IFC Caribbean spoke with David Burt, the Premier of Bermuda to gauge his views on the misrepresentation of offshore by the wider media and to ask how IFCs can convince the world of the value and legitimacy of their financial services. We also discuss the Bermuda government's stance on business innovation and financial transparency and compliance.
IFC: International finance centres are under increasing pressure to convince the world of the legitimacy and quality of their business. Episodes such as the Bermuda based Appleby data breach (otherwise known as the Paradise Papers) are pounced on and distorted by the media, propagating a high level of mistrust in IFCs. What, in your view, can leading financial centres such as Bermuda do to prove their legitimacy?
David Burt: Appleby is a global law firm, which is not headquartered in Bermuda. At least three other countries with Appleby operations were targets of the cyber-attack, yet inexplicably, it continues to be Bermuda that is asked to answer.
Bermuda has faced international scrutiny for decades and has, without complaint, sought to maintain the level of transparency, compliance, cooperation and international accreditation that is world standard. We are members of, and are working with a large number of international financial services regulatory bodies and have agreements that include more than 100 countries on issues of tax exchange of information. Those who know the financial services world have long acknowledged Bermuda’s legitimacy and quality of business.
IFC: It is not widely known that a large part of the investment to aid recovery for most of the world’s natural disasters is delivered though insurance structures based in Bermuda, for example. This is just one example of IFCs providing integral services to the global economic system. What can IFCs do to educate the mainstream about such benefits? And how important is it for wealth managers to be fully educated on the role of IFCs?
DB: Bermuda’s financial centre is not predominantly based on wealth management products, but on global insurance and reinsurance. The island’s corporate insurance and reinsurance businesses have a demonstrative social impact on global economies.
The leader in corporate self-insurance for four decades as a provider of captive insurance, Bermuda also has underwriting operations for some 30 of the world’s leading insurers and reinsurers and is the leading supplier of catastrophe reinsurance to US insurance companies. As a result, Bermuda companies play a significant role in claims payments for some of the worst natural disasters.
Official figures from the Bermuda Monetary Authority show that Bermuda’s insurers, reinsurers and Insurance Linked Securities entities could pay as much as 30 per cent of the losses from last year’s severe hurricane season (which includes hurricanes Harvey, Irma and Maria). Bermuda registered companies may pay out as much as US$31.2 billion for the storms.
Over the last two decades, Bermudian reinsurance firms paid out almost US$209 billion to policyholders and cedants from the United States for catastrophe losses, related to property insurance and general liability – nearly US$153 billion between 2007 and 2016 alone. In the face of the latest significant catastrophe exposure and other challenges, Fitch Ratings in January anticipated no immediate rating implications for Bermuda companies.
IFC: Re-addressing the subject of cyber-security, would you say that offshore governments are doing enough to protect their jurisdictions from cyber-threats?
DB: Cyber-security of any business in any country is a common concern for all governments, large and small. Therefore the issue of needing to ensure good cyber-security standards is commonly accepted in Bermuda, as it is in the UK, and in any serious jurisdiction.
However, Bermuda’s Anti-Money Laundering/Counter-Terrorism Financing regime is robust and will ensure any activity found to be non-compliant with international standards will be addressed. Clients cannot depend on heightened cyber security to protect themselves against censure for non-compliant activity in which they might engage.
IFC: Do you believe the rising demands being made of the offshore industry by supra national bodies (and larger nations, mainly in the EU) are reasonable? And, what key measures do you believe IFCs should take in order to evidence their commitment to both compliance and transparency?
DB: Bermuda is a leading international insurance and reinsurance centre. The nature of the product means insurers and reinsurers tend to embrace international standards and international regulation. There is also a strong regulation of fund management and trust sectors. Bermuda, therefore, is a leader in embracing internationally agreed standards.
We do not see it as an ‘onshore versus offshore’ conflict. We are with those who are combatting money laundering, terrorist financing and tax evasion. The Bermuda Standard means being among the leaders in internationally agreed global standards. Such standards include those agreed by the EU in support of the work of the G20 and the OECD tax agenda.
