Bermuda’s financial services regulator, the Bermuda Monetary Authority, has set out plans to change its enforcement processes.

The review follows the Government’s decision to remove the Appeal Tribunal from the supervisory review process. A review of any decision of the Authority will now be heard by the Supreme Court.

The changes, set out by the Authority on August 14, 2020, are intended to improve transparency and ensure that the Authority has sufficient powers to challenge non-compliant regulated financial and non-financial institutions (RFIs) if they are not prudently managed or put clients at risk.

In a new consultation paper, “Enhancement of the Enforcement Process”, the Authority has set out how it will adapt its processes, including to provide more clarity as to when enforcement has commenced.

The consultation paper notes that, in the recent assessment of Bermuda’s regime to counter money laundering and terrorism financing, the Caribbean Financial Action Task Force said Bermuda’s enforcement regime was assessed as being effective but constructive comments were made regarding the number of actions taken and the
impact.

The BMA said: “Whilst it is a generally accepted principle that the number and type of enforcement measures taken should be consistent with and reflect the number and severity of deficiencies and breaches identified through the risk-based supervisory processes, CFATF noted that the Authority did not use the full range of disciplinary measures available and indicated that more effort should be taken to apply the different tools available for achieving compliance.”

Having reviewed the enforcement processes in comparable jurisdictions, the BMA is proposing changes to:

  • make the process of regulatory decisions that result in the imposition of disciplinary measures fully transparent;
  • ensure actions taken by the regulator are reasonably based on facts that support the findings of non-compliance;
  • ensure the RFI has an opportunity to review and challenge the findings;
  • ensure that a decision to impose disciplinary measures is made independent of the team that supervises the RFI;
  • ensure the appeal hearing is held by a body that is independent of the regulator.

The BMA said, at present, enforcement cases are triggered by several factors. Usually, the supervisors identify a series of issues that amount to not only supervisory concerns but also indicate a pattern of non-compliance.

The decision to launch a further investigation is then based on discussions with the supervisor about the available facts. When the enforcement process begins, officials seek to find out extra information about the RFI’s affairs.

With the reformed process, the BMA is proposing that there should be a more completely defined handover of matters to enforcement officers and communication with the RFI so that
there is full transparency.

Under the changes, the CEO of the BMA will no longer be the main decision-maker about enforcement actions. The Enforcement Committee, including the CEO, has now been formally designated by the Board of Directors of the Authority as a decision-making committee in this regard. These persons will not have been involved in the day-to-day supervision of the RFI.

The BMA is proposing the enforcement process will involve three stages:

  • This will involve discussions with the RFI as to the facts and the collection of additional information to substantiate the case.
  • Once all the information has been compiled and verified, the internal case management team will review and determine whether there is a substantial case to be put forward to the Enforcement Committee for consideration.
  • An Enforcement Committee hearing will be held, with the Enforcement Committee to consider whether to issue a Warning Notice. If a Warning Notice is issued, the RFI will then have an opportunity to make a presentation to the Enforcement Committee.

The consultation document additionally sets out details of the BMA’s settlement process, through which RFIs can agree to the regulator’s findings and, in exchange for a reduced fine, can work with the Authority to remedy the situation. The consultation says, to encourage early settlement, a graduated discount scheme will be implemented.

The BMA said: “With these adjustments, the Authority is of the view that there will be further clarity and certainty in the enforcement process including addressing concerns that it may not always be clear when an RFI formally comes within an enforcement review process.”