Be Mindful of the BMA’s Enforcement Powers

Be Mindful of the BMA’s Enforcement Powers

Over the years, Bermuda has grown to become a part of the world’s interdependent financial system and this has had its consequences as the island looks to continue to compete on the world stage. Regulatory requirements have increased, both in law and in practice, around the globe. Bermuda is no exception.

The Bermuda Monetary Authority (“BMA”), the Island’s integrated financial services regulator, has a suite of enforcement powers applicable to various sectors of the jurisdiction’s financial services industry.  Regulated sectors that require entities to be licensed by the BMA include banks, corporate service providers, insurance companies, investment businesses, investment funds, digital asset companies, money service businesses, and trusts, among others.

Licensed entities should be diligent to remain in compliance with their obligations under the relevant regulatory regimes, being mindful that the BMA is empowered to deploy the following key enforcement powers to address non-compliance.

Civil Penalties

Under this power, the BMA may impose a penalty not exceeding $500,000 as it considers appropriate on a person who fails to comply with any requirement, or contravenes any prohibition, imposed by or under a relevant regulatory act. The fine must be of a sufficient amount to make the person concerned take notice, it must be proportionate to the breach and it must be dissuasive in that it would act as a deterrent. If satisfied that the person concerned took all reasonable steps and exercised due diligence to ensure compliance, the BMA is precluded from imposing a fine.

Public Censure

This power permits the BMA to publish a statement to the effect that an undertaking has contravened a requirement imposed on it by or under the respective regulatory act. This is essentially a public censure without further penalty.

Prohibition Orders

The BMA, using this power, may prohibit an individual from performing a specified function or functions (e.g., chief executive, director, senior executive) in respect of regulated activities after an assessment of the qualities of the individual concerned. The prohibition order must be published. An undertaking must ensure that the banned individual does not carry on such function and any person who performs or agrees to perform a function in breach of the order commits an offence which carries a maximum penalty on conviction on indictment of a fine of $200,000 or four years imprisonment or both. On application of the person concerned, the prohibition order may be varied or revoked.

Injunctions

This general power enables the BMA to seek the issuance of three types of injunction orders by the Supreme Court of Bermuda compelling or restraining certain conduct. The first is an order to restrain a person from contravening any requirement imposed by or under a relevant regulatory act. The second is an order to require persons to take steps to remedy a contravention of such a requirement and the third is an order to restrain a person from disposing or otherwise dealing with assets.

Publicity of enforcement actions

This power authorises the BMA to publish any enforcement taken after it has notified the person concerned, pending and subject to the outcome of any appeal.

Warning and decision notices

All of the above powers can only be exercised after following due process which involves giving a warning notice, receiving submissions, and considering them before giving a decision notice.

A warning notice is the initial step in an enforcement action and sets out the proposed action, and the reasons for it and indicates whether the BMA is inclined to publish its decision. It provides for a 14-day period (which can be extended), within which the party concerned can make representations which the BMA is obliged to take into account.

A decision notice informs the party concerned of the BMA’s decision to proceed with the proposed action, sets out the details of the decision, the reasons for the action, gives details of how and when the decision will be published and advises the party concerned of its right of appeal. The BMA must make a determination within 90 days after a warning notice is given or otherwise be deemed to have discontinued the action.

Statement of Principles

The regulatory acts oblige the BMA to publish a Statement of Principles (“SOP”) in accordance with which it would act, or propose to act, in exercising enforcement powers. The SOP sets out the manner in which the BMA will use these powers and summarizes key criteria to be followed when exercising these powers.

Conclusion

The failure of licensed entities to uphold regulatory requirements could potentially trigger enforcement action by the BMA, which has evidenced its willingness to levy significant civil penalties in recent years.  Ensuing attention from the media could further increase reputational risk which could be detrimental to business prospects.  The board and management of a licensed entity should operate its affairs to avoid having frequent and/or sustained contact with the BMA to remediate breaches of compliance as this is likely to invite enhanced scrutiny from the regulator on an ongoing basis.

Should you have any issues with or concerns about compliance with the regulatory obligations of an entity licensed by the BMA, please contact the MJM Corporate & Finance Department at [email protected].