Technology And Innovation Guide – Bermuda – Technology – Bermuda – Mondaq News Alerts



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Bermuda is a leading international financial centre with a long
history of providing pragmatic financial and professional services
to international businesses.

The Island is renowned for its strong (re)insurance, investment
fund, asset management and trust sectors which are supported by a
world-class advisory and financial services infrastructure,
including a sophisticated legal system, a robust regulatory
framework, speed-to-market capability, a business-friendly
government, simple tax regime, a highly-skilled work force, close
proximity to the US and direct flights to the US, UK and
Canada.

In 2018 Bermuda introduced new legal and regulatory frameworks
designed to govern and regulate initial coin offerings, digital
asset business and insuretech. The new legislation sets out
expected standards of disclosure for initial coin offerings, a dual
licensing system (including sandbox) for anyone seeking to provide
digital asset business services to the sector and both a sandbox
regime and innovation hub for those in insuretech.

The insuretech sandbox allows companies to test new technologies
and offer innovative products, services and delivery mechanisms to
a limited number of clients in a controlled environment and for a
limited period of time. The insuretech innovation hub has been
designed as an incubator for entrepreneurs to conceptualise and
collaborate on new ideas prior to seeking sandbox entry.

Fintech

1. Who is responsible for regulating fintech
companies?

Financial technology, or fintech, refers to the introduction of
technologies to deliver financial services in new and innovative
ways.

Digital asset business, insurance and funds are regulated by the
Bermuda Monetary Authority. In addition, digital asset issuances
(DAIs) are a restricted business activity that
must have the consent of the Bermuda Monetary Authority in order to
launch.

2. Are there any “sandbox” or other regulatory
neutral zones?

The Bermuda Government, through the Bermuda Monetary Authority
(BMA), has created regulatory sandboxes for both
the digital asset business and insuretech sectors. The Digital
Asset Business Act (DABA) introduced a two class
licensing system that includes a class M licence which allows for a
proof-of-concept stage in order to test new products, services and
technologies. The legal and regulatory requirements that the
applicants request can be modified for the duration of the class M
licence. In the insuretech sector the BMA has also launched two
parallel insurance innovation tracks comprising an insurance
regulatory sandbox and an Innovation Hub, both initially targeted
at insurance technology.

3. Is there a Digital “incubator” or
hub?

No, however the Bermuda Government is in the process of
developing numerous projects aimed at stimulating innovation,
cooperation and development in the technology sector as well as
cross departmental policies to streamline the process for
establishing technology companies on the Island. Attractive
immigration policies and payroll tax relief has also been
introduced to give immediate economic benefit to persons
establishing their technology business in Bermuda.

4. Are there any barriers to entry for foreign
companies?

There are no significant barriers to entry for those who wish to
establish corporate vehicles in Bermuda. However, any person
seeking to conduct business locally must either comply with certain
levels of local ownership and participation or apply for an
exemption.

5. Have traditional institutions embraced
fintech?

Bermuda’s relatively small size provides a unique eco-system
in which new technology can be tried, tested and adopted before
being introduced elsewhere around the world in larger economies.
The Government has made a commitment to completely digitise its
activities and services within five (5) years. As part of this
commitment Bermuda has launched an electronic identification
project that intends to provide for the complete digitisation of
identification of all individuals residing in Bermuda across all
sectors from government to industry.

6. What forms of legal entity are available for
technology companies?

As a mature and flexible jurisdiction the full range of modern
corporate vehicles is available for use and can be tailored to suit
almost any requirements. These include companies limited by share
capital, limited liability companies, companies limited by
guarantee, partnerships, limited partnerships and segregated
accounts companies.

Companies incorporated in Bermuda fall into two principal
categories: local companies formed to trade primarily in Bermuda,
and exempted companies incorporated for the purpose of conducting
business outside Bermuda. Fintech companies seeking to carry on
business within the local Bermuda market will be required to have
certain levels of local ownership and participation, or an
exemption from such requirements.

Exempted Partnerships are registered to carry on business
outside Bermuda, from a place of business within Bermuda and must
have at least one non-Bermudian partner and may be general or
limited. Bermuda partnerships have the benefit of being able to
have their own legal personality if members so choose.

The Segregated Accounts Companies Act 2000 establishes a
registration regime whereby a Bermudian company may register as a
segregated accounts company, thereby establishing, operating and
maintaining a company with segregated accounts. The segregated
account is an account containing assets and liabilities that are
legally separated from the assets and liabilities of the
company’s ordinary account.

