SEAN MORAN, OF THE BDA, SITS DOWN WITH OYSTER'S MANAGING DIRECTOR ALISON MORRISON, BDA LEADER NEIL GLASS AND APPLEBY PARTNER SARAH DEMERLING TO DISCUSS BERMUDA'S DEVELOPMENT AS A LEADING FINANCIAL DOMICILE AND THE CHALLENGES IT WILL FACE IN THE NEAR FUTURE
Sean Moran (SM): Bermuda has a reputation as a leading jurisdiction in the asset management sector. What is being done to maintain this profile?
Alison Morrison (AM): Ongoing collaboration between the asset management sector and the Bermuda Development Agency (BDA), combined with support from our government and our regulator, the Bermuda Monetary Authority, is key to our success. Attending conferences and events overseas allows us to maintain our profile and discuss our reputation as a first-class jurisdiction of choice. The rising number of conferences hosted on the island is also increasing our exposure. The Regulatory Compliance Association and Transcontinental Trusts both hosted successful events here in April and will be returning next year.
Neil Glass (NG): Since the BDA was formed in 2013, its asset management group, which is made up of over 120 professionals who work in the industry, has been very active in ensuring that we anticipate and respond to clients' ever-changing needs. For example, in 2013, we brought 12 industry leaders from the US to the island for a 'think tank'. Based on the feedback received, changes were made to our Investment Funds Act. As the proposed legislation was drafted, we encouraged further input from our associates in America. They are still providing ideas on suggested enhancements. Industry-driven changes to Bermuda's partnership laws are working their way through our parliament. As Jack Rigney, a New York-based partner at Seward & Kissel and one of our think tank contributors, stated: "My personal advice to clients now is Bermuda may in fact be the best jurisdiction for offshore funds when you consider cost benefits, the practical regulations, as well as access to officials."
Sarah Demerling (SD): For a number of years Bermuda was too modest in promoting its abilities on the asset management sector. Those days are behind us. Bermuda is very proud of its reputation, its robust-yet-sensible legislation, its regulators, the products it has to offer and the exciting knowledge that is available on the island from service providers. Bermuda continues to be a leader with funds that invest in insurance-linked securities and this highlights the opportunities for those looking to access capital, given the synergies in Bermuda with the insurance industry. Collaboration is key to Bermuda's success, both internally and with external stakeholders, and the asset management sector is focused on ensuring Bermuda is the best jurisdiction not only to set up an offshore fund but also to establish a physical presence for a manager to manage the assets. Speed to market, quality service and efficiency are paramount.
SM: What innovations are being looked at to enhance Bermuda's offering to the asset management space?
AM: We are constantly looking for ways to improve and enhance our product offerings within the asset management space. This could mean the introduction of new legislation to ensure greater flexibility and speed to market, or examining our work permit policy to encourage growth and new business to the island. Collaboration and communication are keys to ensuring that we hear what our stakeholders need and that we deliver cost-effective solutions. A highly educated workforce is important and with this in mind the Regulatory Compliance Association, in conjunction with government and Bermuda College, have introduced a new advanced workforce training program.
NG: Following on the work we continue to do with US industry leaders, this year we started a similar outreach in the UK, so we can better understand what their clients' needs are, which will culminate in another think tank session in Bermuda this fall. If your clients have a problem, we want to be on the top of your speed dial as the jurisdiction that will work with you to find an innovative solution. One thing we have found resonates with US and UK decision makers is that we do road shows as 'Bermuda Inc.', where the team is made up of senior members of competing law, audit and fund administration firms, with senior members of government and the regulator. When issues are raised, attendees know we can go back and effect changes quickly.
SD: The first wave of changes have already been made to Bermuda's funds legislation (Investment Funds Act) to make it cutting-edge – self-certification fi ling with the BMA (no approval required) and same-day launch for Class A exempt funds open to qualified (usually institutional) investors where the manager is registered with the SEC or FCA. Changes to partnership legislation are imminent to allow partnerships to convert to companies and vice versa. Finally, plans are in the works to overhaul the funds legislation to make it even more agile.
SM: Many offshore domiciles are battling the misconception of being labelled 'tax havens'. What would you say to dispel that myth for Bermuda specifically?
AM: This is an ongoing issue that unfortunately we continue to deal with, despite the efforts of our government and all industry sectors to dispel this myth. We are totally transparent when it comes to tax issues and this is evident by the number of Tax Information Exchange Agreements (TIEAs) that have been signed. This commitment to upholding international tax standards is further evidenced by our inclusion in the Organisation for Economic Co-operation and Development's (OECD) white list. Our inclusion on the white list confirms our position of transparency and co-operation.
NG: Bermuda has always jealously guarded her reputation. When my wife and I moved here in 1990, we needed letters of reference from our Canadian bank, plus letters from our Bermuda employers, before we could open a Bermuda bank account and transfer less than $10,000 here. Also, as Bermuda never allowed 'nameplate' banks, some of the issues affecting other jurisdictions were never a problem here, which is likely why Bermuda was the first offshore jurisdiction to be placed on the OECD/G20 White List. Our most recent OECD rating was the same rating received by the US and the UK.
