Offshore financial services regulators have been baring their teeth, and threatening to Get Tough.
In its 2016 Business Plan published in March 2016, for example, the Bermuda Monetary Authority, Bermuda's financial services regulator, announced its intention to "assume a more visible role in enforcement actions".
This was a clear warning of a tougher new approach, which was subsequently described by the BMA itself as a "pivotal change of policy in relation to enforcement decisions".
Additional evidence of the BMA's tougher new approach to enforcement action can be found in its recent appointment of a former criminal prosecutor from the DPP's office to the role of Chief Enforcement Officer, and a projected increase in the enforcement department's legal staff numbers.
Except for one enforcement action that was publicly reported by the BMA in 2010, and various compulsory winding up petitions that have been brought by the BMA on public interest grounds in the Supreme Court of Bermuda, the BMA has historically limited the adverse publicity associated with its previous enforcement actions to a fairly brief, and usually anonymized, notification in its annual reports.
In 2015, for example, the BMA imposed civil penalties on three regulated entities in Bermuda for breaches of their licence conditions or statutory obligations (one of which has an appeal pending), but it is hard for an average member of the public, or a prospective investor, to identify the regulated entities in question. The BMA also imposed certain conditions and restrictions on the licences of regulated entities in a number of other unreported instances.
But from 2016 onwards, the BMA has warned regulated entities that it will publish details of any use of its enforcement powers.
Such publicity will be in the form of a press release issued by the BMA following the conclusion of any appeal against an enforcement decision, or after the expiry of any appeal period.
The press release will detail the nature of the enforcement action, the size of any penalty, the identity of the entity or person involved, and the circumstances of the breach. Details will also be included in the BMA's annual report and on the BMA's website.
The BMA has explained that increased transparency relating to its enforcement activity is critical to Bermuda's reputation as an international financial centre, and it is intended to demonstrate to regulated entities, the general public, international investors, international media, and international regulators that Bermuda-based regulated entities found to be in breach of their regulatory obligation run the risk of being required to account publicly for their actions.
The BMA has also drawn attention to the fact that, from 2016 onwards, the BMA will direct a heightened level of attention to AML compliance and compliance with International Sanctions obligations.
The BMA will also begin to consider the personal liability of Directors and Officers of regulated entities for serious compliance breaches within their organisations.
Since announcing its new publication policy, the BMA has published at least one Press Release 'naming and shaming' a Bermuda regulated entity.
On 29 August 2016, the BMA announced that it had fined a local investment company, Barrington Investments Limited, the sum of $50,000 for a number of regulatory breaches which it described as 'serious', as well as restricting Barrington's investment business licence.
The BMA reported that Barrington had been found to be in breach of the Minimum Criteria for Licensing under the Investment Business Act 2003, with respect to corporate governance, conducting business in a prudent manner, and risk management.
Whether or not the facts and circumstances of any particular case such as Barrington's may justify a more confidential or anonymous approach by the BMA, despite its new policy, will be a matter for submission and persuasion, or, if that does not work, for an appeal to an independent appellate tribunal or the Supreme Court of Bermuda.
Going forwards, therefore, regulated entities doing business in Bermuda should be prepared for the likelihood that enforcement actions and adverse enforcement decisions will be publicly announced by the BMA, similar to the manner in which the SEC and the FCA publish their regulatory enforcement decisions in the US and the UK.
Given the BMA's powers, and apparent intentions, to impose increasingly large civil penalties, regulated entities in Bermuda will need to devote additional resources to regulatory compliance, while also preparing themselves for increasingly complicated, and increasingly expensive, investigations and contentious enforcement actions.
They will also want to review their liability insurance policies, with a view to considering the extent to which they might be adequately covered for the costs and expenses of regulatory investigations, and the costs and expenses of contesting regulatory enforcement proceedings.
Liability insurers of Bermuda entities will also, no doubt, want to keep the BMA's new policy in mind, both when underwriting, and when assessing claims.
It is of interest to note that the BMA's new publication policy was announced only a few months after Offshore Alert published a highly critical article, in November 2015, complaining of the BMA's previous lack of public transparency.
Another significant motivating factor behind the BMA's new publication policy appears to have been the pending 2018 AML/ ATF assessment of Bermuda, as a jurisdiction, by the Caribbean Financial Action Task Force.
In a similar development in the Cayman Islands, the Cayman Islands government has recently announced its intention to revise its legislation so as to give the Cayman Islands Monetary Authority additional enforcement powers by the use of civil penalties ranging from $5,000 to $1 million, as well as criminal sanctions for certain regulatory offences.
As with Bermuda, these legislative changes are being promoted, as part of a package of 12 new Bills proposed for the Cayman Islands, with a view to satisfying the pending 2017 AML/ATF assessment of the Cayman Islands by the Caribbean Financial Action Task Force.
Going forwards, the challenge for financial services regulators in jurisdictions such as Bermuda and the Cayman Islands will be to maintain and enforce an appropriate level of regulation that meets the highest international standards on the one hand, without stifling international business or deterring international investment, on the other.
For the time being, however, the pendulum certainly seems to be swinging in the direction of increasing regulation, and increasing levels of enforcement activity.
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