Limited liability companies are new and increasingly popular for
their commercial flexibility. The legislation provides only the
basic requirements for such entities, and the parties are largely
free to operate their business in accordance with a contract agreed
between them.

7. Are electronic signatures valid?

The use of electronic signatures is widely accepted in Bermuda
and is expressly provided for in Bermuda law where a reliable and
appropriate method is utilised that identifies the signatory. There
still exist some bodies and legislation that require certain
formalities in relation to the signing of documents or deeds
including the delivery of “wet ink” signatures on certain
documents to be filed with the Registrar of Companies or the
Bermuda Monetary Authority.

The Electronic Transactions Act 1999 (ETA) was
established to promote public confidence in the validity, integrity
and reliability of conducting transactions electronically, and
recognises electronic records as records created, stored,
generated, received or communicated by electronic means. It also
specifies information to include data, text, images, sounds, codes,
computer programs, software and databases. The ETA generally puts
electronic signatures on equal footing with “wet ink”
signatures in Bermuda.

Digital Asset Business Act 2018 (DABA)

1. What legislation regulates digital asset
business?

DABA regulates all digital asset business carried on in or from
within Bermuda and provides that a person cannot carry on digital
asset business unless they are licensed or fall within an exempt
category.

2. What activities are covered by Digital Asset
Business?

Digital Asset Business” is defined
as the business of providing any or all of the following activities
to the general public:

  1. issuing, selling or redeeming virtual
    coins, tokens or any other form of digital asset;

  2. operating as a payment service
    provider business utilising digital assets which includes the
    provision of services for the transfer of funds;

  3. operating as a digital asset
    exchange;

  4. carryong on digital asset trust
    services;

  5. providing custodial wallet
    services;

  6. operating as a digital asset
    derivative exchange provider; and

  7. operating as a digital asset services
    vendor.

Digital Assets” are defined as
anything that exists in binary format and comes with the right to
use it and includes a digital representation of value that:

  1. is used as a medium of exchange, unit
    of account, or store of value and is not legal tender, whether or
    not denominated in legal tender;

  2. is intended to represent assets such
    as debt or equity in the promoter;

  3. is otherwise intended to represent
    any assets or rights associated with such assets; or

  4. is intended to provide access to an
    application or service or product by means of a distributed ledger
    technology;

but excludes:

  1. a transaction in which a person
    grants value as part of an affinity or rewards program, which value
    cannot be taken from or exchanged with the person for legal tender,
    bank credit or any digital asset; or

  2. a digital representation of value
    issue by or on behalf of a publisher and used within an online
    game, game platform.

3. Who is responsible for regulating DABA companies
& types of licenses?

The BMA regulates Digital Asset Business through a two class
licensing regime. There are currently two classes of Digital Asset
Business licence that may be applied for under DABA. These are:

  1. class F licence, under which the
    applicant shall be licensed to provide any or all of the DAB
    Activities; or

  2. class M licence, under which the
    applicant shall be licensed to provide any or all of the DAB
    Activities for a defined period determined by the BMA which may be
    extended upon application to the BMA.

As noted above, the class M licence is the form of regulatory
sandbox under DABA.

4. What is the process for licencing an entity under
DABA?

Application for a Digital Asset Business licence is made to the
BMA. The application shall be accompanied by, inter alia, the
following:

  1. copies of the constitutional
    documents;

  2. a business plan including, but not
    limited to, information on ownership, board of directors, business
    purposes and environment including business strategy and risk
    appetites, business to be conducted, products and services,
    protections for customers, insurance, financial assessment and
    projected staffing requirements;

  3. particulars of the applicant’s
    arrangements for the management of the business;

  4. policies and procedures to be adopted
    by the applicant to meet the obligations of DABA and the applicable
    AML/ATF requirements set out in the Proceeds of Crime (Anti-Money
    Laundering and Anti-Terrorist Financing) Regulations 2008;

  5. any proposed cybersecurity
    programme;

  6. address of head office;

  7. such other information and documents
    as the BMA may reasonably require for the purpose of determining
    the application; and

  8. an application fee.

A licence issued under DABA may be subject to such limitations
on the scope of the DAB Activity or the manner of operating the
Digital Asset Business as the BMA may determine to be appropriate
having regard to the nature and scale of the proposed business. The
BMA shall publish on its website a list of every licensed
undertaking and the class of licence issued to it.

