BMA Proposes Enhancements To Insurance Supervision In Bermuda

by Phillip Morton, Investors Offshore.com

19 February 2009

The Bermuda Monetary Authority has released a discussion paper on proposed enhancements to insurance supervision and enforcement powers.

The paper begins: “The Authority has a number of supervisory and enforcement powers which it may use in its regulation of the insurance sector. Existing legislation provides for powers such as cancellation of licenses, the removal of senior officers, directors and controllers in some circumstances or the giving of directions to licensed entities. These powers are relevant to the most serious enforcement issues leaving a lack of more targeted powers for regulatory issues of a minor to medium nature.”

“The Authority is reviewing its enforcement powers in insurance and is seeking to engage stakeholder views through this Discussion Paper. Our initiative is prompted by the significant growth in recent years of the Bermuda insurance market, the Authority’s goal of developing as a leading risk-based financial regulator and the emerging international debate on effective regulation.”

“The timing of this review is opportune, as the current events in the financial markets have given rise to a number of calls to review regulation, more specifically to strengthen regulatory powers. There is certainly a need to review, but only to strengthen processes if there is a gap that needs addressing. The fact that the initial work on this project was already underway when the significant worldwide market issues emerged is enabling the Authority to react in a considered manner.”

“As the Authority is a risk-based financial regulator, any changes to the powers available will be used accordingly. Following a risk-based methodology, we feel that the application of these powers is more likely to be appropriate to the commercial sector than the captive sector, however each case will be considered on merit.”

The Bermuda Monetary Authority proposes to document information about enforcement activity, in line with many other jurisdictions, underlining that the policy would eliminate adverse inferences, which could arise from the absence of public enforcement activities.

The BMA has also reviewed its enforcement powers concerning individuals who take up positions as directors, officers or controllers. Currently the Authority must approve the appointment of such individuals at the licensing stage. The Authority has powers to remove or replace such individuals when certain specified events occur.

The BMA is considering whether to require individuals in specified functions to register with the Authority or whether it should seek a power to ban individuals from acting in roles in the industry for a specified period utilising “fit and proper” criteria.

“The Authority’s powers in this area could be misunderstood however,” warns the document, “because they are not consistent with powers in other regulatory regimes. We have, therefore, raised the proposition of a broad-based banning process for consideration.”

The Bermuda Monetary Authority is finally looking into the possibility of changing legislation to allow the placing of fines, in line with other regulators in offshore jurisdictions. “This seems to represent a simple and effective regulatory tool and, following the introduction of such a power in the AML/Counter-Terrorism Financing legislation, we have concluded that such a power may be appropriate as an enhancement tool in the supervision of the insurance industry,” noted the paper.

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