Compliance Is A Serious Business In Bermuda

Tax-News.com, New York

28 November 2002

Owen (Tony) Reid, compliance manager within Bank of Bermuda’s Capital Markets division, is the first president and co-founder of the Association of Bermuda Compliance Officers (ABCO). When he came to Bermuda after spending eight years with Merrill Lynch on Wall Street, Mr. Reid found that “Bermuda’s regulatory landscape was undergoing significant changes, which required an understanding of a culture for compliance".

“For example, in 1995, the KYC standards and related obligations were embodied in a voluntary code of conduct which did not have the force of law, there was no securities legislation, and standards relating to mutual funds, banks, deposit companies and trusts were in need of improvement,” he recalls.

Now, appropriate legislation covers these activities. Since 1995, the Proceeds of Crime (Money Laundering) Regulations 1998, The Bermuda Monetary Authority (Collective Investment Scheme Classification) Regulations 1998, the Investment Business Act 1998, The Banks & Deposit Companies Act 1999, The Trusts (Regulation of Trust Business) Act 2001 and the Proceeds of Crime Amendment Act 2002 have provided Bermuda with an effective regulatory and compliance framework.

As the role of compliance grew, “we saw a need for an association of compliance officers, to act as a network, provide education and training, develop camaraderie and become a forum for the discussion of issues,” Mr. Reid explains. The growth in importance of the compliance function prompted the formation in 1999 of the Association of Bermuda Compliance Officers. The organisation is focussed on raising the profile of the compliance function locally, while seeking to provide members with meaningful opportunities for networking, consulting and the sharing of information necessary for supporting their positive roles as compliance professionals. ABCO will contribute to the debate when new legislation is being considered and is currently exploring appropriate courses and qualifications in the field of anti-money laundering and compliance practice.

Among the purposes of ABCO is education and training. Various forms of educational seminars and meetings are held. Last week for instance a seminar was held at which representatives from the BMA discussed preparation for onsite regulatory visits, together with an overview of Bermuda’s regulatory regime.

Compliance, it is clear, is a serious business, being taken seriously in Bermuda. The initiatives of the OECD (Organisation of Economic Co-operation and Development) and FATF (Financial Action Task Force) placed it high up the agenda, and the Patriot Act, this summer’s corporate scandals and the accompanying collapse of corporate confidence moved it to the top of the list. The “know your customer” (KYC) rule now applicable to financial service providers requires all bankers, brokers, fund managers and, effectively, lawyers and accountants and other service providers who handle money to ensure that they know who their customers are, and to monitor their economic behaviour. Suspicions are to be reported to the authorities. Financial services providers who fail in their compliance responsibilities are subject to legal penalties ranging up to 20 years, the same term handed down for the worst cases of manslaughter.

The collective effect of Bermuda's laws, together with the National Anti-Money Laundering Committee’s Guidance Notes on the Prevention of Money Laundering (currently under review), is to impose internationally recognised due diligence standards and related obligations on regulated institutions, most of them supervised by the Bermuda Monetary Authority (BMA), the independent watchdog for Bermuda’s business sector. The banks, the largest law firms, insurance companies and others in the financial services sector all have compliance officers. Bank of Bermuda, for example, has dozens.

The term “compliance officer” is of US origin; principally arising from anti-money laundering obligations incurred by US banks in relation to the Bank Secrecy Act. With the proliferation of new laws and regulations, and having viewed in-house compliance personnel as being critical to the maintenance of the integrity of their markets, other sectors moved swiftly to embrace this role. Today, the work of compliance officers is recognised across a broad spectrum of the US financial services and healthcare industry.

Following the lead of the US, various onshore and offshore jurisdictions (such as the UK and Guernsey) have moved to imposed a statutory duty on regulated firms to appoint compliance officers, with responsibility for administering their firms’ statutory obligations, such as conduct of business rules.

In smaller organisations, the compliance officer is also the reporting officer (referred to in Bermuda as the “money laundering reporting officer”, or MLRO). Within Bermuda, the primary difference arising between the role of compliance officer and the MLRO is that MLROs are required to be appointed by law under section 6 of the Proceeds of Crime/Money Laundering Regulations 1998. In most cases, MLROs are solely concerned with administering their firms’ anti-money laundering initiatives. Compliance officers tend to have a much wider focus than that of MLROs.

The compliance officer often stands at the crossroads between auditing, internal controls (e.g. risk management) and management’s legal responsibilities, and, is to some, extent the primary champion of the firm’s compliance directives.

While there is presently no statutory or regulatory requirement for Bermudian firms to appoint compliance officers, good practice suggests doing so, together with establishing clear responsibility for such individuals to assist senior management in undertaking measures to safeguard their firms’ reputation and/or financial position. The Bank of Bermuda, for instance, has recently attracted Ifor Hughes back to the bank, to act as chief compliance officer (CCO); Brian Calhoun, formerly of the Solicitor General’s office, is CCO at Conyers Dill & Pearman; and his former colleague in government, Barrie Meade, has followed a similar trajectory to Appleby Spurling & Kempe.

This article was originally published in Bermuda's Royal Gazette.

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