5. What are the Minimum Criteria for
Licensing?

The BMA shall not grant a licence unless it is satisfied that
the minimum criteria are fulfilled in respect of the application.
This includes:

  1. having controllers and officers who
    are fit and proper persons;

  2. having policies and procedures
    including in relation to AML/ATF, sanctions and any codes of
    practice under DABA;

  3. maintaining minimum net assets of
    $100,000 or such amounts as the BMA may determine taking into
    consideration, the nature, size and complexity of the licensed
    undertaking;

  4. maintaining adequate accounting or
    other records and adequate systems of control of its business and
    records;

  5. having insurance to cover the risks
    inherent in the operations of its business of an amount
    commensurate with the nature and scale of its digital asset
    business or has implemented such other risk mitigation measures as
    the BMA may agree;

  6. have effective corporate governance
    polices and processes as the BMA considers appropriate given the
    nature, size, complexity and risk profile of the licensed company;
    and

  7. being effectively directed by at
    least two persons and under the oversight of a Board of Directors
    with such number of non-executive directors as the BMA considers
    appropriate given the nature, size, complexity and risk profile of
    the licensed company.

Statements of principles will be issued by the BMA to provide
guidance to interpreting the minimum licensing criteria.

DABA also imposes a number of other continuing obligations
including annual prudential filings and fees.

6. Is there a Head Office Requirement?

A licensed undertaking is required to maintain a head office in
Bermuda from which the Digital Asset Business of the licensed
undertaking must be directed and managed. In determining whether a
licensed undertaking complies with this requirement the BMA shall
consider, amongst others, the following factors:

  1. where the strategy, risk management
    and operational decision making of the licensed entity occurs;

  2. whether the senior executives who are
    responsible for, and involved in, the decision-making related to
    Digital Asset Business of the licensed entity are located in
    Bermuda; and

  3. where meetings of the board of
    directors of the licensed undertaking occur.

7. What AML/ATF requirements apply to Digital Asset
Business in Bermuda?

Anti-money laundering and anti-terrorist financing
(AML/ATF) legislation and regulation in Bermuda is
based on the recommendations promulgated by the Financial Action
Task Force (FATF).

Any company conducting Digital Asset Business must comply with
applicable AML/ATF requirements. Adoption of a comprehensive
AML/ATF framework is integral to the conduct of DAB Activities in
Bermuda and these AML/ATF policies and procedures must be evidenced
to the BMA in order to be licensed under the DABA. The
long-standing obligations for regulated financial institutions to
maintain effective procedures to prevent and detect money
laundering and terrorism financing are equally applicable to
businesses intending to carry on DAB Activities in or from within
Bermuda. The BMA has also published Digital Asset Business
sector-specific guidance notes for AML/ATF purposes.

Digital Asset Issuance (DAIs)

1. How are Digital Asset Issuances’
regulated?

DAIs are regulated under the Digital Assets Issuance Act 2020
(DAI Act). The DAI Act became operative on 6 May
2020 and strikes a balance between market integrity and consumer
protection. Under the DAI Act, a DAI is regulated by the Bermuda
Monetary Authority (Authority). Other key
provisions of the DAI Act include:

  • application process;

  • establishing minimum requirements for
    all DAIs (including a Code of Conduct); and

  • setting out publication and content
    requirements of DAI white papers.

2. Who does this affect?

The DAI Act regulates persons who are creating, promoting,
investing in and conducting DAIs and digital assets as well as
companies who are seeking to raise capital through DAIs.

However, the DAI Act and related regulations (collectively
referred to as the DAI Regime) do not seek to
regulate persons or companies who are concerned solely with private
sales or whose ordinary business involves the acquisition, disposal
or holding of digital assets.

3. Application of the DAI Acts

Under the DAI Act only a company, limited liability company, or
partnerships who has the consent of the Authority and the minister
of Finance (Minister) is permitted to conduct a
digital asset offering in or from Bermuda.

4. Application to the Authority for Consent

DAIs are treated as a restricted business activity requiring
approval from the Authority and the Minister. Upon a successful
application to the Authority (DAI Application),
the Minister of Finance will issue consent to carry on the
restricted business activity of a digital asset offering.

Together with the Issuance Document (commonly referred to as the
white paper), the following items must be included in the DAI
Application for consent:

  • a business plan setting out the
    nature and scale of the DAI which is to be carried on by the
    applicant;

  • a copy of the issuance document to be
    made available to digital asset acquirers;

  • particulars of the applicant’s
    arrangements for the management of the offering via the
    issuance;

  • such other information and documents
    as the BMA may reasonably require for the purpose of determining
    the application; and

  • the application fee.

