BMA explores opening door to foreign banks
A new framework that would allow foreign banks to offer services in Bermuda through a local agent is one of the ideas floated by the Bermuda Monetary Authority in a discussion paper on the future of banking on the island.
The financial services regulator is seeking public and industry feedback on a range of suggested new banking models. The paper focuses on whether Bermuda’s existing banking framework, established under the Banks and Deposit Companies Act 1999, remains fit for purpose in an increasingly digital and connected financial world.
One of the new banking model classes suggested by the BMA is international agent and representative banks, which would enable overseas banks to provide certain services in Bermuda through local representatives rather than establishing a full banking operation.
“Agent or representative banks will not have complete control over operations and staff resources,” the BMA paper states. “They will be reliant on arrangements with local entities to provide the necessary oversight of the risks associated with the services.”
The BMA adds that it views this model as “suitable for narrow or restricted banking activities that may not require the full operational capacity of an operating model with a comprehensive presence”.
The Government has long expressed support for reform of banking laws to increase competition.
David Burt, the Premier, speaking in 2019 after 11 redundancies were announced at Butterfield, said: “It is clear that Bermuda requires greater diversification in the banking sector to create more employment opportunities for Bermudians and more banking choices for Bermudian consumers.
“Consequently, the Government will increase our efforts to diversify our banking sector as a matter of national priority.”
Among other models suggested in the paper that could increase competition are government-backed savings institutions or development banks, mortgage corporations and finance companies.
The present framework offers banks three types of licences: a banking licence, which allows a bank to provide a range of services to the public; a deposit company licence that allows savings and mortgage services; and a restricted banking licence that enables banks to transact with specific groups of customers, including digital asset businesses and casinos.
Among the new banking models considered in the paper is a digital assets bank.
The BMA said digital assets banks would specialise in services for cryptocurrency and blockchain-based businesses. The BMA said Bermuda’s Digital Asset Business Act 2018 had already created a framework for digital asset banks through the ability to hold a banking licence and a DABA licence.
The BMA cautions: “The management of digital assets and cryptocurrencies is complex and subject to evolving regulations globally. Such banks may face significant risks related to regulatory uncertainty, market volatility, and rapid changes in capital and liquidity requirements.
“Establishing and maintaining robust compliance and security frameworks can be costly and resource-intensive, which may challenge the sustainability of such institutions.”
The BMA paper adds that it is expected that digital asset banks will be subject to the latest Basel standards for crypto asset exposures.
In 2022, Jewel Bank, a digital native bank, was awarded Bermuda’s first new banking licence in 21 years alongside its DABA licence. However, four years later the bank is still not operational, according to its website.
A lack of banking services on island is seen as an inhibitor of growth in the island’s digital assets sector.
Other models considered in the discussion paper include depositary and custodian banks, merchant and investment banks, and brokerages and broker-dealers.
The paper marks the first stage of a broader review process. Feedback received from stakeholders by August 1 will help shape a future consultation paper containing more detailed proposals for changes to Bermuda’s banking framework.
The BMA says its ultimate goal is to ensure Bermuda’s banking sector remains innovative, resilient and capable of supporting both the domestic economy and the island’s growing international business sector for years to come.
At the same time, the BMA emphasises that any reforms must be carefully balanced against Bermuda’s small market size, financial stability objectives and international reputation for strong regulation and compliance.
• For the Bermuda Monetary Authority discussion paper, see Related Media
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