Investment Business in Bermuda: Recent Legislative Changes
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The Investment Business Amendment Act 2022 (the “Amendment Act”) came into force on 27 July 2022 and introduced a slew of changes to the Investment Business Act 2003 (the “Act”). The changes introduced by the Amendment Act will affect all entities conducting investment business, including some of those entities which previously fell outside of the scope of the Act.
Increased Scope of the Act
Prior to the Amendment Act, to be deemed to be carrying on investment business in or from Bermuda a person must carry on investment business from a place of business maintained by such person in Bermuda, which meant that it had to carry out investment from premises it occupied for that purpose, at which it employed staff and pays salaries and other expenses in connection with that business.
In order for the BMA to effectively monitor regulatory obligations, “a person carries on investment business in or from Bermuda” if such person has been incorporated or formed in Bermuda and carries on investment business or incorporated outside of Bermuda that are carrying on an investment business in or from Bermuda. The removal of the reference to having physical premises in Bermuda means that all entities carrying out an investment activity must now consider whether they are subject to the Act.
The Amendment Act has effectively done away with the “maintain a place of business” exclusion and all persons conducting investment business in or from within Bermuda must either be licenced, registered or exempted. The Amendment Act has introduced the concept of Class A and Class B Registered Persons.
Class A Registered Persons
Persons who conduct investment business in Bermuda, who do not maintain a physical presence in Bermuda and are licensed, authorized, or registered by a “recognized regulator” in another jurisdiction will now be required to register as a Class A Registered Persons. Class A Registered Persons must submit annual and quarterly returns to the Bermuda Monetary Authority (“BMA”) and will be required to appoint an individual in Bermuda approved by the BMA as its “Senior Representative” who will serve as the entity’s point of contact in Bermuda.
Class B Registered Persons
Class B Registered Persons qualify for an exemption and include, amongst others, high-net worth, high income, and sophisticated private investors as well as investment funds, entities having not less than $5,000,000 of total assets. For a full list, please see the Investment Business (Class B Registered Persons) Order 2022. Class B Registered Persons will be required to maintain a place of business in Bermuda which shall be its principal place of business.
Non Registrable Persons
The Amendment Act makes provision for the Minister of Finance to designate various persons as non-registrable persons. The Investment Business (Non-Registrable Persons (Designation) Order 2022 sets out the complete list of persons falling within this category, which includes investment funds, qualifying insurers, qualifying insurance managers, brokers, the BMA, a public authority, and the Government of Bermuda. The BMA also recognises that there will be persons that are licensed under the Digital Asset Business Act 2018 (“DABA”) that also undertake investment business in a manner ancillary to their digital asset business and it is proposed that such persons shall also be non-registrable persons.
Interaction with DABA
The BMA recently issued guidance notes titled Guidance for Entities Seeking Exemption from Dual Licensing due to Ancillary Nature of Activities. These guidance notes provide further information on when entities licenced under DABA that are also seeking to carry on investment business will be considered as doing so in a manner deemed ancillary and therefore eligible for treatment as a Non-Registered Person. According to the guidance note, an activity will be deemed as ‘ancillary’ where gross revenues generated from that activity do not surpass 25% of overall gross revenues (generated by the entity’s licensed DABA business, as well as from activities falling within the ambit of this Act, but excluding other non-licensable activities).
Entities subject to the ancillary exemption are required to report revenue projections and key assumptions on a semi-annual basis to the BMA.
Promoting Investments to the Public
The Amendment Act has also added an investment activity in respect of promotional activities (including but not limited to carrying on or agreeing to advertise, issue or distribute materials relating to investments) that are directly targeted at members of the public. The definition of ‘members of the public’, excludes licensed, registered or non-registrable persons; members of the same group as the investment provider that is carrying on such promotion; as well as persons who are, or who propose to participate in a joint enterprise with the investment provider that is carrying on such promotion. It is important to note that the promotional activity has a wide ambit and as such the definition of ‘promotion’ also encompass persons ‘agreeing to’ offer services or carry on activities contemplated within the definition. However, the Act establishes that a person will only be considered to be promoting investments where they are carrying on one or more activity that falls within the definition of promotion and where they are performing such activities ‘continuously’.
Every exempted person or any person conducting investment business that is not licensed prior to the date of the coming into operation of this Act, shall be required to make an application to the Authority to become licensed, or registered, as the case may be, within 12 months of the date of the coming into operation of this Act. Non-registrable persons shall not be required to apply to be registered.