The Banks and Deposit Companies Act 1999 received Royal Assent on 23rd September 1999 and came into operation on 1st January 2000. The Act seeks to give full effect to the Core Principles for Effective Banking Supervision issued by the Basel Committee on Banking Supervision. The 1999 Act repealed the Banks Act 1969 and Deposit Companies Act 1974. The Act charges the Bermuda Monetary Authority with responsibility for licensing and supervising deposit taking institutions in Bermuda. For copies of the Banking Legislation, click here
Meaning of "Deposit"
The provisions of the Act state that “deposit” means a sum of money paid on terms:
- under which it will be repaid, with or without interest or a premium, and either on demand or at a time or in circumstances agreed by or on behalf of the person making the payment and the person receiving it; and
- which are not referable to the provision of property or services or giving of security;
For the purposes of the above:
- money is paid on terms which are referable to the provision of property or services if, and only if it is paid by way of advance or part payment under a contract for the sale, hire or other provision of property or services, and is repayable only in the event that the property or services is not or are not in fact sold, hired or otherwise provided;
- money is paid on terms which are referable to the giving of security if, and only if –
it is paid by way of security for the performance of a contract or by way of security in respect of loss which may result from the non-performance of a contract; or
without prejudice to (i) above, it is paid by way of security for the delivery up or return of any property, whether in a particular state of repair or otherwise.
Except so far as any of the provisions of the Act otherwise provides, “deposit” does not include -
- a sum which is paid by one company to another at a time when one is a subsidiary of the other or both are subsidiaries of another company or the same individual hold 50 per cent or more of the shares in both of them; or
- a sum which is paid by a person who, at the time when it is paid, is a close relative of the person receiving it or who is, or is a close relative of, a director, controller or senior executive of that person.
The Banks and Deposit Companies (Meaning of Deposits and Deposit Taking Business) Order 1999 further provides that the definition of deposit does not include:
- any sum paid by an institution;
- any sum paid by a person for the time being specified in the First Schedule to the Act
- any sum paid by a person, other than a person within paragraph (a) or (b), in the course of carrying on a business consisting wholly or mainly of lending money.
Close relative means
- his spouse;
- his children and step children, his parents and step-parents, his brothers and sisters and step-brothers and step-sisters; and
- the spouse of any person within (b) above.
Meaning of “deposit taking business”
The Act provides that a person carries on deposit taking business if:
- in the course of the business, he lends money received by way of deposit to others; or
- he finances any other activity of the business wholly or to any material extent, out of the capital of or the interest on money received by way of deposit.
For the purposes of the above, all the activities which a person carries on by way of business are to be regarded as a single business carried on by him.
However, notwithstanding that the above provisions apply, the Banks and Deposit Companies (Meaning of Deposits and Deposit Taking Business) Order 1999 provides that a business is not a deposit taking business for the purposes of the Act if
- the person carrying it on does not hold himself out as accepting deposits on a day to day basis; and
any deposits which are accepted are accepted only on particular occasions, whether or not involving the issue of debentures or other securities.
The Act charges the Bermuda Monetary Authority with responsibility for licensing and supervising deposit taking institutions. It provides for the issue of two types of license, (a) a banking licence; and (b) a deposit company licence.
The Authority may not grant a licence unless it is satisfied that:
- the minimum criteria specified in the Second Schedule of the Act are fulfilled with respect to the applicant; and
- the Minister of Finance has advised the Authority that he is satisfied that the grant of a licence is in accordance with the economic and financial policy of the government.
Other General Provisions of the Act
The Minister of Finance may from time to time give the Authority general policy directions, not inconsistent with the provisions of this Act, as to the performance of its functions under the Act and the Authority is required to give effect to such directions.
The Act provides extensive intervention and control provisions where the Authority concludes that the minimum authorisation criteria may not be met or where an institution fails to comply with an obligation imposed under the Act.
The Authority is required to publish a statement of principles setting out how it will act or proposes to act.
Banks and deposit companies licensed under the Act are required to provide certain minimum services to the domestic market.
The Act requires that intending controllers of licensed institutions seek non-objection from the Authority (i.e. those owning or controlling shareholdings of 10% or more).
It also provides for licensed institutions to give notice to the Authority in respect of changes of directors, controllers and senior executives. There is also a notification required in respect of persons becoming significant shareholders of an institution (i.e. a shareholding of at least 5% or the ability to exercise that level of control).
There are statutory reporting obligations in relation to large exposures incurred by licensed institutions. There are also restrictions on commercial non-banking activities undertaken by licensed institutions, subject to the prior approval of the Authority.
The Act also restricts the use of banking names.
The description above is intended to be a brief summary of the Banks and Deposit Companies Act 1999 and should be used as a guide only. Interested parties should obtain and read the full text of the legislation and guidance notes for complete information.