Bermuda is a British Island territory located in the North Atlantic Ocean. The government of Bermuda (GOB) welcomes foreign direct investment (FDI). Bermuda’s economy is almost wholly dependent on FDI in the insurance, reinsurance, and financial services sectors – with a small contribution from the tourist sector. In 2015, the latest date for which data is available, these international businesses contributed the most to total GDP at 85 percent, compared to tourism’s roughly 5 percent.
Bermuda is coming out of more than seven straight years of economic recession. Bermuda’s real gross domestic product (GDP) decreased by 2.2 percent in Q3 2016. The primary driver was a $36.6 million decrease in the external balance of goods and services due to the combined effects of lower receipts for exports of services and higher payments for imports of services. Retail sales declined by 2.4 percent in December 2016, 2.4 percent below the $111.6 million recorded last year. Job losses continue to affect the overall economy.
Bermuda’s investment climate presents a series of advantages for potential investors. These include:
- a stable, democratic government;
- low personal and corporate taxes;
- a pool of skilled professionals;
- proximity to the United States, and extensive air and communication networks;
- a stable currency, the Bermuda dollar (BMD), pegged at par to the USD.
As a British Overseas Territory, Bermuda’s legal system is grounded in UK common law. Its legal, regulatory and accounting systems adhere to high ethical and transparency standards. It generally effectively and impartially enforces its laws to combat corruption and money laundering. There is no government interference in the court system that could affect foreign investors.
Bermuda law recognizes and enforces secured interests in real property. The GOB’s policies facilitate the free flow of financial resources in the product and factor markets, and the U.S. Securities and Exchange Commission recognizes the Bermuda Stock Exchange (BSX) as a Designated Offshore Securities Market. There is a general awareness of responsible business conduct among both producers and consumers.
|TI Corruption Perceptions Index||2016||N/A||http://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2016||N/A||doingbusiness.org/rankings|
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|U.S. FDI in Partner Country ($M USD, stock positions)||2015||269,329||http://www.bea.gov/
GNI Per Capita
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Bermuda’s investment climate welcomes foreign direct investment (FDI). The Bermuda Business Development Agency (BDA) is an independent, public-private partnership funded by both the Bermuda government and the private sector. The agency is governed by a Board of Directors comprised of senior industry professionals representing the diversity of Bermuda’s financial services sector. The BDA carries out pro-active, targeted marketing and business development strategies to stimulate growth in the Bermuda economy and create and maintain jobs. ( )
The BDA acts as a partner for existing Bermuda-based companies and also assists entities that are considering establishing operations in Bermuda. It connects prospective companies with industry partners and relevant representatives in the Bermuda Monetary Authority (BMA) and the Bermuda Government’s Business Development Unit, making formal introductions, trouble-shooting and following up with clients to simplify the process.
The BDA has segmented its business development efforts into four distinct pillars or industry areas of focus: Risk (insurance, reinsurance, captives, and insurance linked securities), Asset Management, Trust & Private Client, and International Commerce (technology, international markets, etc.). These are key sectors of the Bermuda marketplace, or areas for potential growth, and the BDA has separate business development managers, strategies and goals for each.
The BDA’s Concierge Service provides a one-stop-shop for businesses considering relocating or starting up operations in Bermuda. The Concierge team is the primary point of contact to connect clients with industry professionals, Government and regulatory officials, and service providers such as realtors, law firms, auditors and relocation experts. Their goal is to help get business off the ground quickly and make doing business in Bermuda beneficial and straightforward.
The GOB has not implemented its plans to privatize, mutualize (a form of privatization in which employees are shareholders), and/or outsource non-core government functions. In November 2014 the GOB signed an exclusive agreement with the semi-public Canadian Commercial Corporation to build a new USD 200 million airport terminal pursuant to a public-private partnership to be financed from future airport revenues.
Limits on Foreign Control and Right to Private Ownership and Establishment
Reference the section on Laws/Regulations of Foreign Direct Investment for information regarding the 60/40 Rule.
Other Investment Policy Reviews
Bermuda is a World Trade Organization (WTO) member through the United Kingdom. Bermuda has not conducted an investment policy review through the OECD, WTO, or UNCTAD in the last five years.
The Investment Business Act 2003 is the statutory basis for regulating investment business in Bermuda. The act provides for a licensing regime for any person or entity (unless otherwise exempted or excluded) engaging in investment business, as defined by the act, either in or from Bermuda.
The Registrar of Companies (ROC) is a Bermuda government department falling under the Ministry of Economic Development. It has day to day responsibility of the administration of companies, company name reservation, company fees, insolvency and real estate. .
Foreign companies may not use the online registration system; the services of a local corporate service provider must be retained in order to set up a company in Bermuda. At a minimum, a company must typically register with the Registrar of Companies, the Tax Commissioner, the Social Insurance Department, and the Bermuda Monetary Authority if it is a regulated company. The Registrar of Companies usually takes 24 days from the date of consent from the BMA for a typical incorporation. Time needs to be taken into account for the corporate service provider’s vetting and the Know Your Customer process. There is no provision allowing simplified business creation without a notary.
