Investment Business In Bermuda

1. INTRODUCTION

The Investment Business Act 2003 (as amended from time to time, the "IBA") came into operation on January 30, 2004. It was revised in 2022 to expand the types of entities in scope so as to cover all Bermuda incorporated or formed entities who carry on investment business. The IBA is administered by the Bermuda Monetary Authority (the "BMA").

2. REQUIREMENT FOR LICENCE OR REGISTRATION

The IBA requires that any person carrying on investment business in or from Bermuda be licensed or registered under the IBA unless it has been designated as a Non-Registrable Person by the Minister of Finance (the "Minister") or designated as a Recognised Body.¹ A person carries on investment business in or from Bermuda for the purposes of the IBA if that person (a) is incorporated or formed in Bermuda and carries on investment business, (b) is incorporated or formed outside Bermuda and carries on investment business in or from Bermuda, or (c) engages in an investment activity the doing of which constitutes the carrying on by such person of investment business in or from Bermuda under an Order made by the Minister after consultation with the BMA.

The following types of service providers carrying on investment business are generally required to apply for a licence or registration, although this list is not exhaustive:

1. investment managers;
2. investment advisers;
3. market makers;
4. broker/dealers; and
5. market intermediaries.

The BMA is required to publish on its website2 a list of every person licensed or registered under the IBA (referred to herein as "investment providers") and such particulars of each licence and registration of every investment provider as the BMA may determine.

3. MEANING OF "INVESTMENT BUSINESS"

The IBA contains a wide definition of "investment business" which includes carrying on any of the following activities by way of business:

a) Dealing in investments: buying, selling, subscribing for, or underwriting, investments, or offering or agreeing to do so, either as principal or agent. A person will be "dealing" with respect to a particular transaction only if he continuously holds himself out as carrying on that business or the transaction is a result of him continuously soliciting members of the public (i.e. any other person except licensed, registered or Non-Registrable Persons, members of the same group as the relevant person, and persons who are or propose to become, participators with the relevant person in a joint enterprise).

'Dealing' does not include:

1. dealing by a company, in its own shares, by a unit trust in its own units, or by a partnership in its own partnership interests; or
2. accepting or transferring an instrument acknowledging or creating indebtedness in respect of any loan, etc., by a person in respect of an instrument which he has made.

b) Arranging deals in investments: making or offering, or agreeing to make:

• arrangements with a view to another person buying, selling, subscribing for, or underwriting a particular investment, being arrangements which bring about or would bring about the transaction in question; or
• arrangements with a view to a person who participates in the arrangements buying, selling, subscribing for or underwriting investments.

'Arranging' does not include:

1. arrangements made by a person with a view to a transaction to which he himself will be a party as principal or agent;
2. arrangements, the purpose of which is to provide finance to enable a person to buy, sell, subscribe for or underwrite investments;
3. arrangements for the introduction of persons to licensed or Non-Registrable Persons, or persons whose ordinary business involves him in engaging in an investment activity and who is not unlawfully carrying an investment business in Bermuda, where such introduction is made with a view to the provision of independent advice or independent exercise of discretion in relation to investments; or
4. arrangements with a view to a person accepting or transferring an instrument creating or acknowledging indebtedness in respect of any loan, etc., which he has made.

c) Managing investments: managing or offering, or agreeing to manage, assets belonging to another person where those assets consist of or include investments.

d) Investment advice: giving or offering, or agreeing to give, to persons in their capacity as clients or potential clients, advice on the merits of their purchasing, selling, subscribing for or underwriting an investment, or exercising any right conferred by an investment to acquire, dispose of, underwrite or convert an investment.

e) Safeguarding and administering investments: safeguarding and administering, or arranging for the safeguarding and administration, or offering or agreeing to safeguard and administer, or to arrange for the safeguarding and administration of certain assets which may consist of or include investments where such arrangements have been held out as being arrangements under which investments would be safeguarded and administered.

f) Promotion of investments to the public: promotion to members of the public includes:

1. advertising or agreeing to advertise material or information which promotes an investment to members of the public;
2. issuing or agreeing to issue a prospectus, application form or proposal form in relation to an investment to members of the public; and
3. distributing, circulating or agreeing to distribute, circulate or make available, material relating to an investment to members of the public,

4. MEANING OF "INVESTMENTS"

The IBA defines "investments" in quite broad terms. In addition to items such as shares, bonds and warrants, the definition also includes such things as options to acquire or dispose of any investment, rights under any contract, the purpose of which is to secure a profit by reference to fluctuations in the value or price of property, and rights under any contract constituting long-term insurance business (as defined in the IBA).

