The Bermuda Monetary Authority is formally taking on the role of resolution authority for failing banks in an effort to stop wider damage to depositors or the island’s financial system.

The proposal follows legislation passed last year allowing the BMA and the Bermuda Deposit Insurance Corporation to share confidential information with a view to better protect depositors.

In a consultation paper, the BMA said it wants to change the law to recognise its role in the resolution process for banks, deposit companies and credit unions.

“Resolution” means the steps a national authority can take when a financial institution fails. The aim is to keep essential services, protect depositors and limit the effect on financial stability, the wider economy and Bermuda’s international reputation.

The Ministry of Finance designated the BMA as resolution authority for the three types of institutions in May, according to the consultation. The proposed amendment to the Bermuda Monetary Authority Act 1969 would add the role to the regulator’s principal objectives.

However, the paper makes clear that a full resolution regime is still some way off. The BMA said the framework would be developed over the next several years, after more consultation with businesses.

The move marks another step in Bermuda’s efforts to strengthen its crisis management for the financial sector.

Last June, the Financial Policy Council said it had discussed plans for crisis management, recovery and resolution, including a resolution authority for Bermuda. Members considered the need for the authority to be able to act quickly in a crisis.

For now, the BMA’s resolution-authority remit would apply only to institutions licensed under the Banks and Deposit Companies Act 1999 and the Credit Unions Act 2010. The authority said its remit might need to extend to other sectors in future, but that would require a separate consultation.

The consultation also proposes administrative changes to insurance-sector fees.

A three-year programme of phased fee increases for insurers, introduced in 2024, is due to end this year. The BMA stressed that the changes would not introduce new fees or increase existing ones.

The BMA has invited comments on the proposals by September 14.