Under the Bermuda Economic Development Corporation (BEDC) Act 1980, a “small business” is defined as a Bermudian-owned and owner-operated business enterprise having an annual gross payroll not exceeding USD 500,000 or having annual sales revenues of less than one million dollars. A “medium sized business” is a Bermudian-owned and owner-operated business enterprise with at least three of the following attributes: gross annual revenues $1 million-$5 million; annual payroll $500,000-$2.5 million; a minimum of 11 and a maximum of 50 employees; in operation for a minimum of 10 years; and net assets of less than $2.5 million.
The BEDC grants loans or other forms of financial assistance to support establishing, carrying on or expanding small businesses, medium-sized businesses and entities within economic empowerment zones (EEZs). It also provides technical advice or assistance to persons who are seeking or who are granted financial assistance; operates and manage markets; oversees and manages the development and implementation of economic empowerment zones; and maintains a register of small businesses, medium-sized business and EEZ business entities.
The BEDC’s financial products include loan guarantees up to 50 percent of a loan up to a maximum of $200,000; micro loans guarantees of 100 percent of a small loan up to $7,500; bank preferential rates and terms for business formation and relocation into the Northeast Hamilton Economic Empowerment Zone (EEZ) payroll tax concessions in all three EEZs for nine tax periods; EEZ customs duty deferment up to five years for businesses and residences that undertake capital projects or purchases in the three EEZs; a 100 percent guaranteed letter of credit to allow duty payment on retail goods to be deferred for three months on each importation up to a credit limit of $10,000; and graduates of the BEDC’s mobilization loan program have preferential rates up to one year backed by a 100 percent guarantee from BEDC. While these benefits are only available to Bermudian-owned and owner-operated businesses, local businesses that meet the requirements of the 60/40 Rule (60 percent Bermudian-owned and 40 percent foreign ownership) may take advantage of BEDC’s financial products. All can use its advisory services.
Bermuda does not engage in efforts to promote or restrict outward investment.
2. Bilateral Investment Agreements and Taxation Treaties
There is no bilateral investment treaty or free trade agreement between the U.S. and Bermuda.
Bermuda is on the category A list of signatories to the International Organization of Securities Commissions Multi-lateral Memorandum of Understanding (IOSCO MMOU), which provides for mutual co-operation and the exchange of information among securities regulators. In June 2009, the International Association of Insurance Supervisors (IAIS) approved the BMA as a signatory to the Multi-lateral Memorandum of Understanding. The MMoU establishes a formal basis for cooperation and information exchange between signatory regulators who supervise insurers with international or cross border operations.
There are two bilateral taxation-related treaties between the U.S. and Bermuda: the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland (on Behalf of the Government of Bermuda) and the Government of the United States of America Relating to the Taxation of Insurance Enterprises and Mutual Assistance in Tax Matters (Convention) (1986), and the Tax Information Exchange Agreement (TIEA) (1988). Under the latter, the U.S. agreed to waive income and excise taxes on insurance premium income derived from the U.S. for eligible Bermudian insurance companies, i.e., companies whose predominant business activity is the issuing of insurance, reinsurance, or annuity contracts and the investing of insurance reserves and other capital incident to the carrying on of the insurance business and that does not operate as a permanent establishment in the U.S.
3. Legal Regime
Transparency of the Regulatory System
Bermuda’s legal, regulatory and accounting systems adhere to high ethical and transparency standards. As noted previously, the legal and regulatory systems are grounded in UK law. Accounting systems and auditing standards typically follow Canadian Generally Accepted Accounting Principles (GAAP). A Bermudian company may choose to follow the GAAP of any other jurisdiction, subject to full disclosure of its accounts.
Bermuda is a member of regulatory standard-setting bodies for banking (via the Basel Committee on Bank Supervision), insurance (via the International Association of Insurance Supervisors or IAIS), and investment business (via the Financial Services Authority or FSA). In December 2013, Bermuda signed the Foreign Account Transaction Compliance Act (FATCA) Intergovernmental Model 2 Agreement with the U.S. to promote transparency on tax matters, having concluded a FATCA-type agreement with the UK in the previous month. Bermuda financial institutions now automatically transmit FATCA information to the U.S. and UK.
The BMA is Bermuda’s sole regulatory body for financial services, responsible for the licensing, supervision, and regulation of financial institutions conducting deposit-taking, insurance, investment, and trust business on the island. The GOB continues to strengthen its anti-money laundering and anti-terrorism financing (AML/ATF) framework to ensure a high level of compliance with international standards. Amendments to the Proceeds of Crime Act in 2013 created an obligation to report suspicions of money laundering or terrorist financing and to allow civil proceedings before the Supreme Court for the recovery of property obtained through unlawful conduct.
