Parliament Approves BMA Regulations
Bermuda Monetary Authority fees will be kept to a minimum in 2012 — and reduced in the case of some locally-based insurers — in a bid to stimulate the financial services sector, Parliament was told on Friday [Dec. 10].
Premier and Finance Minister Paula Cox told the House of Assembly that given the contracting local economy and increasing global competition, it made sense for the BMA — the island’s financial regulatory body — to run at a short-term loss in order to help boost Bermuda’ long-term prospects as an off-shore domicile.
“Mr. Speaker, in an effort to minimise the impact of fee increases on the financial services industry, the Bermuda Monetary Authority has in the past several years run a deficit, thereby financing a portion of its operations from its existing reserves,” she said. “Recognising the current weak Bermudian economy, the Authority will follow the same approach in 2012, which will allow 2012 fee increases to be kept to a minimum. Fee increases will focus on those areas where anomalies exist or where 2012 regime change requires an increase in resources.
“Mr. Speaker, these amendments are necessary to ensure that Bermuda continues to be recognised as a leading jurisdiction for financial services. One that is competitive and well regulated but which is nevertheless able to efficiently process applications from new entrants to the market from credible jurisdictions.”
The Premier’s statement to Parliament appears in full below:
The Bermuda Monetary Authority (Regulatory Fees) Amendment Act 2011
Mr Speaker, the governance structure for the Bermuda Monetary Authority is set down under the Bermuda Monetary Authority Act, 1969. There are explicit objects regarding the nature and scope of the Authority’s supervisory powers and the institutional relationships between the Authority and the Government and judicial authorities are clearly defined and transparent. In common with other regulators, the Authority also has discretion to allocate its resources in accordance with its mandate and objectives and the risk it perceives.
Mr Speaker, the Authority is responsible for the supervision, regulation, and inspection of financial institutions operating in and from within Bermuda. The Authority also issues currency; manages exchange control transactions; assists other agencies with the detection and prevention of financial crimes and advises the Government and other public bodies on financial and monetary matters. The Authority also regulates the Bermuda Stock Exchange.
Mr Speaker, in its 2011 Business Plan, the Authority announced that it would commence a review of its business critical processes. The purpose of the Bill is to modify some of the regulatory fees, arising out of this review, in the Fourth Schedule to the Bermuda Monetary Authority Act 1969, to modify the manner and dates in which annual registration fees are determined and paid under the Proceeds of Crime (Supervision and Enforcement) Act, 2008 and to harmonise the payment and filing dates for fees charged under the Investment Funds Act, 2006.
Mr Speaker, in an effort to minimise the impact of fee increases on the financial services industry, the Authority has in the past several years run a deficit, thereby financing a portion of its operations from its existing reserves. Recognising the current weak Bermudian economy, the Authority will follow the same approach in 2012, which will allow 2012 fee increases to be kept to a minimum. Fee increases will focus on those areas where anomalies exist or where 2012 regime change requires an increase in resources.
Mr Speaker, these amendments are necessary to ensure that Bermuda continues to be recognised as a leading jurisdiction for financial services. One that is competitive and well regulated but which is nevertheless able to efficiently process applications from new entrants to the market from credible jurisdictions.
The internal capital model fee
Mr Speaker, presently, all Class 3B and Class 4 general business insurers are required to maintain available statutory capital and surplus at a level equal to or in excess of their enhanced capital requirement (“ECR”). The ECR applicable to qualifying insurers is established by reference to either the Bermuda Solvency Capital Requirement model (a standard mathematical model used to determine an insurer’s capital adequacy) or a BMA‐approved internal capital model.In preparation for allowing certain insurance entities to use their internal capital models (ICM) to set regulatory capital, the Authority is currently developing its policies and procedures relating to its approval of such models. These preparations include, amongst other things, the running of several pilot projects within Bermuda’s insurance industry.
In June 2009 the Authority estimated that an appropriate application fee for this process was $50,000. Based on the work undertaken in the pilot projects the Authority has determined that a fee at this level would be grossly inadequate to allow them to properly vet an internal capital model application. Whilst the process is still evolving, certain principles for setting the application fee have been decided:
- The total amount of the fee needs to be of sufficient amount to recover internal costs as well as any required external resources.
- The Authority may outsource all or part of the internal capital model review, with costs passed on to the (re)insurer.
- The fee will be dependent on several key factors including the size of the entity, the complexity of the underlying business and whether or not the model has been pre-validated by an external party acceptable to the BMA.
In addition to the approval process itself, ongoing fees to firms using internal capital models to set their regulatory capital will include fees for model change reviews as well as post qualification reviews; the timing of which will be on a risk based cycle.
Mr Speaker, the demand driver model dictates that those insurers applying to have their model approved should be the insurers bearing the cost of the exercise. Currently, the Authority anticipates there are eight (8) insurers ready to have their internal capital model reviewed.
The change in the fees for review of the internal models was determined by the information, time and materials submitted during a data collection held earlier in 2010 as well as a comparative review carried out by the Authority of other jurisdictions approach. This is area is highly technical and the expertise required to assess the adequacy of an insurer’s model is significant. The Authority has determined that it may cost up to $1 million dollars. For this reason, the Authority has considered carefully an appropriate fee structure as well as the process. To carry out such reviews there will be a joint process which will involve both external and internal experts reviewing proposed models and the Authority will rely on actuaries within the Authority and third parties to carry out this work to manage costs. To this end, the Authority has increased its expertise.
Class 3A fees
In an effort to ensure regulatory fees remain proportionate to risk, and to align with other commercial classes of insurance, the following changes are proposed to the Class 3A insurers’ fee structure:Class 3A Categories
- Gross premium written greater than $35 million Proposed fee: 2012 $30,000 Current fee: $30,000
- Gross premium written greater than $20 million and less than $35 million Proposed fee 2012: $26,000 Current fee: $30,000
- Gross premium written greater than $5 million and less than $20 millions Proposed fee: $22,500 Current fee: $30,000
- Gross premium written less than $5 million Proposed fee: $19,000* Current fee: $30,000
- Affiliated re(insurer) Proposed fee: $19,000* Current fee $20,000
Mr Speaker, there are currently 135 Class 3A insurers registered in Bermuda. The proposed change to the fee structure is actually a reduction of fees for this class of approximately $500,000. This change is as a result of consultation with industry over the past year to ensure Bermuda retains its competitiveness.
Anti-Money Laundering fees
In the area of anti-money laundering, the Authority stated that it would include an active on-site anti-money laundering program and related follow up activity, in its 2011 Business Plan.The Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing Supervision and Enforcement) Act 2008 requires financial institutions as well as non-financial institutions to register with the Authority. In that regard, the Authority is required to vet applications and establish and maintain a register of the persons and entities over which it has these supervisory duties. While the process is largely administrative, the Authority is also required to vet a registered person’s policies and procedures manual. Presently, the Authority receives a fee of $825 but it is required to pro-rate the first fee should an application be received after the 30th April in any given year. It is proposed that the pro-ration of fees for new registrants be discontinued to ensure that the Authority’s Legal Services and Enforcement Division is adequately funded for this purpose.
Mr Speaker, the Bill includes other technical amendments and it is fully consistent with our financial services policy objectives.
Mr Speaker, I wish to acknowledge the efforts of the Bermuda Monetary Authority, the insurance sector including but not limited to the Association of Bermuda Insurers and Reinsurers, the Bermuda Insurance Management Association as well as the Insurance Advisory Committee and the Attorney-General’s Chambers.
Thank you, Mr Speaker.
