Applications expected under the Investment Business Act
Persons who must comply with the requirements of the amended Investment Business Act 2003 should consider progressing their application and related supporting materials sooner rather than later.
The July 2022 amendments to the IBA included a year-long transitional period for those persons that were previously unlicensed – but they will soon be required to either obtain a licence or register in accordance with the Act.
Prior to the 2022 amendments, a person who wished to carry on investment business in Bermuda while maintaining a place of business on the island had to obtain a licence under the IBA.
An exception was made for persons falling within a defined category who were recognised as exempted following self-certification to the Bermuda Monetary Authority.
The maintenance of a place of business in Bermuda is no longer a prerequisite in order to come within the scope of the IBA. Now, a person carries on investment business in or from Bermuda, and is therefore within the scope of the IBA, if they are either incorporated or formed in Bermuda and carry on investment business – or are incorporated or formed outside Bermuda and carry on investment business in or from Bermuda.
Where a person was not prima facie required to obtain a licence under the IBA, they should not now find themselves in scope provided they are comfortable that they remain within one of the categories set out in what is now the Investment Business (Non-Registrable Persons) (Designation) Order 2022.
There is no definition of what is meant by a person incorporated or formed outside Bermuda and carrying on investment business “in or from” Bermuda.
As such, persons who were not formed or incorporated in Bermuda and who carry on activities that could constitute investment business with a Bermuda nexus should consider whether they now fall within the scope of the IBA.
The 2022 amendments removed the exemption regime. A person is no longer exempted under the 2004 Order; instead, anyone who intends to conduct investment business (as defined in the first schedule of the IBA) must apply to the BMA to be licensed or registered unless they are within a limited group of non-registrable persons.
Registrable persons are of two classes – Class A and Class B.
Any person that was formed or incorporated in Bermuda and carries on investment business in circumstances where they are licensed, authorised or registered by a recognised regulator but does not maintain a place of business in Bermuda, can apply to be a Class A Registered Person.
A “recognised regulator” means a regulatory authority in a jurisdiction recognised by the BMA as imposing equivalent standards to those in Bermuda having the power to supervise entities conducting investment business.
A Class B Registered person is typically someone that would have been able to benefit from the self-certification exemption either as a result of providing investment services to particular classes of client and/or a limited number of clients (20 or fewer).
Our expectation is that persons that were formerly required to be licensed under the IBA but were entitled to benefit from the self-certification exemption will be considering whether to obtain a standard licence or seek registration as a Class B Registered Person.
Once a determination has been made with respect to whether to proceed with a standard licence or registration under Class A or Class B, materials must be prepared in order to submit an application to the BMA.
They include an application form together with a business plan and relevant supporting documentation, including certain policies and procedures, evidence of certain matters (such as insurance), completed questionnaires with respect to certain legal and natural persons within the corporate structure, details surrounding operational arrangements and example agreements.
The application form published by the BMA includes a comprehensive checklist so that an applicant can determine what materials are required.
Applicants must also provide copies of their policies and procedures to address matters related to anti-money laundering and antiterrorist financing. Assuming that a business has previously completed the self-certification process, they would have had to submit the same as part of that process.
As such, subject to a review to ensure that they remain up-to-date and appropriate for the nature, scale and complexity, those seeking to comply with the amended IBA will likely already have these materials prepared.
Importantly, the scope of what actually constitutes a relevant activity for the purposes of the IBA has also been expanded.
This activity is described as the “promotion of investments to the public”. The IBA defines this as including the advertising or agreeing to advertise, material or information which promoted investments to the public; issuing or agreeing to issue a prospectus, application form or proposal form in relation to an investment to members of the public; and distributing, circulating or agreeing to distribute or circulate or make available, material relating to an investment to members of the public.
Consequently, persons who were not previously in scope of the IBA and may be carrying on activities of this nature should also consider whether they may now need to be licensed or registered.
*This article was also authored by trainee Jeffrey Blair
First Published In The Royal Gazette, Legally Speaking, January 2023