The BMA’s Guidance Notes for AML/ATF Regulated Financial Institutions on Anti-money Laundering and Anti-terrorist Financing outline and interpret the legal and regulatory framework, propose good industry practices, and assist institutions to design and implement systems and controls to limit AML/ATF risks to institutions. In this respect, Bermuda laws and regulations do not distinguish between businesses operating in the local economy and exempt companies operating internationally from within Bermuda. Neither unlicensed nor unregistered entities are permitted to operate in the financial services sector.
Bermuda’s Financial Intelligence Agency is a member of the Egmont Group of Financial Intelligence Units. It shares information with other agencies, within and outside Bermuda. The BMA Amendment (No. 3) Act 2004 clarified the power of the BMA to share information with other overseas authorities. Other laws that authorize the sharing of information with overseas regulators include the Banks and Deposit Companies Act 1999, the Trusts (Regulation of Trust Business) Act 2001, and the Investment Act 2003.
The Investment Business Amendment Act 2012, the Trust (Regulation of Trust Business) Amendment Act 2012, and the Banks and Deposit Companies Amendment Act 2012 regulate investment businesses, trusts, and banks in the areas of civil penalties, public censure, prohibitions against providing certain services, and publication of decisions. The Investment Business Act 2003 granted the BMA stronger intervention powers, including the ability to cooperate with foreign bodies, while the Investment Business Investment Act 2012 brought the Bermuda Stock Exchange (BSX) under the regulation of the BMA. Other provisions provide for criminal penalties, e.g., the Banks and Deposit Companies Amendment Act.
The BMA regulates collective investment schemes (CIS). The 1997 Proceeds of Crime Act (POCA) and the 2006 Investment Funds Act (IFA) regulate fund administrators. CIS are also subject to IFA, which clarifies and codifies the current regulation of funds in order to strengthen Bermuda’s position in the international funds market.
For Bermuda laws in general, see . The GOB posts new laws and regulations in the Royal Gazette newspaper (the official public record). Draft bills are made available at . The GOB often consults with organizations prior to introducing proposed legislation.
International Regulatory Considerations
See previous section on transparency of regulatory system.
Legal System and Judicial Independence
Bermuda’s legal system is based on English statutory and common law and principles of equity. The system is generally effective at enforcing property, commercial and contractual rights.
There is no government interference in the court system. Three courts preside in Bermuda; the Magistrates Courts, the Supreme Court, and the Court of Appeal. The Commercial Court, a division of the Supreme Court, in effect since January 2006, was established to provide a forum in which commercial litigation is tried expeditiously by an experienced commercial judge in accordance with the best modern practice. The court of last resort is London’s Privy Council.
Foreign money judgments can be enforced under Bermudian statutory law. Under the 1958 Judgments Reciprocal Enforcement Act (JRE), local courts must recognize and enforce foreign judgments. The JRE follows the same procedure as the UK Foreign Judgments (Reciprocal Enforcement) Act of 1933. Bermuda also has arbitration legislation.
Laws and Regulations on Foreign Direct Investment
The Minister of Economic Development has broad discretion to approve privatization applications under the Companies Act 1981. The Ministry of Finance treats foreign and local investors equally when privatization opportunities arise. There is no government interference in the court system that could affect foreign investors.
The Bermuda Monetary Authority (BMA) at , regulates the financial services sector in Bermuda, providing rigorous vetting, supervision, and inspection of all financial institutions operating in or from within Bermuda. It also assists other authorities in Bermuda to detect and prevent financial crime and develops risk-based financial regulations that it applies to the supervision of Bermuda’s banks, trust companies, investment businesses, and insurance companies. The Companies Act 1981 as amended is the principal statute governing the formation and operation of Bermuda companies and foreign investment.
Most international business (IB) companies are classified as exempt, a term that addresses ownership, not taxation. Bermuda’s tax system applies equally to local and exempt companies. An exempt company may be 100 percent owned by non-Bermudians. For information about local companies, see below. Being exempt does not relieve exempt companies of the supervisory, regulatory, or fiscal rules governing local, non-exempt companies (more about non-exempt companies below).
An exempt company may not do business within the local economy, except to the extent that it is so authorized by its constitutional documents and has been granted a license by the Minister of Finance, who decides if the granting of such a license is in the best interest of Bermuda. Certain activities are expressly excluded from the requirement for a license, including doing business with other exempted undertakings; dealing in securities of exempted undertakings, local companies or partnerships; carrying on business as manager or agent for, or consultant or advisor to, any exempted company or permit company which is affiliated (whether or not incorporated in Bermuda) with the exempted company or an exempted partnership in which the exempted company is a partner or, in the case of mutual funds, selling or distributing their shares in Bermuda. An exempt company may buy its locally-needed supplies or services from local companies, such as accounting, banking, legal, management and office supply services.
An exempt company is exempt from the ownership regulations – otherwise known as the 60/40 Rule – governing local, non-exempt companies, which are permitted to do business within the local economy. To be classified as a local or non-exempt company, Bermudians must be beneficial owners of at least 60 percent of the shares in the company; exercise at least 60 percent of the total voting rights in the company; and make up at least 60 percent of the directors of the company.
