Bermuda: The Investment Business Act 2003

The Investment Business Act 2003 (the "IBA 2003") was recently passed by the Bermuda legislature and became operative on 30^th January, 2004. The IBA 2003 repealed the Investment Business Act 1998 (the "IBA 1998") and substituted in its place a new and more refined regime for regulating investment business in Bermuda.

The IBA 2003 is the result of the continuing process of the Government of Bermuda to adapt Bermuda’s regulation to international regulatory standards. This process included consultation with industry participants in Bermuda in order to refine the investment business regulatory regime to more accurately reflect the commercial realities of the Bermuda marketplace. The consultation process lasted almost three years and is a further example of the public-private partnership which has made the Bermuda marketplace so successful.

Some of the regulatory enhancements and refinements included in the IBA 2003 are as follows:

• clarification that entities with no physical presence in Bermuda will not be subject to the requirement to obtain an investment business licence
• clarification that agreements made in contravention of the prohibition of carrying on investment business in or from Bermuda without a licence or an exemption from the requirement to have one will still be enforceable
• clarification of the exclusions from the scope of the IBA 2003 (e.g. for entities carrying on investment business on their own account or within a group or as part of a joint enterprise)
• introduction of a regime regulating unsolicited calls
• increased ability to police unlicensed entities
• increased reporting requirements for licensed entities
• increased powers of censure and investigation of licensed entities; and
• information gateways provided to the Bermuda Monetary Authority (the "BMA") in limited circumstances

Like the IBA 1998, the IBA 2003 is to be administered by the BMA, Bermuda’s independent central regulator.

Pursuant to an Order which became effective when the IBA 2003 became operative, exemptions from the requirement to be licensed have been given to persons providing investment services to ‘sophisticated investors’ or a limited number of investors, similar to those previously in the IBA 1998. Importantly for Bermuda’s insurance/reinsurance marketplace, all persons registered under the Insurance Act 1978 (all classes of insurance/reinsurance companies as well as insurance managers, insurance brokers and insurance agents) are exempted from the requirement to be licensed in respect of investment activities carried on in connection with their business.

The introduction of the IBA 2003 brings regulation of licensed investment business entities in Bermuda in line with international standards. In addition, the IBA 2003 clarifies certain aspects of Bermuda’s financial services regulatory regime.

The passing of the IBA 2003 by the Bermuda legislature further consolidates Bermuda’s position as one of the world’s premier offshore jurisdictions. It represents Bermuda’s continued maintenance of international standards of regulation while encouraging commerce through a common sense approach to regulation.