However, Part 3 of the First Schedule of the IBA outlines certain activities which are expressly excluded from the definition of investment business. Among these excluded activities are:

1. certain activities carried on between members of the same group, firm or joint enterprise;
2. certain activities carried on for the purposes of, or in connection with, the sale of goods or the supply of services;
3. operating employee share or savings schemes;
4. a sale of a body corporate involving the disposal and acquisition of at least fifty per cent of the voting rights, or where the object of the transaction is to acquire day-to-day control of the affairs of the body corporate;
5. certain activities carried on by a trustee or personal representative, provided additional remuneration is not received for doing so; and
6. general advice given in a periodical publication or broadcast.

5. NON-REGISTRABLE PERSONS

The Minister may by order designate any person as falling within the class of persons for whom there is no requirement to be licensed or registered under the IBA and such a person shall be regarded by the BMA for the purposes of the IBA as a "Non-Registrable Person". Currently, Non-Registrable Persons include the following:

(1) investment funds;

(2) persons who are licensed under the Digital Asset Business Act 2018 to carry on digital asset business, who carry on investment business ancillary to the digital asset business for which those persons are registered;

(3) persons who are registered under the Insurance Act 1978 to carry on insurance business, who carry on investment business in connection with the insurance business for which those persons are registered under that Act;

(4) persons registered under the Insurance Act 1978 as insurance managers, brokers, agents, salesmen, or members of an association of underwriters recognized by the BMA, who carry on investment business in connection with the insurance business for which they are registered under that Act;

(5) persons registered under the Insurance Act 1978 as insurance marketplace providers who arrange deals in investments in connection with the business for which the person is registered under that Act;

(6) the Government of Bermuda;

(7) the BMA; and

(8) a public authority established under an Act in Bermuda.

6. RECOGNISED BODIES – INVESTMENT EXCHANGES AND CLEARING HOUSES

A recognised investment exchange is able to carry on, or purport to carry on investment business in or from Bermuda without having to comply with the usual requirement to have a licence or registration under the IBA in respect of any investment activity which is carried on as a part of the exchange's business as an investment exchange or which is carried on for the purposes of, or in connection with, the provision of clearing services by the exchange.

Similarly, a recognised clearing house is able to carry on, or purport to carry on, investment business in or from Bermuda without having to comply with the usual requirement to have a licence or registration under the IBA in respect of any investment activity which is carried on for the purposes of, or in connection with, the provision of clearing services by the clearing house.

However, unlike a Non-Registrable Person, an investment exchange or clearing house must apply to the BMA for a recognition certificate designating such investment exchange or clearing house as a recognised investment exchange or recognised clearing house (each a "Recognised Body"), as applicable, and will be subject to certain ongoing requirements under the IBA.

7. REGISTERED PERSONS

Any Bermuda formed or incorporated person carrying on investment business that (i) is licensed, authorised or registered by a recognised regulator and (ii) does not maintain a place of business in Bermuda, is required to apply to the BMA to register as a Class A Registered Person.

Any person falling within the class of persons specified by the Minister by order made under section 13(1) of the IBA is required to apply to the BMA to register as a Class B Registered Person. Currently, this applies to the following persons:

(1) persons, other than market intermediaries, who carry on investment business exclusively with one or more of the following:

1. high income private investors;
2. high net worth private investors;
3. sophisticated private investors;
4. investment funds;
5. bodies corporate, each of which has total assets of not less than five million dollars, where such assets are held solely by the body corporate or held partly by the body corporate and partly by one or more members of a group of which it is a member;
6. unincorporated associations, partnerships or trusts, each of which has total assets of not less than five million dollars, where such assets are held solely by such association, partnership or trust or held partly by it and partly by one or more members of a group of which it is a member; or
7. bodies corporate, all of whose shareholders fall within one or more of the subparagraphs of this paragraph, except subparagraph (d);
8. partnerships, all of whose members fall within one or more of the subparagraphs of this paragraph, except subparagraph (d);
9. trusts, all of whose beneficiaries fall within one or more of the subparagraphs of this paragraph, except subparagraph (d); and
10. limited liability companies, all of whose members fall within one or more of the subparagraphs of this paragraph, except subparagraph (d); and

(2) persons who carry on investment business with not more than twenty persons at any time, and who do not carry on investment business with, or solicit investment business from, the public.

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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.