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: -
- Dealing in Investments - buying, selling, subscribing for, or underwriting, investments, or offering or agreeing to do so, either as principal or agent.
- Arranging Deals in Investments - making or offering, or agreeing to make –
- arrangements with a view to another person buying, selling, subscribing for or underwriting a particular investment, being which bring about or would bring about the transaction in question;
- arrangements with a view to a person who participates in the arrangements buying, selling, subscribing for or underwriting investments.
Managing Investments - managing or offering, or agreeing to manage, assets belonging to another person where those assets consist of or include investments.
- Investment Advice - 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.
Safeguarding and administering Investments – safeguarding and administering or arranging for the safeguarding and administration of assets belonging to another where -
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
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 they carry on investment business from premises that they occupy for that purpose;
- in any other case, if they carry on investment business from premises they occupy for that purpose, at which they employ 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:
- 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 Course of Legal Profession
- 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:
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 undertakings 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 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:
- In the case of a company, the Memorandum and Articles of Association; equivalent documentation for non-incorporated bodies.
- Most recent financial statements (audited where applicable) together with financial statements for any parent company and other members of the group (where relevant).
- Copies of clients’ agreements used or intended to be used for the business.
- 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.
- Questionnaires completed by all proposed institutional and/ or individual controllers and officers of the entity.
- Description of group structure, and an up-to-date chart for licensed institutions forming part of wider groups.
- Fees: a cheque or online payment representing the appropriate application fee. (See Fees & Penalties section on the BMA website for more details).
- (a) Anti-Money Laundering and Anti-Terrorist Financing policies and procedures which are in compliance with the Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulation 2008; and
(b) Name, contact details and relevant qualification for the appointed Reporting Officer in accordance with Regulations 16 and 17.
- Policies and procedures implemented by the applicant, (including but not limited to) Compliance, adequate systems of control and adequate accounting procedures.
- Proof of adequate insurance cover.