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17th of July 2018


OBA: New Bank Class Plans Raise 'Red Flags'

[Updated] “The Premier’s decision to create a new class of bank in Bermuda raise a series of red flags that should make Mr and Mrs Bermuda extremely concerned,” Opposition Leader Jeanne Atherden said today [July 2], adding that “if not done extremely carefully and transparently it could pose significant reputational damage to Bermuda.”

Bill To Allow For New Class Of Bank For Bermuda-Based FinTech Companies

Her comments follow after Premier David Burt announced he would be bringing amendments to the Banks and Deposit Companies Act 1999 to allow for a new class of bank providing banking services to Bermuda-based FinTech companies.

Speaking in the House of Assembly on Friday, the Premier said, “The‘ICO Bill’ and the Digital Asset Business Act, both passed in this Honourable House have set the stage for the increased incorporations and growing commitment to doing business in Bermuda by the most innovative companies from around the globe.

“The business conducted by these companies is not traditional,” the Premier said. “In the wake of the global financial crisis and the ever-broadening risk mitigation strategies, banks are increasingly risk-averse.

“While that is understandable, as given their risk tolerances, to date local banks have been unwilling to offer services to newly incorporated FinTech and distributed ledger technology companies.

“The simple fact of the matter is that the FinTech industry’s success globally depends on the ability of the businesses operating in this space to enjoy necessary banking services. In other jurisdictions, banking has been the greatest challenge and for us in Bermuda, it is equally so and must be resolved.

“Bermudians need options in banking; the FinTech industry needs an innovative, robust banking solution. Those needs are not mutually exclusive and this Government is prepared to take the steps necessary to achieve both goals.

“To ensure that the Government is able to effectively execute on its FinTech initiatives, as well as encourage responsible FinTech innovation that provides fair access to financial services and fair treatment of consumers, the Banks and Deposit Companies Act 1999 will be amended to allow for a new class of bank that will provide banking services to Bermuda based FinTech companies,” the Premier said.

Opposition Leader’s Comments

“The Premier’s decision to create a new class of bank in Bermuda raise a series of red flags that should make Mr and Mrs Bermuda extremely concerned,” Ms Atherden said.

Ms Atherden continued, “This raises so many concerns and so many questions and if not done extremely carefully and transparently it could pose significant reputational damage to Bermuda.

“Deregulating the Banking Act in order to make the industry more competitive might be a good thing for consumers. To do so just in order to bank proceeds of FinTech and distributed ledger technology companies begs the question of what type of banking institution fits that bill currently?”

Ms Atherden cited a letter the Bank of England recently sent to banks and insurance companies about crypto-assets.

She said that the letter, from Sam Woods a Deputy Governor, said: “Crypto-assets also raise concerns related to misconduct and market integrity – many appear vulnerable to fraud and manipulation, as well as money-laundering and terrorist financing risks” and noted the letter also said that “entering into activity related to crypto-assets may also give rise to reputational risks.”

The Opposition Leader, who is a director at the Bermuda Commercial Bank, said the Premier had met with the Bermuda Bankers’ Association [BBA] and said: “The Premier’s own statement acknowledged their reticence about entering this new field of finance due to risk appetite.”

She added: “How will a new bank be capitalized and whose money will be used to do this? Will there be an overseas correspondent bank? What regulations will be put in place to ensure no damage to Bermuda’s reputation?

“Premier Burt said the new banks will provide full services to their clients as well as servicing FinTech businesses, while providing residents with more choice and competition. How might this impact traditional bank businesses, the services that they provide and jobs that they support in order to fulfil their licence requirements?

“There is also an issue with correspondent banks. US Banks that happen to be correspondent banks for Bermuda banks have said the lack of regulations internationally surrounding cryptocurrencies has led them to not be willing to entertain this particular business, as the risks do not outweigh the unknown reward.

“I am also particularly concerned that the Premier says there is a provision that ‘permits the Minister of Finance, after consultation with the BMA, to amend the business activities from time to time to encompass new innovative businesses.’

“Does this mean that this new bank could be the bank for casinos as well? We have seen no progress for 11 months from this Government on gaming and one of the main issues has been banks’ reluctance to take casino money because of an absence of regulations. Is this a way around that? It also puts a question mark over the Premier’s much vaunted FinTech fund – who will bank that money?”

“The Premier says that consultation has started on this, but also says that legislation will come to the House ‘shortly’. There has to be in-depth consultation and he must reveal, step by step, what his plans are to the public and the members of the House of Assembly. Surely even his own MPs can see the inherent dangers of this proposal?”

On the FinTech Fund, Ms Atherden said: “What we cannot see in the legislation are details of any guidelines governing applications for funds, source of funds or the assurance and oversight that the intended funds meet the desired results.

“The money can be given to the Government from a range of sources – some funds as a consequence of a signed MOU between the Government and its FinTech partners, some funds received for other purposes including supporting community based initiatives.

”The disposition of the funds is at the discretion of the Minister of Finance and the Minister of eCommerce, but what we cannot see in the legislation are details of how the disposition is related back to the original purpose for which the funds were given. It is different from the Confiscated Assets where Government has complete discretion on disposition.

“The control on the disposition under Management of the Fund places emphasis on the Minister directing the Accountant General to pay out the funds, we don’t see sufficient indication that the Accountant General is required to know that the disposition met the receipt requirements.

“There does not appear to be a requirement to state exactly what the funds will be used for and keep them separate by category of use. Because of that, we fear it could be open to abuse.”

Ms Atherden added: “When the Premier originally made his statement about the Fund he referred to ‘some background noise that seeks to diminish the work that the Government is doing in the establishment of this industry for Bermuda.’

“I took that to be a reference to the very legitimate questions my Honourable colleague and Shadow National Security Minister Michael Dunkley asked in reference to cryptocurrency which Minister Caines himself admitted were good questions.

“To be so dismissive of asking very pertinent questions about issues that affect the people of Bermuda is not something we expect from a leader who says he puts Bermudians first. It is beholden on Government to not offhandedly dismiss but to give detailed answers so the public can form proper opinions.

“Our job as the Opposition requires that we raise legitimate concerns especially those designed to improve outcomes for all Bermudians.”

Update July 3, 10.22am: PLP Senator, Mr. Anthony Richardson said, “It is unfortunate that the OBA has been reduced to blatant fear mongering in response to the excellent progress being made by the Government in the development of new employment and educational opportunities for Bermudians in the Fintech industry.

“The Fintech industry needs an innovative and robust banking solution and Bermudians need more banking options. We believe that the creation of a new class of bank addresses both needs. The Bermuda Bankers Association and the Bermuda Monetary Authority also agree with our approach.

“The Memoranda of Understanding signed with some of the leading companies in the digital asset industry are intended to diversify our economy and offer jobs and millions of dollars in scholarships for Bermudians to train or retrain for opportunities within this exciting new industry.

“With the creation of a new class of Bank, Bermuda reinforces its place as a global leader in this industry. We anticipate further growth in jobs and opportunities for Bermudians.”

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