Key Takeways
- The Bermuda Monetary Authority ("BMA") proposes a new Payments Services Act ("PSA") to replace the Money Service Business Act 2016 to establish a clear, risk-based framework for Payment Service Providers ("PSPs") operating in or from Bermuda.
- The PSA introduces a new tiered licensing regime and will apply to Digital Wallet Providers, Payment Handling Providers, or Payment Technology Providers. Certain entities and activities, such as banks and payroll services, will be excluded or exempted.
- The BMA will adopt a risk-based supervisory model and is inviting feedback to inform a future consultation paper.
The BMA is encouraging industry participants to review the proposals and submit feedback by 15 May 2025.
INTRODUCTION
With payments becoming increasingly digital and complex, the BMA is moving to update Bermuda's regulatory framework. The proposed PSA is intended to provide structure for licensing and supervising PSPs. Similar to the existing digital asset business licensing regime, it is intended to support innovation, whilst ensuring consumer protection and alignment with international standards.
The proposals are at an early stage, and the BMA is using the Discussion Paper to gather industry feedback before progressing to a Consultation Paper later this year.
OBJECTIVES
The BMA's proposed framework is designed to:
- establish a modern, cohesive and unified framework for all PSPs;
- apply proportional, risk-based supervision for PSPs;
- align with commitment to protecting Bermuda from being used in connection with financial crime and strengthen consumer protection;
- replace the outdated Money Service Business Act 2016 to adequately reflect the significant evolution of the payments industry, revising the scope of licensable activities;
- streamline the process for firms seeking multiple licenses;
- encourage innovation and technological advancement; and
- align with evolving global practices.
KEY PROPOSALS
Types of Payment Service Providers
The BMA proposes regulating three broad categories of PSPs:
Digital Wallet Providers (DWPs): any undertaking that receives and stores value electronically or physically and is used for making payments, transferring funds or withdrawing stored value at a future point in time. The paper draws a distinction between being a custodial digital wallet provider under the Digital Assets Business Act 2018 (as amended) ("DABA"). The key distinction being that DWPs will provide payment solutions, as distinct from custody whereby the stored value can be used for multiple purposes and not solely custody. We anticipate this will be further refined through the consultation process.
Payment Handling Providers (PHPs): any undertaking that receives money to transmit to a specified payee, whether domestically or internationally. This will include for example money remitters, settlement intermediaries, foreign exchange services and merchant acquirers.
Payment Technology Providers (PTPs): any undertaking that facilitates secure payments processing and payment credential transfer without possessing or storing the funds.
Licensing Structure
The BMA proposes a four-tier licensing regime:
- Class T (Testing): Pilot or beta testing licences (up to 12 months).
- Class M (Modified): Scaling-up licences for maturing businesses (12 – 24 months with possible extensions).
- Class F (Full): Full licences for established PSPs with developed compliance programmes.
- Class PG (Professional Grade): Special licences for wholesale providers serving institutions and high-net-worth clients.
This structure aims to encourage responsible innovation while providing consumer protection. It is modelled on the existing framework under DABA which also provides for Class T, M and F licenses.
The BMA is seeking feedback on whether:
- the definitions of DWPs, PHPs, and PTPs are clear and appropriately capture all services;
- any other PSP types or emerging activities should be included in the categories;
- the four proposed licence classes are clear and useful for determining which licence to apply for;
- the PG licence is catering to the distinct needs of the growing wholesale market participants; and
- the proposed tiered licencing structure effectively strikes the appropriate balance between nurturing innovation and ensuring a controlled environment.
Exclusions and Exemptions
The framework will not apply to:
- institutions licensed under the Banks and Deposits Companies Act 1999;
- institutions licensed under the Credit Unions Act 2010; and
- insurers designated by the BMA under the Insurance Act 1978 (as amended).
Regulatory Supervision and Oversight
PSPs will need to meet minimum criteria for licensing, including:
- fit and proper standards for officers and controllers;
- maintaining strong corporate governance practices;
- meeting relevant prudential and capital requirements; and
- periodic regulatory filings.
The BMA will apply a risk-based supervisory approach, with more intensive oversight for higher-risk PSPs.
The BMA is encouraging industry participants to review the proposals and submit feedback by 15 May 2025.
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.
