Bermuda Prepares To Sign AIFMD Cooperation Agreement With European Securities And Markets Authority

The Bermuda Monetary Authority announced that they are advancing preparations to sign a cooperation agreement with Europe under the Alternative Investment Fund Managers Directive (AIFMD).

The AIFMD is due to be implemented across Europe by 22 July 2013. The Authority has been in discussions with the European Securities and Markets Authority (ESMA), and is aiming to sign the co-operation agreement required for third country regulators under the Directive before the July deadline.

“Bermuda’s existing regulatory framework for investment funds already provides the foundation to support the level of cooperation ESMA is seeking,” said Jeremy Cox, CEO of the Authority. “Therefore, we are in a good position to facilitate Bermuda-based funds and fund managers who want to conduct business in Europe once the AIFMD is implemented.”

Bermuda can satisfy the three core conditions that are most relevant to third countries under the AIFMD, namely that:

1.There is in place a cooperation agreement with the third country fund domicile and home member state;

2.Third countries (manager domicile or fund domicile) are not on the Financial Action Task Force list of noncooperative jurisdictions;

3.Agreements for exchange of information for tax purposes are in place between European Union (EU) States andnon-EU jurisdictions.

“We will be working on confirming details under the agreement in the coming weeks,” explained Mr. Cox. “This means Bermuda can still offer significant benefits for new and existing funds and fund managers seeking access to Europe, while also servicing those looking to operate in non-EU markets.”

Mr. Cox added that the Authority has also been actively engaged with the Bermuda Government and market practitioners in the jurisdiction to consider stakeholder input on the AIFMD. “Bermuda is a sophisticated funds jurisdiction with considerable expertise and the professional services infrastructure to support fund business with global scope,” he said. “It is clear that there is a collective effort to ensure Bermuda is appropriately aligned with the AIFMD, so that our funds sector can continue to operate from this jurisdiction successfully.”

BERMUDA REFINES DISCLOSURE REQU IREMENTS FOR COMPANY FORMATIONS

The Bermuda Monetary Authority (the Authority or BMA) announced that Bermuda is taking another step forward in its review and administrative procedures for company or partnership formations.

Specifically, there will be a refinement to the beneficial owner information companies must submit to the Authority as part of the formation process, and under exchange control requirements. 

 

Currently in the formation process, all entities must submit to the Authority a personal declaration form on beneficial owners of the partnership or company who own 5% or more of voting interests or rights.

Jeremy Cox, CEO of the BMA said, “This filing has been in effect for several years and the Authority has managed this process on behalf of the Government. The authorities in Bermuda have received further clarification on recent revisions to the international standard for identifying and disclosing information on beneficial owners, which has established the disclosure threshold at 10% or more of voting rights.”

“Bermuda was already well ahead in moving towards adopting this standard, the most recent example

being the Corporate Service Provider Act 2012 which took effect on 1 January 2013,” added Mr. Cox. “We are now in a position to apply this standard across the board in Bermuda. This means that the disclosure threshold will change and entities will now be required to provide personal declaration forms for persons who own or control 10% or more of voting rights in a company or partnership, rather than the previous 5% level.” 

 

Mr. Cox said that the new 10% threshold will also apply for companies that are subject to exchange

control seeking approvals from the BMA to transfer securities. “Under the Exchange Control Act 1972 the BMA is in fact the Controller and has to date reviewed all persons who own 5% or more of securities in these entities when they request securities transfer permissions,” he said. “The threshold will now also change to 10% for such requests.” 

 

“For persons submitting securities transfer requests who own less than 10% of an entity, the Authority will still provide approvals under its current general permission policy. So basically there is no change in this context for those who do not meet the revised threshold,” Mr. Cox stated. 

 

Mr. Cox advised that the policy shift from 5% to 10% will take effect immediately both for company formation applications and exchange control permissions.