5. Digital Asset Issuance Offer Document

Under the DAI Act, the colloquially used term ‘white
paper’ is defined as Digital Asset Issuance Document
(Issuance Document). Once consent is received a
company must publish its Issuance Document in electronic form.
Subject to specific statutory exemptions (including but not limited
to whether the digital assets are listed on an appointed stock
exchange or appointed digital asset exchange), a company is
required to file such document with the Authority.

In addition to the requirements, which may be prescribed by the
Authority, the Codes of Conduct or any regulations ancillary to the
DAI Act, the Issuance Document must contain the following minimum
details:

  • information on the promoter;

  • information on the officers of the
    promoter (if a corporate body);

  • the business or proposed
    business;

  • a description of the project and the
    proposed timeline for the project including any proposed project
    phases and milestones;

  • the amount of money equivalent (in
    Bermuda dollars) that the DAI is intended to raise;

  • disclosure as to the allocation of
    the amounts intended to be raised amongst the classes of any
    issuance (i.e. pre-sale or post-digital asset issuance);

  • the rights or restrictions on the
    digital assets that are being offered;

  • cooling off rights

  • the date and time of the opening and
    closing of the offering of digital assets;

  • the DAI risk warning; and

  • a statement as to how personal
    information will be used.

The particulars listed above must be kept accurate during the
offer period of the digital asset concerned. Failure to do so could
lead to the responsible persons (including directors and officers
of the issuer and promoters of the DAI) being liable to civil
penalties. Please note that under the DAI Act, the Authority may
make such rules and regulations requiring additional information to
be included in the Issuance Document.

A risk warning statement must appear in the Issuance Document
and on the platform in which the DAI will be launched (DAI
Platform
). The DAI Platform shall include an electronic
public forum that the promotor or the company shall maintain once
the offer is open such that relevant parties to the DAI have an
opportunity to enquire more about the DAI. The DAI Platform should
also specify how a participant in a DAI may withdraw its
application; as such application can be withdrawn by the
participant for up to three business days after an application is
made.

All undertakings authorised to launch a DAI must also have
appropriate procedures in place to ensure that they verify the
identity of the participants in the DAI and also ensure that all
confidentiality, disclosure of information and connected matters
are complied with by the issuer under Bermuda laws.

6. Are Digital Asset Issuances subject to the local
AML/ATF regime?

Yes. Companies conducting a DAI must establish procedures to
comply with local AML/ATF requirements. The applicable regulations
require companies to have in place appropriate measures for
identifying and verifying the identity of persons participating in
the DAI..

7. Is a physical presence required in Bermuda to issue a
digital asset?

Under the DAI Act all undertakings authorised to launch a DAI in
or from Bermuda will be required to appoint a local representative.
The local representative will need to be appointed from the
beginning of the offering via the DAI until 120 days after the end
of the offering. The local representative will need to be approved
by the Authority, and as such, the local representative shall be
identified in the DAI Application. Furthermore, the local
representative will be required to:

  • maintain an office in Bermuda;

  • maintain records of all complaints
    received from digital asset acquirers for a period of 5 years after
    the end of the offering; and

  • notify the Authority without delay if
    the company becomes insolvent or has reason to believe that the
    company has or may become insolvent.

There are no additional physical presence requirements placed
upon companies conducting DAIs.

8. Can a crypto exchange be established?

Yes, provided the company seeking to operate the exchange has
been issued a Digital Asset Business licence by the Authority or
the Minister issues an exemption order for that person conducting
the business.

9. Can a crypto-to-fiat exchange be
established?

Yes, provided the company seeking to operate the exchange has
been issued a Digital Asset Business licence by the Authority or
the Minister issues an exemption order for that person conducting
the business.

10. Is a money services licence required for
crypto-to-fiat conversion through an OTC desk?

If the conversion of digital assets into fiat currency is
facilitated as part of a money transmission service then a licence
may be required under the Money Services Business Act 2016.
Otherwise, a money services licence is not required for the
provision of services converting digital assets to fiat currency
through an OTC desk. Notwithstanding this, if the activity and
specific circumstances met the definition of digital asset services
vendor then a Digital Asset Business licence would be required.

11. Can a digital asset issuance project establish a
local bank account?

Whilst the financial institutions that are licensed to provide
banking and deposit services in Bermuda remain cautious towards
businesses operating in the fintech sector, none have implemented a
blanket prohibition and most would consider legitimate business on
a case by case basis. Notwithstanding this, the Bermuda Government
created a new class of banking licence specifically for persons
looking to establish a Bermuda company to provide banking and
related services to any persons conducting or servicing those
conducting Digital Asset Business.