In July 2012, in an effort to ease foreign ownership restrictions and boost the economy, Bermuda amended the Companies Act to allow companies listed on the BSX to apply for a license to seek foreign investment over and above the 40 percent maximum foreign ownership. Previously, foreign investors interested in doing business in Bermuda had to adhere to the 60/40 Rule. Many hotels and telecommunications companies fall into this category, as do Bermuda’s four banks.
Compliance with Organization for Economic Cooperation and Development (OECD) guidelines that seek to eliminate separate regulatory regimes for local and international companies may have been a factor contributing to the decision to ease ownership restrictions. Some local businesses support relaxing the 60/40 rule to encourage FDI, increase liquidity in the local market, and boost the economy, while others oppose it out of concern that they might not be able to compete on a level playing field with majority foreign-owned businesses. There is no move afoot to change the current regime.
Overseas and resident investors may form partnerships under the Partnership Act 1902, which may be local or exempted and general or limited. A local partnership is composed of Bermudian partners only and is permitted to conduct business locally and abroad. If one or more of the partners is not Bermudian, the partnership is considered an exempted partnership and may only conduct business outside Bermuda from a principal place of business within Bermuda. An overseas partnership formed outside Bermuda may, through the BMA, apply to the Minister of Finance for a permit to operate in Bermuda or outside Bermuda from a place of business in Bermuda. These partnerships must appoint and maintain a resident representative on the island.
Bermuda strives to be innovative with new financial services and products. For example, in an effort to make Bermuda more competitive in the hedge fund management arena, the Investment Fund Amendment Act 2013 exempts certain hedge funds from authorization and supervision requirements, provides two new classes of exempt funds, and grandfathers currently-exempt funds. Exempt class A funds, which must be regulated by a recognized authority or have at least USD 1000 million in assets under management, are eligible for expedited registration. To encourage improvements in telecommunication, the Customs Tariff Amendment (No 2) Act 2013 gives full customs duty relief on the importation of goods, apparatus, and machinery imported by holders of integrated communications operating licenses to be used to build or maintain telecommunications network infrastructure.
Bermuda generally prohibits the establishment of foreign franchises, with the exception of franchise hotels. The Companies Act gives the Ministry of Economic Development the authority to grant investors special permission to establish a franchise on the island.
As an overseas UK territory, Bermuda does not receive separate mention in many third-party data information sources, such as the World Bank or Transparency International. Because it is not a member of the Organization for Economic Cooperation and Development (OECD), International Monetary Fund (IMF) or World Bank, it does not participate in any of those organizations’ routine reviews. Bermuda is part of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes (see ), so it is reviewed under this initiative. Neither the World Trade Organization nor the UN Committee on Trade and Development has reviewed Bermuda’s investment policy.
Competition and Anti-Trust Laws
See section on State-Owned Enterprises.
Expropriation and Compensation
The Housing Loan Insurance (Mortgage) Regulations 1984 and the Municipalities Act 1923 regulate anything dealing with expropriations. In Bermuda there is no history of expropriation without proper compensation. There are no expropriatory acts against foreign investors in Bermuda.
ICSID Convention and New York Convention
Through the United Kingdom, Bermuda has ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Under the convention, foreign arbitral awards are enforceable within Bermuda’s domestic courts. Likewise under the United Kingdom, Bermuda is also a member state to the International Centre for Settlement of Investment Disputes (ICSID Convention).
Investor-State Dispute Settlement
Mexico Infrastructure Finance, LLC (MIF), a U.S. company, loaned money to a Bermuda company to enable it to source financing for a hotel development in Hamilton, Bermuda. The Corporation of Hamilton (“the Corporation” a statutory municipal corporation) guaranteed the loan. The local company defaulted on the loan and on 31st December 2014 MIF issued a demand to the Corporation, in its capacity as guarantor, to pay the entire outstanding balance of $18 million plus interest. When payment was not forthcoming, MIF brought an action against the Corporation in the Supreme Court to enforce the Guarantee. The Corporation consented to judgment but then petitioned the court to withdraw its consent and argue that it did not have the statutory authority to give the guarantee in the first place. In a decision dated November 2016, the Bermuda Supreme Court (Hellman, J) ruled that the municipality did not have the authority in its statute to give a guarantee for the proposed purpose of a hotel development, and nullified the consent judgment: see Corporation of Hamilton v. Mexico Infrastructure  SC (Bda) 94 Com (18 November 2016). The appeal by MIF of that case has been heard and a judgment is due any day.
International Commercial Arbitration and Foreign Courts
The growth in commercial arbitration is directly linked to the presence of international companies, which operate primarily in the insurance and reinsurance industry. Arbitration within Bermuda has become increasingly popular and it is often named as the seat for arbitration The GOB has considered promoting Bermuda as a global center for international arbitration.
Bermuda has its own arbitration legislation. The Bermuda International Conciliation and Arbitration Act of 1993 adopted the UN Commission on International Trade Law (UNCITRAL model law) as their rules for governing arbitration procedures. Under the umbrella of the United Kingdom, the ratification of the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York convention) was extended to Bermuda who became a member state in 1980.
