deposit Companies Act was put in place to create a clear political separation by giving licensing powers to the BMA.

He said: "It is only for the Minister to give broad, background direction such as how many banks the Island can sustain, and the impact of more banks on the local economy, potential constraints to growth and how growth should proceed..."

"The Minister should not be in the business of saying this is the kind of bank - or not - that we want in Bermuda. It is not the Ministry's job to match applicants against criteria. That is the sole job of the BMA."

Dr. Gibbons said changes to legislation were designed to take any political interference out of the process, and was in line with recommendations from the OECD and the KPMG report commissioned by the UK Government. He concluded that Government must be careful that it not go against "the spirit of the Act."

But Dr. Brimmer said Government's intentions were honourable: "I would hope that you would conclude from this discussion that the various Government agencies are not bound by bureaucratic processes, my turf versus your turf but that this is a co-operative process that we are actively engaged in.

"My impression is that the goal is to avoid surprises, no one likes to be blind-sided," Dr. Brimmer said.