Monetary Authority: Positioning For The Future

October 15, 2019

[Bermuda Monetary Authority series]

Series 4: Positioning for the Future

As the Bermuda Monetary Authority [BMA] celebrates 50 years in 2019, we take a look back at the last five decades. From providing sound policy advice to pushing Bermuda forward as a reputable place to conduct business, the BMA has had an incredible impact on Bermuda’s financial landscape.


Internationally Recognised Standards and the Financial Crisis

The BMA entered 2002 with a new Chair – its first female Chair and Chief Executive Officer [CEO] – Cheryl-Ann Lister, and the need for an updated and modern regulatory framework. Ms. Lister made it her mission to align the organisation with international regulatory standards.

Ms. Lister recalls, “The BMA and Bermuda’s financial sector were about to go through a complete transformation. Our legislation had been in place for a number of years. Essentially, there had been significant changes in international standards and the Basel Accord core principles had been issued by

the Basel Committee on Banking Supervision. We felt it was about time that we update our legislation in Bermuda to ensure that it completely embodied those principles. We upgraded and amended new legislation for the banks, investment businesses and trust companies, and we also put together an amendment to the Bermuda Monetary Authority Act 1969 to address money services businesses.”

Strengthening Banking Standards

The first standards to be strengthened came with the successful passing and implementation of the Banks and Deposit Companies Act 1999 and the Investment Business Act 2003. The Banks and Deposit Companies Act gave the BMA full licensing, supervision and enforcement powers, and the same would follow with the Investment Business Act when it was amended in 2003. The BMA, with its ability to grant licences to conduct business on the Island, wanted to ensure they were satisfied that applicants met a number of criteria to protect depositors and investors.

Mr. D. Munro Sutherland, who worked at the BMA as a policy advisor of supervisory matters in 1998, and went on to become the Superintendent of Banking, Trust and Investments in 2002, recalls the strong support from the banking industry during the implementation of the new legislation. “Banks had already come to recognise that without a strong, independent and fully effective licensing and regulatory authority in Bermuda, their ability to continue to operate internationally was likely to be significantly constrained and undermined,” Mr. Sutherland says.

He adds, “In time, this recognition spread to other financial services sectors as global standards were defined and refined internationally. The BMA was able to demonstrate the critical importance that Bermuda had a sound regulator, was committed to international standards, and had an international reputation that would enable it to play a role in discussing, reviewing and developing global standards going forward.”

In 2003, HSBC announced plans to purchase all outstanding shares of the Bank of Bermuda Ltd., which was approved by shareholders. After discussions with HSBC and the UK Financial Services Authority [FSA], who was the ultimate consolidating supervisor for the HSBC Group, the BMA gave its non-objection to the purchase in February 2004.

A Unified Financial Services Regulator

Outside of Bermuda, the world was changing rapidly and for Bermuda’s financial institutions to meet current international regulatory guidelines, KPMG carried out an assessment, assisted by the UK Government, to gain a better idea of where Bermuda was in comparison to international regulatory standards.

Ms. Lister says that during this review, the BMA became aware that the Authority’s corporate governance should be more “modern, up-to-date and consistent with other regulatory authorities.” She adds: “We knew it made sense to have a focused, unitary financial services regulatory authority that could build on the strengths of a much more substantive organisation.”

As of 1 January 2002, Bermuda’s insurance regulatory function was integrated with the BMA. The Supervisor of Insurance at the time, Mr. Jeremy Cox, together with his regulatory staff from the Registrar of Companies, transferred to the BMA. This merger made the Authority the independent regulatory body for financial services in Bermuda. “The new structure was created, and it was very important to us that this came across as a merger and not an acquisition,” remembers Ms. Lister. “They came in on equal footing and we created new divisions – Banking, Trust and Investment, and Insurance.”

Mr. Cox adds, “The move was pivotal for two reasons. One, you now had the BMA as the single regulator for all financial services, so there was no confusion or divided attention. And two, the physical move out of Government was an effective response to some of the dialogue in the international regulatory world around the independence of oversight for financial services from Government. We were now a part of this operationally independent regulator.”

Mr. Cox continues, “Throughout that time, you saw changes in politics, yet stability in the regulator. This speaks to the independence point, that you can have change in the policymaker side, but the BMA was a steady ship that kept moving forward.” At the time of the merger, the Bermuda insurance policymaker side, but the BMA was that steady ship platform that kept moving forward.” At the time of the merger, the Bermuda insurance market comprised over 1,600 licenced insurance and reinsurance companies with total aggregate assets exceeding $170 billion. There was a continued high-level of interest internationally in Bermuda as a professional insurance and reinsurance sector. During 2001, 109 new insurance companies were added to Bermuda’s register, a significant portion coming from large Class 4 insurance companies reflecting the response to the 11 September 2001 terrorist attacks.