SD: The government and the Bermuda Business Development Agency (BDA) are doing a great job of consistently reinforcing the facts, rather than allowing misconceptions to spread further. Bermuda was the first offshore jurisdiction elevated to the OECD's white list for jurisdictions that have substantially implemented internationally agreed tax standards. It is recognised as a leader on global transparency issues. Bermuda has 39 TIEAs with other states and four OECD-compliant Double Taxation Agreements (DTAs). It also does not have bank secrecy laws.
SM: In any jurisdiction good communication between the public and private sector is key to regulatory success. What is the relationship like in Bermuda?
AM: Bermuda has a history of the private sector working closely with the government to promote and develop our insurance and tourism industries. For the financial services sector, the work of the BDA to bring everyone to the table has been invaluable to achieving that success. Representatives from the Bermuda Monetary Authority, along with representatives from the government and business leaders all working together allows for quick and effective responses to regulatory issues and the promotion of Bermuda as a first class international jurisdiction in which to conduct business.
NG: In 2013, the Bermuda Government announced that growing Bermuda's asset management industry was a priority, which is evidenced by the fact that the BDA's board of directors includes a senior member from the Ministry of Economic Development's Business Development Unit. Also, at the Bermuda Monetary Authority's request, our asset management group meets with them monthly so that we can share concerns and discuss the impacts of ever-increasing global regulations.
SD: Collaboration is key to Bermuda's success. A prime example is the BDA – an independent public/private organisation funded by both the Bermuda Government and private sector whose goal is to implement marketing and business development strategies to stimulate growth in the Bermuda economy. There is a constant dialogue with the government as to any proposed legislative changes. Clients are often surprised to learn the BDA meets with the BMA on a regular basis to discuss issues in the asset management industry and takes on board recommendations to make changes where appropriate.
SM: Between AIFMD or Fatca, which is posing the bigger challenge for the asset management industry in Bermuda and what is being done to tackle these regulatory hurdles?
AM: The collaboration between the government and the private sector was very much in evidence as part of Bermuda's Fatca journey, with a Fatca committee bringing industry stakeholders and the government representatives together. This combined effort allowed for an efficient and effective process to be introduced which included all the financial institutions impacted by the Foreign Account Tax Compliance Act. In addition to the Intergovernmental Agreement entered into with the US Treasury to adopt US Fatca, Bermuda has actively been working with the OECD to introduce the common reporting standard (CRS). The CRS is intended to be the global standard for a co-ordinated approach for automatic exchange of information. Bermuda is part of the Early Adopters Group so all financial institutions will need to turn their time and attention to this next regulatory requirement.
With AIFMD looming, Bermuda needs to choose the right path to ensure the best results for the island to be a jurisdiction of choice for asset managers. Collaboration between key stakeholders and the Bermuda regulator is critical. In addition, the Bermuda Monetary Authority Policy Team continues to work closely with the European Securities & Markets Authority (ESMA) in order to provide direction and advice to the asset management sector.
NG: For both AIFMD and Fatca, the Asset Management Group has created sub-committees that come up with industry positons, which are then communicated to government and the Bermuda regulator. Building on the anticipation of obtaining equivalence under Europe's Solvency II Directive prior to the implementation date of 1 January 2016, the Bermuda Monetary Authority has been working with our AIFMD sub-committee to develop a roadway to third-country equivalency. If Esma decides to allow third-country equivalency under the AIFM Directive, Bermuda wants to be in the first wave of accepted jurisdictions. On Fatca, the industry told the government we would prefer to go the Model II route, whereby FSIs can pass shareholder information directly to the IRS and the UK authorities. Not only does this limit the sensitive information to as few parties as possible (as the Bermuda Government does not need to act as an information-gathering intermediary), it also means that Bermuda did not have to build an expensive infrastructure to gather and protect this information, which avoids the need to pass this cost on to customers.
SD: Fatca has become the new normal. Most funds have found that the registration process was not as daunting as they had at first feared.
With regards to AIFMD, Bermuda is positioning itself to embrace AIFMD and to deliver the best outcome to ensure that Bermuda managers/funds can continue to market and manage assets across Europe when third-party passporting is hopefully instituted by Esma (the European regulator for the purposes of AIFMD). It is expected that Esma will decide whether or not to extend the provisions to third-country managers (i.e. managers/funds in Bermuda) in the coming months.
Bermuda has signed co-operation agreements with European regulators, one of the pre-conditions to be able to market in Europe at the moment. The BMA has been working closely with the industry on how best to approach the AIFMD regime in Bermuda and is in constant contact with Esma. It is important to note that AIFMD would be an opt-in regime so any managers that do not have contact with Europe would not be impacted by any new legislation and would be subject to any enhanced regulation.
Article first published in HFM Bermuda 2015, June 2015
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