12. Are gambling platforms permitted?

No. Except as otherwise authorised by law, the operation of
lotteries or gambling facilities, including the operation thereof
through the internet is prohibited. Legislation does exist for the
operation of lotteries or casinos locally, but these do not provide
for gambling platforms.

13. Are any legal or regulatory changes
expected?

There is the potential for the Authority to issue guidance notes
or ancillary documents in connection with the DAI Act recently
coming into force. However, there are no changes anticipated at
this time.

Tokenised funds

1. Are tokenised funds regulated in
Bermuda?

In a tokenised fund, an investor’s interest is represented
by a cryptographic token, as opposed to shares or other interests
or units offered to investors in a more traditional fund
structure.

The Investment Funds Act 2006 (IFA) governs the
exclusion, exemption and authorisation of investment funds and
contains certain requirements for the formation of investment
funds, their operation and the offering of shares, units or
interests of investment funds. Investment funds are prohibited from
being operated in or from Bermuda unless they are authorised or
exempted under the IFA.

In order for there to be an “investment fund” for the
purposes of the IFA, there must be arrangements with respect to
property of any description, including money, the purpose or effect
of which is to enable persons taking part in the arrangements to
participate in or receive profits or income arising from the
acquisition, holding, management or disposal of the property or
sums paid out of such profits or income.

For a fund to be within scope of the IFA and therefore regulated
in Bermuda the arrangement must be such that (i) the persons who
are to participate do not have day-to-day control over the
management of the property (whether or not they have the right to
be consulted or to give directions); =and (ii) must have one or
both of the following characteristics: (a) the contributions of the
Participants and the profits or income out of which payments are to
be made to them are pooled; (b) the property is managed as a whole
by or on behalf of the operator of the fund. There are certain
arrangements which are specifically considered to be outside of
scope but they must be considered on a case by case basis but we
would expect most arrangements that one would consider to be a fund
to be within scope.

For this purpose a ‘unit’ means the rights or interests
(however described) of the Participants in a fund. Accordingly,
this would include “tokens” issued by a fund.

The fact that a fund may be open-ended (i.e. redeemable at the
option of investors) or closed-ended (i.e. not redeemable at the
option of investors), does not impact whether a tokenised fund
would be regulated in Bermuda.

In addition to fund regulation, consideration should be given as
to whether the offering constitutes a DAI, in which case the
information set out in section C of this guide would be applicable
in addition to any fund regulation that may apply.

2. What service providers are required for a tokenised
fund?

Assuming that a fund constitutes an investment fund and is
regulated or to be regulated under the IFA, specific service
providers’ requirements are mandated by the type of fund
classification that the fund falls within.

Where certain service providers are prima facie
mandated, exemptions from having to appoint them may be available.
For further details see the Appleby Guide to Investment Funds in
Bermuda.

3. What AML/KYC is required for token
holders?

A tokenised fund is required to adopt and maintain a robust and
compliant AML/ATF programme, and investors will be required to
provide reliable evidence to verify their source of funds in
addition to their identity, residential address, date and place of
birth and nationality if an individual.

If the subscriber is a legal entity or arrangement (except where
they may be listed on appointed stock exchange) such as a group of
directors, trustees, or beneficial owners the fund will need to
identify not only the legal structure of that entity or arrangement
but also the individuals who comprise that entity or relationship;
specifically understand the control or ownership structure,
identify beneficial owners and, using a risk based approach, verify
directors and other persons exercising control over the management
of the entity or arrangement.

Where permitted, and subject to certain conditions, the fund may
also delegate the maintenance of its AML/ATF procedures (including
the acquisition of due diligence information) to a suitable person
(such as the administrator). However, the fund retains ultimate
responsibility for ensuring that AML/ATF procedures and law are
being adhered to.

4. Is there a minimum investment amount?

Minimum investment amounts may apply but they would be due to
the fact that the fund is within the scope of the IFA and not
because it is “tokenised”. Of course, in addition to
Bermuda legally mandated minimums, minimums may be implemented
because of the laws of another jurisdiction or the commercial terms
of the offering.

In terms of requirements imposed under the IFA,
Institutional Funds” must only be open
to Qualified Participants (as defined below) or require that each
participant invest a minimum of $100,000.

Funds that operate as “Administered
Funds
” must require their participants to invest a
minimum of $50,000 in the investment fund or be listed on a stock
exchange which is recognised by the BMA.