Under Bermuda law, arbitrators and foreign legal counsel traveling to Bermuda for the purposes of participating in arbitration do not need to be locally licensed. The Department of Immigration does however require advance notice of their presence in the jurisdiction.
The judicial system handles investment disputes unless the parties have agreed to submit their disputes to arbitration.
The Bankruptcy Act 1989, the Companies Act 1981, and the Companies (Winding Up) Rules 1982 govern bankruptcy and the winding-up of companies. The Supreme Court (the first instance court of general jurisdiction) administers the bankruptcy process. A foreign creditor may apply for the bankruptcy of an individual or for the winding-up of a company provided the creditor follows the procedures set out in the aforementioned statutes.
5. Protection of Property Rights
Bermuda law recognizes and enforces secured interests in movable and real property. The Registry General, the Land Tax Office and the Land Valuations Office regulate the acquisition and disposition of property, including land, buildings, and mortgages. The Land Title Registration Act 2011 moved Bermuda from a deeds-based property transaction to a parcel-based land registration system. However, the new registration system has not yet been implemented. Until implementation land owners must retain a Bermuda lawyer to research the history of the property and ensure there are no third party claims. A deed of conveyance or a mortgage is recorded each time real estate changes hands.
Intellectual Property Rights
As an Overseas Territory of the UK, Bermuda may not enter into international treaties independently unless the UK expressly authorizes it to do so and judges Bermuda’s implementing legislation to be compliant. The UK extended the right to Bermuda to join the Berne Convention for the Protection of Literary and Artistic Works, which requires its signatories to recognize the copyright of works of authors from other signatory countries (known as members of the Berne Union) in the same way it recognizes the copyright of its own nationals.
In 2014, the GOB reviewed its intellectual property legislation and in 2015 began dialog with the UK Intellectual Property Office to extend to Bermuda, as a UK Overseas Territory, the right to join the WTO’s Trade Related Intellectual Property Rights (TRIPS) Agreement, the Madrid Protocol, the Paris Convention, the Patent Cooperation Treaty, and the Hague Agreement. Bermuda has yet to sign the World Intellectual Property Organization (WIPO) internet treaties, the WIPO Copyright Treaty (WCT), or the WIPO Performances and Phonograms Treaty.
Counterfeit goods are not a problem in Bermuda. About 70 percent of imported goods derive from the United States.
6. Financial Sector
Capital Markets and Portfolio Investment
Bermuda’s currency, the Bermuda dollar (BMD), is pegged 1:1 to the USD. Bermuda does not have a central bank, but the BMA issues and redeems notes and coins, supervises, regulates, and inspects financial institutions which operate in or from Bermuda, and generally promotes the financial stability and soundness of financial institutions. The BMA does not, however, determine interest rates, which are set by the market, regulated by the Ministry of Finance, and usually follow the Federal Reserve System rates.
Bermuda does not have developed capital markets and does not control monetary policy. Commercial credit lines are normally arranged through U.S. or other overseas institutions. Credit is allocated on market terms, and foreign investors may get credit on the local and international markets. The private sector has access to various credit instruments via local banks. Many companies, particularly the larger ones, maintain external banking relationships.
Money and Banking System
Bermuda has four banks, all of which are exempt from the 60/40 Rule.
The Banks and Deposit Companies Act 1999 implemented the Basel Committee’s Core Principles for Effective Banking Supervision. Bermuda banks are compliant with the Basel II Accord and have either implemented or are moving toward full implementation of Basel III.
Liquidity and solvency are important concerns for Bermuda’s banks as there is no monetary policy, no lender of last resort, and no implied guaranty. In July 2011, the GOB passed the Deposit Insurance Act, which lays out proposals for implementing a Deposit Insurance Scheme (DIS) for the Bermuda market; it has yet to be implemented. The DIS would provide insurance coverage to small depositors in banks and credit unions. In February 2016, the House of Assembly passed the Banking (Special Resolutions Regime) Act 2016 to allow the government to temporarily take over a failing bank.
According to the BMA’s December 2016 Regulatory Update, the primary regulatory form of capital, as measured by the Common Equity Tier 1 (CET1) ratio, rose from 18.2 percent to 18.6 percent in Q4 while the Risk Asset Ratio (RAR) capital measure decreased from 21.9 percent to 20.4 percent. The sector’s capital adequacy remains above the minimum requirements per the adopted Basel III standards. Risk-Weighted Assets (RWAs) fell by 2.2 percent during Q4 as banks continued to reduce their credit risk exposures.
As of January 1, 2016, banks were required to meet the Capital Conservation Buffer of 0.6 percent which will increase to 1.2 percent effective January 1, 2017. Banks that are designated as systemically important to the local economy were required to include an additional capital buffer, ranging from 0.0 percent to 3.0 percent. All newly implemented measures are in line with the Authority’s prudential regulatory framework.
Banking at the capital level continues to exceed regulatory requirements. The Banking sector aggregated balance sheet recorded a small increase in Q4 206 while profitability increased significantly compared to Q3 2016. Following the US Federal Reserve’s announcement to increase their short-term interest rate by 25 basis points, some local banks revised their base lending rate by 0.25 percent.