Bermuda Monetary Authority Reduced License Fees for Special Purpose Insurers

The Bermuda Monetary Authority (‘the Authority’ or ‘BMA’) announced that the registration fees for Special Purpose Insurers (SPI’s) has been nearly halved. Effective 1st April 2012, all new SPI’s licensed in Bermuda will pay $6,000 for annual registration. This is a significant reduction from the current registration fee of $11,600.

Accordance to Press Release Shelby Weldon, the Authority’s Director, Insurance, Licensing & Authorisations said, “The ability to establish SPI’s here within our insurance classification system is another option for the market to use Bermuda's extensive alternative risk transfer expertise.”

An SPI assumes insurance or reinsurance risks and typically fully funds its exposure to such risks through debt issuance or some other financing. The repayment rights of the debt or other financing mechanisms are subordinated to the insurance or reinsurance obligations of that vehicle.

Mr. Weldon continued, “Since SPI’s are fully funded, the Authority also applies a proportionate level of supervision to such entities, which appropriately is different from what we would apply to say, a large Class 4 commercial insurer. Therefore, this fee adjustment also recognises that distinction, since our fees are directly related to the cost of supervision, further reinforcing Bermuda’s competitive position to support SPI’s.”

Bermuda has recorded significant growth in SPI formations in the last two years. A total of 23 new SPI’s were licensed in 2011, up from eight in 2010 and one in 2009 when the Authority established the regulatory framework to accommodate SPI’s. During January and February 2012, three SPI’s had already licenced in Bermuda.

The move to reduce the fees has been well received by industry, including Bermuda-based law firm,
Appleby.  Accordance to Press Release Brad Adderley, Partner, Corporate & Commercial at Appleby said, “The fee reduction epitomises the proactive approach of the Authority, which was reinforced by the very senior Bermuda contingent that attended the recent Insurance- & Risk-Linked Securities Conference held annually by the Securities Industry and Financial Markets Association (SIFMA). The BMA's attendance at the conference reaffirms to the market place that Bermuda wants to be the preeminent player in this space.”

Accordance to Press Release Greg Wojciechowski, President and CEO of the Bermuda Stock Exchange said, “Since the coming into force of the new licensing regime for Special Purpose Insurers, the BSX has seen a significant increase in interest from the market for the creation of Bermuda based SPI’s which are used for the issuance of Insurance Linked Securities (ILS). This development has led to a record number of listed ILS issues on the BSX.”

SPI’s are often used to issue catastrophe bonds. The BSX has reported that $3.4 billion worth of
catastrophe bonds, or ILS was listed on the exchange by the end of 2011. To date, 25 ILS structures have been listed on the BSX.

Mr. Adderley continued, “Bermuda has made significant inroads into the cat bond market – the reduction of fees will help the island continue to grow this business which will have a positive impact on the Bermuda economy.”

Mr. Wojciechowski added, “The announcement by the BMA to reduce registration fees for SPI structures is a significant development and underscores Bermuda's firm commitment to provide regulatory and commercially sensible support to the global reinsurance industry. Bermuda has been a partner to the global reinsurance industry for over three decades, a healthy partnership which has resulted in the jurisdiction exhibiting a "silicon valley" effect for specialty insurance. Bermuda is a global leader in the reinsurance industry and developments such as this reduction of fees highlight Bermuda stakeholders’ resolve in providing the environment for that partnership to continue for decades to come.”

Accordance to Press Release Arthur Wightman, Partner, Assurance and Business Advisory Services, Insurance/Reinsurance at PricewaterhouseCoopers said, “Bermuda's established funds and reinsurance marketplaces make it the optimal jurisdiction for structuring Insurance Linked Securities and other convergence structures. This move by Bermuda's forward-looking regulator is just one example of how seriously Bermuda is committed to further developing these markets and represents another proactive move by the BMA to commercially practicable regulation. It also reinforces a commitment by the regulator to facilitate speed to market.”