There are no minimum investment requirements for Private Funds,
Professional Class A Funds, Professional Class B Funds,
Professional Closed Funds nor Standard Funds. Professional Class A
Funds and Professional Class B Funds are only opened to Qualified
Participants.

A Qualified Participant is:

  1. an individual who has had a personal
    income in excess of $200,000 in each of the two years preceding the
    current year or has a joint income with that person’s spouse in
    excess of $300,000 in each of those years, and has a reasonable
    expectation of reaching the same level of income in the current
    year (meaning the year in which he purchases an investment);

  2. an individual whose net worth or
    joint net worth with that person’s spouse in the year in which
    he purchases an investment exceeds $1,000,000;

  3. an individual who has such knowledge
    of, and experience in, financial and business matters as would
    enable him to properly evaluate the merits and risks of a
    prospective purchase of investments;

  4. a body corporate which has total
    assets of not less than $5 million held either solely by the body
    corporate or partly by the body corporate and partly by one or more
    members of the same group of which it is a member;

  5. an unincorporated association,
    partnership or trust, each of which has total assets of not less
    than $5 million held either solely by such association, partnership
    or trust or partly by it and partly by one or more members of the
    same group of which it is a member;

  6. a body corporate whose shareholders
    fall within one or more of paragraphs (a) to (h);

  7. a partnership whose members fall
    within one or more of paragraphs (a) to (h); and

  8. a trust whose beneficiaries fall
    within one or more of paragraphs (a) to (h).

5. Can token holders redeem their tokens or transfer the
tokens they hold?

Subject to ensuring compliance with AML/ATF laws and
regulations, the commercial terms of the offering will dictate
whether and in what circumstances a Participant can redeem
tokens.

Insurtech

Bermuda has long been at the forefront of providing innovative
solutions in the insurance industry and boasts the largest ILS and
captive sectors in the world. Leveraging Bermuda’s reputation
as a centre of excellence for innovation in a sound regulatory
environment, the BMA has launched two parallel innovation tracks:
the insurance regulatory sandbox (IR
Sandbox) and an Innovation Hub, both initially
targeted at insurance technology (InsurTech)
companies.

1. IR Sandbox

The IR Sandbox is a regulated environment established by the
Bermuda Monetary Authority (BMA) in which
companies can test new technologies and offer innovative products
and services to a limited number of customers in a controlled
environment and for a limited period of time.

The benefits of the Sandbox include:

  1. providing a safe and transparent
    environment for companies to test their innovations and/or clarify
    regulatory requirements before seeking formal authorisation and
    going to market;

  2. giving the BMA the opportunity to
    work together with the company to ensure that appropriate
    safeguards are incorporated in new products, services and delivery
    mechanisms before they are released to market;

  3. increasing efficiency by reducing the
    amount of time and cost it takes for innovative products, services
    and delivery mechanisms to reach market; and

  4. increasing innovators’ access to
    or improving the terms of, external funding by eliminating or
    reducing the cost of regulatory uncertainty for start-ups.

The Sandbox is available for entities registered, or proposing
to become registered under section 4 (insurer) or section 10
(insurance intermediaries) of the Insurance Act 1978, as amended
(Insurance Act).

An application is made to the BMA which must include, among
other content (i) a cover letter highlighting how the minimum
licensing criteria (per the Insurance Act for the relevant category
of business) would be satisfied, (ii) constitutional documents,
(iii) a business plan including details of any current or past
participation in a regulatory sandbox (or similar) in any other
jurisdiction/country, a description of the proposed product/service
including how the Sandbox’s eligibility criteria (see below)
are met and how the product/service or technology differs from
those already existing in the market, legal and regulatory
requirements that the company requests to be modified for the
duration of the Sandbox (see below), and if writing long-term
business, a copy of the company’s Anti-Money Laundering and
Anti-Terrorism Financing policies and procedures must be provided
and (iv) net worth statements.

The BMA will use the following eligibility criteria in
evaluating the suitability of the company for entry into the
Sandbox:

  • The proposed product, service or
    business model should be new or use existing technology in a
    different way. The company should demonstrate that the solution it
    is offering is innovative or significantly different from existing
    solutions already in the market (i.e. unique).

  • The company should have conducted
    research and due diligence on the proposed product or service,
    understand the applicable regulations and have the appropriate risk
    mitigation plans in place. Through the research already conducted,
    the company should be able to demonstrate clear benefits of the
    proposed product or service to the policyholder or industry.

