LICENSING

What is Investment Business?

Section 3 of the Act defines investment business as “engaging in one or more investment activities by way of business”.

Part 2 of the First Schedule to the Act sets out the six investment activities accommodated under the framework. They are:

1. Buying, selling, subscribing for, or underwriting, investments, or offering or agreeing to do so, either as principal or agent.
2. Making or offering, or agreeing to make:
   1. 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
   2. Arrangements with a view to a person who participates in the arrangements buying, selling, subscribing for or underwriting investments.
3. Managing or offering, or agreeing to manage, assets belonging to another person where those assets consist of or include investments.
4. 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.
5. Safeguarding and administering or arranging for the safeguarding and administration of assets belonging to another where:
   1. Those assets consist of or include investments falling within any of paragraphs 1 to 8 of Part 1 of the First Schedule to the Act; or
   2. The arrangements for their safeguarding and administration are such that those assets may consist of or include investments, and the arrangements have at any time been held out as being arrangements under which investments would be safeguarded and administered.
6. Promoting investments to members of the public, including:
   1. Advertising or agreeing to advertise material or information which promotes an investment;
   2. Issuing or agreeing to issue a prospectus, application for or proposal form in relation to an investment; and
   3. Distributing, circulating or agreeing to distribute, circulate or make available material relating to an investment.

Excluded Investment Activity

Part 3 of the First Schedule to the Act sets out those activities excluded from the definition of investment activity under the following headings:

• Groups, Firms and Joint Enterprises
• Sale of Goods and Supply of Services
• Employee Share Schemes
• Sale of Body Corporate
• Trustees and Personal Representatives
• Advice Given or Arrangements Made in the course of Legal Profession
• Advice Given in Newspapers and Broadcasting Services

What does carrying on investment business ‘in or from Bermuda’ mean?

Pursuant to section 4 of the Act, a person is deemed to be carrying on investment business in or from Bermuda if that person:

1. Is incorporated or formed in Bermuda and carries on investment business;
2. Is incorporated or formed outside of Bermuda and carries on investment business in or from Bermuda; or
3. Engages in an investment activity deemed to be carrying on of investment business, further to an order made by the Minister.

(In this connection, the Minister may specify by order the circumstances in which a person, who would otherwise not be regarded as carrying on investment business in or from Bermuda, will be considered as doing so.)

Persons Required to be Licensed

Persons seeking to carry on investment business in or from Bermuda are required to apply to the Authority to be licensed unless they meet the criteria to be registered or have been designated as non-registrable. Persons wishing to be licensed may apply for either:

1. A ‘standard’ licence, under which a person may carry on one or more investment activities (subject to any limitations imposed by the Authority); or
2. A ‘test’ licence, under which a person may carry on one or more investment activities for a defined period and subject to any restrictions imposed by the Authority).

Holders of a test licence are allowed to carry on one or more investment activities within the controlled environment of the Authority’s general regulatory sandbox, and may offer innovative products and test new technologies and delivery methods in such a manner as agreed with the Authority. The parameters of each test licence, including any conditions or restrictions, are determined on a case-by-case basis prior to licensing and may be adjusted by the Authority during the period of the licence.

Each licensed person must maintain a place of business in Bermuda as its principal place of business. In the case of an individual who is a sole trader, that principal place of business is considered the premises which they occupy for the purpose of conducting investment business; while in any other case, an investment provider’s principal place of business is the place from which it conducts investment business activities, employs staff and pays salaries and other expenses in connection with that business.

Persons Required to be Registered

In addition to licensed persons, the framework also accommodates two classes of registered persons, being Class A Registered Persons and Class B Registered Persons.

Any Bermuda-formed or incorporated person seeking to carry on investment business that does not qualify as non-registrable must be regulated. To that effect, where such a person:

1. Does not maintain a place of business in Bermuda; and
2. Is licensed, authorised or registered to carry on investment business by a ‘recognised regulator’ in one or more foreign jurisdictions,

that person must apply to the Authority to be registered in Bermuda as a Class A Registered Person unless they opt to be fully licensed by the Authority.

Minimum Criteria for Licensing and Registration

Before an investment provider may be granted a licence or registration, the Authority has to be satisfied that all criteria as set out in the Second Schedule to the Act are capable of being fulfilled by the applicant on an ongoing basis.

The Authority must be satisfied of the following:

a) The controllers and officers of the Applicant are fit and proper persons;

b) The investment provider’s corporate governance policies and processes are appropriate given the nature, size, complexity and its risk profile;

c) The business is to be conducted in a prudent manner (including but not limited to) maintaining minimum net assets, adequate liquidity, adequate accounting and other records, adequate systems of control and adequate insurance;

d) Consolidated supervision - The position of the undertaking within the structure of any group to which it belongs or its links with any related companies shall be such that it will not obstruct the conduct of effective consolidated supervision; and

e) The undertaking’s business must be carried on with integrity and the professional skills appropriate to the nature and scale of its activities.

The Authority has provided details of its interpretation of the minimum criteria in its Statement of Principles, published pursuant to section 9 of the Act.

Licensing and Registration Process

Applicants and prospective applicants should refer to the Investment Business Guidance Notes for Prospective Applicants here, which outline the application process as well as the information and documentation that will typically be required.