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 defines investment activity as: -
  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;
    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.

Who is required to be Licensed?

Section 4 of the Act states that a person carries on investment business in or from Bermuda if such person –
  • carries on investment business from a place of business maintained by such person in Bermuda; or
  • engages in an investment activity the doing of which constitutes the carrying on by such person of investment business in or from Bermuda under an order made by the Minister of Finance.
A person maintains a place of business –
  • in the case of an individual who is a sole trader, if he carries on investment business from premises that he occupies for that purpose;
  • in any other case, if it carries on investment business from premises it occupies for that purpose, at which it employs staff and pays salaries and other expenses in connection with that business.

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:
  1. Groups, Firms and Joint Enterprises
  2. Sale of Goods and Supply of Services
  3. Employee Share Schemes
  4. Sale of Body Corporate
  5. Trustees and Personal Representatives
  6. Advice Given or Arrangements Made in Course of Legal Profession
  7. Advice Given in Newspapers and Broadcasting Services

Exemptions from Licensing

The Investment Business (Exemptions) Order 2004 provides for a number of exemptions from licensing depending on investment activities and the general makeup of an entity’s clients. Completion and submission of an Exemption Notification is required by persons seeking to take advantage of certain categories of exemption detailed in the Order. For a copy of the Exemption Notification click here.

Minimum Licensing Criteria

Before an investment provider may be granted a licence 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:
  1. The controllers and officers of the Applicant are fit and proper persons.
  2. The business is directed by at least two individuals (unless the Authority otherwise directs).
  3. In the case of a company, the board of directors includes such number (if any) of non-executive directors, as the Authority considers appropriate.
  4. The business is conducted in a prudent manner including by maintaining minimum net assets, adequate liquidity, adequate accounting and other records, adequate systems of control and adequate insurance.
  5. The structure of any group to which a licencee belongs is not such as to obstruct the conduct of effective consolidated supervision.
  6. The business is conducted with integrity and appropriate professional skills.
The Authority has provided details of its interpretation of the minimum licensing criteria in its Statement of Principles, published pursuant to section 9 of the Act.

General Summary of Information Required in Connection with License Applications

The following information must be submitted to the Authority when applying for a licence to conduct investment business:
  1. In the case of a company, the Memorandum and Articles of Association; equivalent documentation for non-incorporated bodies.
  2. Most recent financial statements (audited where applicable) together with financial statements for any parent company and other members of the group (where relevant).
  3. Copies of clients’ agreements used or intended to be used for the business.
  4. Business plan setting out the nature and scale of the investment business which is to be carried out by the applicant, and particulars of the arrangement(s) proposed for the operation of that business.
  5. Questionnaires completed by all proposed institutional and/ or individual controllers of the entity.
  6. Description of group structure, and an up-to-date chart for licensed institutions forming part of wider groups.
  7. Cheque representing the appropriate application fee.