Liquidity conditions remained sound in Q4 as loans-to-deposits experienced a modest decline during the period from 47.3 percent to 43.4 percent. Customer deposits continued to be the primary source of funding, with banks receiving more customer deposits, up by 3.7 percent during the period relative to decline by 4.9 percent, widening the overall funding gap. Loan growth was steady during the quarter, with the real estate sector experiencing a small increase to 50.8 percent of total loans. Loans classified as “other” consisting primarily of other forms of loans and personal loans fell from 34.7 percent to 32.0 percent. At the end of Q4 2016, all banks were in compliance with the Authority’s 70 percent phased-in Liquidity Coverage Ratio requirement. The Bermuda dollar supply was $3.5 billion in Q4 2016 which was 2.7 percent higher year-on-year.
Bermuda’s reinsurance industry posted higher losses in Q4 compared to last year, while the aggregate balance sheet improved by 6.1 percent. Reported gross profit of $1.3 billion was 20.8 percent lower compared to Q4 2015, as the combination of higher losses and capital losses negatively impacted profitability. Return on invested assets remained low, as profitability indicators showed Return on Investments close to 0.6 percent while Return on Equity was 0.9 percent.
The Bermuda Stock Exchange (BSX) total market capitalization (excluding funds) was $343.8 billion at the end of Q4 2016, an increase of $25.4 billion from the $318.4 billion recorded in Q3 2016. Most of the activity arose from higher trading volume, which rose to 8,269,818 shares (up from 6,948,612 shares in the prior quarter). Total market value was $46.4 million (up from $37 million in the prior quarter). BSX recorded positive returns during the quarter, bolstered by the Bank of Butterfield’s initial public offering. The Insurance Linked Securities (ILS) market had a total of 84 deals listed on the BSX, with an aggregate nominal value of approximately $20.1 billion.
The Federal Reserve’s confidence in the US economy was marked by an increase in short-term interest rates in December, while the response to the Brexit vote has triggered legal challenges in the UK. The Federal Open Market Committee (FOMC) intends to increase rates at a faster pace in 2017, with policy makers anticipating three rate increases in 2017. The Federal Reserve projects that the US economy grew 1.9 percent in 2016 and will grow 2.1 percent in 2017. In the UK, the economy has performed well since the Brexit vote and growth beat expectations in the fourth quarter at 0.6 percent. However, expansion of the UK economy is still being almost entirely driven by services and consumer spending, continuing the trend of lopsided growth seen in recent years. Households are borrowing more and saving less. An expected pickup in inflation through 2017 raises the risk of an income squeeze.
In 1996, U.S. Securities and Exchange Commission recognized the Bermuda Stock Exchange (BSX) as a Designated Offshore Securities Market. In 1999, the BSX became a full member of the International Federation of Stock Exchanges. In 2005, the UK Financial Services Authority granted the BSX Designated Investment Exchange status. The BMA provides oversight of the BSX and its trading activity. The BSX employs the Bermuda Securities Depository (BSD) – an electronic clearing, settlement and registration system – under BMA oversight. The BSD was designed to facilitate more efficient trade settlement for BSX-listed securities by allowing book entry settlement rather than paper-based settlement. Currently, over 600 companies are listed on the BSX.
Protection from hostile takeovers falls under the Insurance Amendment Act 2013 and the Companies Act 1981. The Insurance Amendment Act is designed to improve insurance group supervision by requiring that certain material changes be reported to the BMA, such as amalgamation with another firm or acquisition of a controlling interest in a business. The Companies Act requires notification of shareholders of amalgamation agreements.
Foreign Exchange and Remittances
The USD currency is widely used and accepted in Bermuda. It is par to the Bermuda dollar. In Bermuda, both currencies are freely interchangeable and transferable without any restrictions.
The BMA issues Bermuda’s national currency and manages exchange control transactions. It administers the Exchange Control Act 1972 that states that no capital or exchange controls apply to non-residents or to the various forms of offshore entities, which are free to import and export funds in all currencies.
The Exchange Control Regulations 1973 and the Companies Act 1981 regulate the issue, transfer, redemption, and repurchase of securities. For exchange control purposes, the BMA must give prior approval for issues to and transfers of securities in Bermuda companies involving non-residents, except where general permission has been granted pursuant to the Notice to the Public of June 2005.
The 2009 Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Amendment gave the BMA the authority to oversee all money transactions involving wire transfers. The act requires financial institutions to verify the accuracy and completeness of the information on the payer before authorizing the transfer of funds. The institution must also retain all the records pertaining to the transaction for a period of no less than five years. In 2013, amendments created an obligation to report suspicious money transactions which could possibly be linked to money laundering or to monies being used to fund terrorism. It established a civil proceeding before the Supreme Court for the purpose of recovering money obtained through unlawful conduct.
