After multiple updates to the BDCA and in line with a transforming banking landscape, the Bermuda Monetary Authority (the BMA) is looking for more impactful changes.
Escalating its efforts to modernise, internationalise and diversify its banking sector, Bermuda wants its banking ecosystem to be aligned with new technologies, changes in consumer behaviour and the evolving needs of domestic and international customers.
It is looking to create attractive opportunities for depositary and custodian banks, merchant and investment banks, brokerages and broker-dealers, digital asset banks, international agent and representative banks, mutual societies, mortgage corporations and finance companies, and national or post office savings and development banks.
The BMA is seeking to create a more inclusive environment for financial institutions and international capital by expanding access to specialised wholesale services, domestic retail and commercial products, and innovative offerings that reflect changing customer needs, including fintech and digital assets.
Bermuda remains a well-established international financial centre, reinsurance hub and leading crypto offshore jurisdiction, but the BMA recognises a need for ‘fostering a robust, innovative and resilient banking sector that aligns with global standards and supports Bermuda’s position as a leading international financial centre’, according to its potential banking models for Bermuda discussion paper.
Supporting digital asset businesses
Bermuda has a mature and ever-growing digital assets sector with a significant number of licensed digital asset businesses. In addition to this, holding and trading digital assets is now a mainstream need. Businesses, (re)insurers and investment entities want to develop diversified investment strategies across a number of different assets, but when the banking system doesn’t support this, it causes difficulties.
A growing number of (re)insurers in Bermuda, for example, already accept digital assets for premium payments and claims and more want to hold and invest in digital assets. The BMA understands that the banking sector needs to service this area of the market more effectively. It wants companies that handle digital assets to have access to local banking services. For the regulator, this is vital for enforcement, supervision and oversight. Fostering greater innovation depends on making the market more attractive to new entrants.
The BMA intends to launch a new regulatory framework that allows digital asset banks and other institutions to serve this growing demand for digital asset and blockchain-based business and those wanting to use digital assets in their investment portfolios.
At present, Bermuda has a concentrated banking industry of just four domestic banks licensed under the BDCA; HSBC Bank Bermuda, The Bank of N.T. Butterfield & Son, Clarien Bank and Bermuda Commercial Bank.
A restricted banking license was introduced by the BMA in 2018 to encourage new providers into the market, particularly those that would serve digital asset-based businesses. Although the license allows institutions to operate with a reduced minimum asset requirement of $5 million, the initiative, though ambitious, has not resulted in a flood of new entrants. To date, one restricted digital asset business license has been awarded, this was to Jewel Bank in June 2022 but it remains non-operational.
Diversifying Bermuda’s banking industry
The BMA’s efforts to diversify and modernise Bermuda’s banking sector are dependent on a progressive, flexible and dynamic legislative framework. The authority recognises the importance of new classes of licence to make it easier for new entrants to establish specialised banking services across both international and domestic markets.
The domestic and international models comprise: (i) depositary and custodian banks, providing safekeeping, settlement, securities administration and related services for institutional investors, trusts, family offices and other asset owners; (ii) merchant and investment banks, focused on capital raising, corporate finance, M&A advice and underwriting; (iii) brokerages and broker-dealers, executing trades and potentially offering cash management accounts and margin lending; (iv) digital asset banks, specialising in custody, management and transactions involving digital assets; and (v) international agent and representative banks, allowing foreign banks to extend defined services through authorised local agents or representatives without establishing a full standalone operation.
The domestic retail and commercial models comprise mutual societies, mortgage corporations and finance companies, providing specialist mortgage lending and other non-deposit financing, including leases and national or post office savings banks.
The BMA knows that Bermuda’s existing relatively small banking sector is not necessarily conducive to nurturing the rapidly expanding progressive and innovative financial services market. It believes that attracting global banks and other entities to Bermuda’s shores is vital for expanding access to international products and services, specialised wholesale capabilities and domestic financial options.
Through the BMA’s potential banking models for Bermuda review, start-ups through to established financial institutions are likely to take advantage of new opportunities across the proposed models, including joint ventures, representative offices and other managed structures rather than full branches.
Opportunities for new banks and institutions
Bermuda wants to establish itself as a leader in banking and innovation amongst the offshore markets. It is known for its enthusiasm for innovation along with its robust regulatory framework and strict anti-money laundering standards. The proposed framework could create opportunities across specialised wholesale banking, domestic retail and commercial services, financial inclusion initiatives and carefully regulated emerging activities.
This broader strategy represents an opportunity for new entrants and existing banking providers to develop services for digital asset businesses and institutional investors. Digital asset banks form one part of that opportunity, alongside merchant and investment banking and brokerage and agent models.
The BMA is an open and transparent authority that welcomes conversations with potential entrants to discuss business plans. We recommend those looking to establish new banking models in Bermuda engage in early dialogue, prospective applicants can benefit from an understanding of what is permissible and to build an awareness of the regulatory infrastructure.
Our Regulatory & Risk Advisory Group specialises in advising businesses across all financial services sectors on licensing perimeters, the path to licensing and through the licensing journey. Reach out to us to assist you with becoming the next licensed bank in Bermuda.
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