  • The company should clearly define its
    objective for testing the expected outcomes of the Sandbox
    proof-of-concept stage, and be committed to report to the BMA as
    agreed for the duration of the testing.

  • The company should demonstrate its
    understanding and assessment of associated risks and their
    mitigation. Of paramount importance is ensuring that policyholders
    and counterparties of companies involved in the testing phase are
    adequately protected against loss. The company should have a
    well-defined exit or transition strategy in case the testing is
    unsuccessful or discontinued.

  • The company should have the
    intention, ability and resources to deploy the proposed product,
    service or distribution channel upon successful testing and exit
    from the Sandbox. This should include demonstrating the ability to
    meet the applicable legal and regulatory requirements which will
    come into effect once the company exits the Sandbox.

Upon approval of concept, the company will be assigned a
temporary licence and will be allowed to operate within the
Sandbox. The Company will be assigned a Principal Contact (BMA
staff member) to assist throughout the duration of the Sandbox
which typically lasts six to twelve months, although this period
can be extended or terminated early with the approval of the BMA.
The licences complement the current licencing regime whereby
long-term insurers carry out business regarding insurance on human
life, injuries sustained from accidents, etc. and general business
insurers carry out business regarding which is not long-term or
special purpose business and includes accident and disability
policies in effect for less than 5 years.

The licences available are ILT, IGB, IM, IA and IB for long term
insurers, general business insurers, insurance managers, agents and
brokers, respectively. On successful graduation from the Sandbox,
the company will be re-licenced under an existing class of insurer
or insurance intermediary (Class 1, 2, 3, 3A, 3B or 4 (if a general
business insurer), Class A, B, C, D or E (if a long-term insurer),
special purpose insurer, insurance manager, broker, agent or
salesman).

A company must notify its clients that the products, services
and delivery mechanism are operating in the Sandbox and disclose
the associated key risks. The company is required to obtain a
written acknowledgment from its clients that they have read and
understood the risks associated with doing business with the
company. The company should also maintain a client complaints log
which must be made available to the BMA on request

Upon completion of the proof-of-concept phase, the company must
submit a final report to the BMA on the outcomes of the testing.
After review of the report and approval for the company to commence
operations outside of the Sandbox by the BMA, the company will then
decide whether it will offer the new solution outside the Sandbox.
If the company’s business plan is approved by the BMA and the
company wishes to commence business outside of the Sandbox, the
company will be issued a licence in accordance with the
company’s business model and existing insurance licence regime
(as outlined above).

2. Innovation Hub

The Innovation Hub is a platform for exchanging ideas and
information; it facilitates dialogue between the BMA and market
participants. This space is intended for activities that are not
directly regulated by the BMA or where a company is still
developing its thoughts and ideas and not yet prepared for proof of
concept and is therefore not ready to apply for entry into the
Sandbox.

Data Privacy and Data Protection

The Personal Information Protection Act 2016
(PIPA) received Royal Assent in July 2016 and
applies to all organisations that use personal information in
Bermuda. The PIPA was drafted as a bespoke privacy framework
designed to meet Bermuda’s unique requirements. PIPA’s
provisions are drawn from privacy legislation in a number of
jurisdictions but are drafted around a set of EU-style privacy
principles.

The initial operative provisions of the PIPA came into force in
December 2016 to enable the appointment of a Privacy Commissioner.
The law is expected to become fully effective during the course of
2021, but notice of the actual effective date is still yet to be
published by the Minister. This transition period is intended to
allow for the preparation of necessary secondary legislation and
for the Privacy Commissioner to draft guidance to help
organisations achieve compliance.

Intellectual Property

Bermuda is a common law jurisdiction with a robust intellectual
property (IP) protection regime to ensure the jurisdictional
specific realm of IP encompasses Bermuda as well. Bermuda laws in
this area are mostly based on the UK equivalents. The regime
continues to develop to meet industry needs as demonstrated with
the Draft Patent Act. The main intellectual property rights
available are trade and service marks, designs, patents and domain
names.

1. Copyright

Predominately based upon the Copyright, Designs and Patents Act
1988 of the United Kingdom, the protection of copyright in Bermuda
is provided for by the Copyright and Designs Act 2004. Registration
is not required as IP protection for copyrights is automatic in
Bermuda. The principal IP right that protects software for example,
is copyright – the right to prevent others from, among other
things, copying the software. The Copyright and Designs Act 2004
expressly includes a computer program, preparatory design material
for a computer program, and a database within the definition of
“literary work.” For computer-generated work, the
copyright expires at the end of the period of 50 years from the end
of the calendar year in which the work was made.