In 2009, Bermuda updated the 1898 Revenue Act to strengthen the requirements related to cross-border transporting of currency and negotiable instruments. The threshold was set at USD 10,000, after a financial transaction surpasses that amount; the financial institution is automatically required to report the transaction. Passengers arriving to Bermuda (regardless of point of embarkation) must complete mandatory declaration form. This mandatory disclosure system applies to all outgoing passengers traveling to the U.S., Canada, and the UK.
The 2010 Foreign Currency Purchase Tax Amendment Act is applied to the purchase of all non-local currencies, including the USD. In 2010, the foreign currency purchase tax doubled from 0.5 percent to 1 percent per transaction.
Bermuda is a member of the Caribbean Financial Action Task Force (CFATF), an organization of states and territories of the Caribbean basin which have agreed to implement common counter-measures against money laundering and it is listed under the 2014 International Narcotics Control Strategy Report (INCSR) as being a monitored country.
There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.
Sovereign Wealth Funds
Not applicable/information unavailable.
8. Responsible Business Conduct
The concept of responsible business conduct is strong in Bermuda, particularly among international companies. The Bermuda Monetary Authority (BMA) has issued the Insurance Code of Conduct, the Banking Code of Conduct, the Code of Conduct for Fund Administrators, the Advertising Code of Conduct, the Investment Business Code of Conduct, and the General Business Conduct and Practice Code of Conduct. There have been no high-profile, controversial instances of corporate impact on human rights. The Bermuda government effectively and fairly enforces domestic laws.
The BMA is responsible for the supervision, regulation and inspection of Bermuda’s insurance companies and for the licensing of all insurance companies, brokers, agents and managers. Applications are subject to internal and independent review by a committee of senior staff and are closely vetted for the fitness, propriety and underwriting experience of the management, the plausibility of the proposed business plan and the level of capitalization relative to the proposed risk profile, amongst other factors. The BMA maintains a register giving details of each licensed insurer that is available for public inspection at the Registrar of Companies.
The BMA conducts banking supervision and regulation in accordance with the standards established by the Basel Committee on Banking Supervision, in particular with the revised Concordat and with the precepts for the supervision of cross-border banking. It liaises closely with other regulators, both domestically and internationally, in order to ensure effective consolidated supervision, both in relation to entities for which the BMA acts as consolidated group wide supervisor and where licensed institutions may form part of international banking groups. The BMA’s supervision involves regular on-site visits and off-site surveillance, which includes the review of prudential returns on both a solo and consolidated basis and regular prudential meetings with senior management of licensed financial institutions. The BMA has also introduced a stress testing methodology and monitors on a regular basis a set of Financial Stability Indicators based on the IMF’s core and encouraged set.
The Corporate Service Provider Business Act 2012 and the Corporate Service Provider Business Amendment Act 2014 prohibit a person from carrying on corporate service provider business in or from within Bermuda unless that person is for the time being a licensed undertaking under the Act. The BMA has regulatory and information gathering powers over Corporate Service Providers.
The BMA supervises and regulates all investment business operating in or from Bermuda. As a guideline for the development and ongoing developments of the BMA’s investment business policies, the Authority refers to the core principles issued by the International Organization of Securities Commissions (IOSCO). These principles issued by the IOSCO are deemed to be universal standards of conduct with the investment business industry. To ensure the highest standards are upheld, the BMA liaises closely with other regulators, both domestically and internationally, to provide the most effective consolidated supervision. Supervision involves regular prudential and strategy discussions with senior management, together with off-site analysis and review of prudential data and certain on-site work, conducted both in Bermuda and in significant group operations abroad.
The BMA also supervises and regulates trusts. Trusts must provide audited financial statements and a Certificate of Compliance to the BMA within four months of their year-end. These are discussed with the undertaking, along with changes to strategy, staffing etc. as part of the Authority’s off-site supervision. Routine on-site review visits are undertaken by BMA staff (including anti-money laundering compliance testing) and the Authority also has the power to commission reports from reporting accountants on key aspects of systems and controls.
The Bermuda and Canada Institutes of Chartered Accountants work together to develop and enforce high standards to protect the public interest and maintain the good reputation and integrity of the CA profession. In addition, throughout their professional careers, CAs are subject to ongoing regulation in order to safeguard the public interest. They are subject to enforcement of exacting Rules of Professional Conduct; continuing professional development requirements; and comprehensive public oversight and discipline mechanisms. In addition, CAs practicing public accounting are subject to mandatory practice inspection and professional liability insurance programs. The Institute has a comprehensive complaints investigation and discipline process.
The Bermuda Bar Association is responsible for both the regulation and discipline of members of the legal profession in Bermuda. All members of the Bermuda Bar are bound by the Barristers’ Code of Conduct, which requires that members carry out their duties to their clients, the court, members of the public and their colleagues with integrity and in accordance with the code of professional conduct. Further, they are required to conduct themselves within or outside the professional sphere in a manner which will not be likely to impair a client’s trust in them as a legal advisor.
The Trade Union Act 1965 requires trade unions to exercise good governance and transparency when dealing with matters of finance. Union officers have a duty to render accounts to member trustees. Trade unions may impose penalties on any officer, member or person employed by the trade union for withholding money or falsifying an account.