By 2004, Bermuda was the leading jurisdiction for the captive market, with 28 percent of global captives, writing $16.6 billion in gross premiums. Further reviews were conducted into Bermuda’s compliance with international regulatory standards throughout the decade, including two by the International Monetary Fund in 2003 and 2007. Detailed analyses were performed on Bermuda’s legislation and regulatory arrangements compared to the requirements of the Basel Committee for banks; International Association of Insurance Supervisors [IAIS]; International Organisation of Securities Commissions [IOSCO]; and Financial Action Task Force [FATF] in relation to anti-money laundering and antiterrorist financing.

What the BMA gained from these assessments, says Ms. Lister, was a sound regulatory framework that ensured Bermuda was compliant with international standards. “We wanted the highest standards of integrity and highest standards of compliance, but that were practical at the same time,” she recalls. “I expected we would always try to be proactive and create a regime that worked for us and in doing so, we would be less likely to be dictated by others because we had already taken steps to do the work that needed to be done. We assessed ourselves, looked to see where the gaps were and worked to fill them, rather than sitting back and having people come and tell us.”

The Global Financial Crisis

The foundations the BMA had laid in the earlier part of the decade would be shaken in the wake of the financial crisis of 2008. Whilst Bermuda was not immune to the effects of the crisis, much of the hard work that had been set down in the past allowed Bermuda’s financial institutions to weather the challenging environment.

Mr. Matthew Elderfield, who was the BMA’s CEO from 2007-2009, recalls the period when the “hurricane of the global financial crisis brushed Bermuda. The BMA and the Government of Bermuda can be proud of the way it managed during the crisis,” he says. “The global financial crisis meant that the financial environment was tough for much of the Bermuda financial sector. But generally speaking, the [re] insurance section weathered the storm well, thanks to strong industry management and the robust regulatory framework in place at the BMA.”

Whilst all financial firms in Bermuda were affected by the downturn, the BMA maintained active monitoring of the sectors of Bermuda’s market that were most significantly impacted, which included intensified supervision of local banks into 2009. The industry remained resilient and maintained compliance with the BMA’s capital and liquidity standards. In keeping with the Authority’s proactive approach and with the implementation of Pillar 2 of the Basel Accord, the BMA took the precautionary measure of requiring banks to hold an additional capital buffer to withstand the severe economic downturn after undertaking a series of stress tests. The BMA’s sound diligence throughout the crisis meant that none of the banks failed in Bermuda during this time.

A New Family of Banknotes

In 2000, the BMA launched an entirely new family of banknotes, making it the first time since 1988 that all denominations of Bermuda’s banknotes had been changed simultaneously. Along with an updated portrait of Her Majesty The Queen, the notes also featured enhanced security features. Other notable numismatic offerings from the BMA included a special coin to commemorate the Tall Ships Race of the Century and a special Millennium coin, which depicted a sailing ship against a millennium sunrise and a unique scalloped edge.

In 2006, the BMA designed a new triangle coin series featuring shipwrecks found around Bermuda. The first coin of the six-coin set was issued in June 2006 to coincide with the opening of the BMA’s new Bermuda Bank Notes Exhibit at the Commissioner’s House.

By the end of the decade, Bermuda had a completely new banknote series with a distinctive, vertically-designed orientation. The banknotes launched into circulation on 9 March 2009. Bermuda’s redesigned $2 banknote, featuring the bluebird, was chosen as the 2010 Bank Note of the Year by the International Bank Note Society [IBNS].

Along with its expanding responsibilities, the BMA was continuing to expand its employee base and had outgrown its Burnaby House premises, with several divisions working out of separate buildings. The search was on for a new head office to bring the entire BMA team under one roof. The BMA purchased an office building on Victoria Street, which was renamed BMA House. In 2006, renovations and reconfigurations began, and the BMA officially moved into the new premises in 2007.That same year, an onsite note and coin exhibit was officially opened. The exhibit graphically demonstrated the development of Bermudian currency from the days of UK Sterling to the modern era of Bermuda dollars and cents.

At the close of the decade, the BMA had a new CEO with the appointment of Jeremy Cox in 2010. The BMA had also started seeking mutual recognition of Bermuda’s regulatory framework, with a particular focus on [re]insurance regulation and the creation of a roadmap to Solvency II equivalency, which would dominate much of the work in the following decade.

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