2. Trade Marks

The Trade Marks Act 1974 provides IP protection to trade and
service marks of which can carry one of two levels of protection,
Part A or Part B. Trade and service marks can be registered and
renewed repeatedly or unregistered. Unregistered trade mark rights
are enforced through the law of passing off. Trade marks are
registered locally at the Registrar General for a fee, the process
of which generally takes 18 months.

3. Patents

Currently, patent protection in Bermuda is provided by the
Patents and Designs Act 1930 (1930 Act). The 1930 Act is largely
based on the United Kingdom Patents and Designs Act 1919. The
Registry General offers three types of patent applications: a
national patent, a provisional (national) patent, or a registration
of a patent granted United Kingdom (UK) or European Patent with a
UK designation to Bermuda. A patent granted in the UK or a European
Patent that designates the UK can be registered in Bermuda within
three years of its original grant and will be in force for as long
as the original patent is in force. As with patents globally,
patents are non-renewable.

1 As extended by the Trade Marks (Modification and
Amendment) Act 1991 to have effect with respect to service marks as
it has effect with respect to trademarks

Confidential information is protected either through a
contractual agreement to keep certain information confidential, or
through the common law obligation to keep information confidential,
because of the nature of the relationship between the discloser and
disclosee, the nature of the communication or the nature of the
information itself.

Tax Matters

Exempted undertakings (companies, partnerships, unit trust
schemes or LLCs) can apply to the Minister of Finance under the
Exempted Undertakings Tax Protection Act 1966 (Tax Protection Act)
for assurance that, in the event of there being enacted in Bermuda
any legislation imposing tax computed on profits or income, or
computed on any capital asset, gain or appreciation, then the
imposition of any such tax shall not be applicable to such
undertakings or to any of its operations. The tax assurance
exemption is granted until 31 March 2035 under the Tax Protection
Act.

There may be tax implications for beneficial owners in their own
jurisdiction however.

Doing Business in Bermuda

1. Trade Licences

Bermuda does not have or apply any trade licence requirements
other than as previously mentioned in this Guide. These would be
the Digital Asset Business licensing regime, the DAI Regime and
exemption from local ownership and participation rules if a foreign
owned company wanted to conduct business in and to the local
market.

2. Visas and Work Permits

Every non-Bermudian employee requires a work permit (unless they
are a spouse of a Bermudian or holder of a permanent resident
certificate). In support of Bermuda’s interest in fintech,
“The Fintech Business Permit Policy” was introduced.
Following vetting and approval of the Fintech business’
business plan by the FinTech Advisory Committee, the company will
be able to apply for a Fintech Business Permit (Permit) using the
relevant application form. A certificate of incorporation, and the
date the company expects to commence operating in Bermuda, must be
included with the Permit application. Additionally, the company
must submit an immigration business plan which outlines plans for
the hiring and training of Bermudians and plans for engaging local
service providers.

Once the initial Permit has been approved, the company will
receive automatic approval for 5 additional work permits. These
must be applied for within the first 6 months of the initial
Permit. Work permit terms can be granted for up to 5 years and
regular statutory council referral rules apply. Jobs categorised as
closed, restricted, or are entry level in nature, cannot be filled
using the Permit.

Upon expiry of the initial Permit term, the entity will be
obligated to apply for a Standard Work Permit if they desire to
continue doing business in Bermuda. This permit will be granted
subject to Bermuda’s regular advertising and recruitment
requirements to ensure that no suitably qualified Bermudian,
Permanent Residence Certificate (PRC) holder or
spouse of a Bermudian are available for the position. Automatic
advertisement waivers are available for C-suite positions such as
Chief Executive Officer or Chief Operating Officer. Waivers can be
requested and are granted at the Minister’s discretion;
typically if the applicant has a specific skillset or is a senior
executive.

Long term immigration permissions are available via the
Incentive for Job Makers provisions. Companies that have at least
10 Bermudians on staff, employ Bermudians at all levels, have entry
level positions that are filled by Bermudians and enforce sound
employment practices will be eligible. Proof of significant
contribution to the local economy and protection of local interests
is also viewed favourably.

Benefits include work permit exemptions for eligible senior
executives and the opportunity to apply for a PRC. At the moment,
this is the only avenue available for work permit holders to be
able to obtain this certificate.

3. Transportation Links

There are direct flights from Bermuda to the USA, UK and Canada
including: Atlanta, Boston, Miami, New York, Philadelphia, London
Gatwick and Toronto.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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