The GOB does factor Responsible Business Conduct (RBC) policies or practices into its procurement, through the Public Treasury (Administration and Payments) Act 1969 and the Good Governance Acts of 2011 and 2012. The legislation accords with the principles of the UN Convention against Corruption (UNCAC), and the GOB has committed to identify and address gaps in the Bermuda legislation regarding the UNCAC.
In 2016, the GOB expects to implement a Code of Practice for Project Management and Procurement that sets out the rules for the procurement of goods, services and works, including procedures for tendering, evaluating proposals and selecting contractors; financial thresholds; requirements for awarding, monitoring, extending and varying contracts; and procedures for debriefing bidders, handling complaints, resolving disputes, retaining records and inspecting records.
The GOB is also working with the Bermuda Economic Development Corporation to develop a government contracting program in support of small and medium-sized businesses. In addition, an electronic purchasing and tendering system is being implemented to facilitate public access to tenders, increase competition and improve transparency. The GOB’s procurement processes provide for the application of social, environmental and economic criteria in the tender evaluation and selection process. Principles of environmental and sustainable development are being embedded in tender documentation and contracts.
Bermuda has a series of laws, regulations, and penalties to combat corruption and, generally speaking, effectively enforces them. The Good Governance Act 2012 discourages financial abuse by ministers and members of the civil service and protects whistleblowers. Under the Act, politicians who attempt to influence the award of government contracts could face a USD 10,000 fine and a year-long jail sentence. The penalties also apply to contractors and public officers found guilty of collusion. The Act also improved the transparency and accountability of government contracts, strengthened requirements for internal audits, and established an Office of Project Management and Procurement to strengthen oversight/control of government projects.
The Bermuda Criminal Code and the Proceeds of Crime Act provide for punishing corrupt practices in the area of investments, particularly for misleading statements and practices, market manipulation, and insider trading.
To distance itself from perceived impropriety often associated with offshore banking centers, Bermuda continues to update its regulatory framework to meet international standards, including those of the IMF, the Financial Action Task Force (FATF) and the OECD.
Resources to Report Corruption
Contact at government agency responsible for combating corruption:
Bermuda Police Service
10 Headquarters Hill, Prospect
Contact information for watchdog organization:
10. Political and Security Environment
In February 2016, the Bermuda Police Service recommended that the GOB halt a public hearing on giving long-term resident third country nationals residency rights, as some in the audience became disorderly. In March 2016, the People’s Campaign for Equality, Jobs and Justice – a coalition of labor unions and religious organizations formed in May 2014 to represent those suffering from the recession – called for an island-wide withdrawal of labor on March 11 and 14 as a show of solidarity against the proposed Bermuda Immigration and Protection Act 2016. The proposed law would grant status and permanent residency to current non-Bermudian residents who have lived in Bermuda for at least 20 or 15 years, respectively.
The House of Assembly was adjourned for nine weeks after approximately 250 protestors denied parliamentarians access to the building on December 2, 2016. The protest against legislation to redevelop the Bermuda airport resulted in a confrontation between the demonstrators and the police who used pepper spray to disperse the crowd. Public uproar initiated a full investigation into the actions concerning both demonstrators and the police. Legislation concerning the redevelopment of the airport was approved without further incident in February 2017.
12. OPIC and Other Investment Insurance Programs
Bermuda is not a member of the Overseas Private Investor Corporation (OPIC) or any other investment insurance programs. There is no deposit protection for owners of mutual funds or trusts, nor is there any central fund to reimburse investors. However, the BMA restricts many investments to institutional investors or high net worth individuals, who handle their own due diligence. The BMA also maintains as public information a register of all licensed investment service providers. Moreover, investment managers must be licensed pursuant to the Investment Business Act of 1998. Prior to licensing, the investment service must provide proof of adequate professional indemnity insurance. The 2006 Investment Funds Act clearly outlines how public funds are regulated, defines the framework for non-public, institutionalized funds, and includes requirements for fund administrators.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
|Host Country Statistical Source||USG or International Statistical Source||USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other|
|Host Country Gross Domestic Product (GDP) ($M USD)||2016||$4,446||N/A||N/A||N/A|
|Foreign Direct Investment||Host Country Statistical Source||USG or International Statistical Source||USG or International Source of data: BEA; IMF; Eurostat; UNCTAD, Other|
|U.S. FDI in partner country ($M USD, stock positions)||N/A||N/A||2015||$269,329||BEA|
|Host country’s FDI in the United States ($M USD, stock positions)||N/A||N/A||2015||-$5,467||BEA|
|Total inbound stock of FDI as % host GDP||N/A||N/A||2015||44%||N/A|
Table 3: Sources and Destination of FDI
Data not available.
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets|
|Top Five Partners (Millions, US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||505,656||100%||All Countries||107,262||100%||All Countries||398,394||100%|
14. Contact for More Information
Public Diplomacy/Political/Economic Assistant
U.S. Consulate, Hamilton, Bermuda