IFC: Do you see external regulatory pressure from organisations such as the OECD, the IMF and the European Commission as a hindrance or as an opportunity for economic growth?
DB: It is an opportunity for a Bermuda business model based on transparency and compliance with international standards. We continue to work with the various groups and believe they see our engagement in global tax compliance and transparency. Bermuda is not a place to hide money. It is a place where capital is put in place to provide value to communities around the world.
IFC: What in your opinion defines an international leader in global tax transparency?
DB: The Bermuda Standard – that of being an early adopter of compliance with internationally agreed tax standards. Bermuda has adopted the OECD's Country-by-Country (CbC) and Common Reporting Standard (CRS) automatic reporting regimes and was an early supporter of the OECD's Inclusive Framework on Base Erosion & Profit Shifting (BEPS) action plans.
Any legitimate tax authority can request and receive information from Bermuda, under tax transparency treaties, including Tax Information Exchange Agreements and multi-lateral agreements, which include more than 100 countries. In addition, Bermuda shares information with law enforcement agencies. We are required to turn around requests for information within 24 hours under agreement with the UK National Crime Agency, reflecting the island’s long-held commitment to deterring money-laundering and financial crime. Bermuda also shares information with HMRC.
Bermuda has been recognised for its country-by-country reporting. Bermuda was the first overseas territory to be awarded Whitelist Status by France (in July 2017). The island successfully met several conditions, including becoming an early adopter for 2016 year data and establishing a country-by-country reporting relationship with France.
IFC: US corporate tax cuts and the new base erosion and anti-abuse tax (BEAT) look as if they could have negative repercussions on the competitiveness of finance centres in the Caribbean and Bermuda. How big do you determine the US tax reform threat to be?
DB: Bermuda sees the new BEAT USA tax regime as an opportunity for our core business model comprised of insurance and reinsurance. Such business is attracted to the island primarily for reasons of prudential and practical commercial oversight that allows for product innovation.
It also provides access to the significant aggregation in an insurance market of large numbers of senior insurance, accounting and legal professionals in close proximity, which in turn allows for an enormous amount of business to be completed efficiently, in competition with large insurance markets in New York and London.
Fitch Ratings has anticipated no immediate rating implications for Bermuda companies as a result of US tax reform or the BEAT tax regime. While Fitch expects the overall benefit of a Bermuda domicile and operations to be reduced, they say it will not be eliminated. This is because the island largely maintains its established position in the global market due to its underwriting expertise, strong and efficient regulatory regime and full Solvency II equivalence. Even so, market watchers also believe that the island’s strong regulatory environment may even lead to new opportunities as a result of the changes.
IFC: ‘Innovation’ and ‘disruption’ are two frequently used buzzwords that define progress. How can international financial centres maintain their competitive edge in 2018 onward? What marked differences in product and service offerings have you observed?
DB: Jurisdictions must accept that the proliferation of global standards have the objective to combat legal tax avoidance as well as illegal activity and therefore they must use a foundation of transparency and international cooperation and compliance upon which to sustain the status of an international financial centre.
Financial centres must continue to provide alternative market products that traditional markets are unable to provide – and with a sharpened emphasis on service.
IFC: Bermuda is one of the first international finance centres to whole heartedly embrace blockchain and cryptocurrency activities, including initial coin offerings. I also understand that you have a task force dedicated to developing a new blockchain regulatory framework. How is this work going and, what are your projections for Bermuda’s FinTech future?
DB: The task force will look to advance the regulatory environment and develop Bermuda as a destination for utility tokens, tokenised securities, digital currencies, and initial coin offerings. The task force has established two working groups to advance the development of this emerging area of technology - the Blockchain Legal and Regulatory Working Group and the Blockchain Business Development Working Group.
We declared in the government’s latest Budget Statement that:
“Bermuda will be well served by the economic growth and jobs that this emerging industry can bring to our economy. The government is moving at a pace reflective of the urgency of the need, while prudently ensuring that this new sector is internationally respected for its sound regulation and adherence to the highest standards of compliance, for which Bermuda is known.
The government, in conjunction with the Bermuda Monetary Authority, is currently developing legislation to govern Bermuda-based initial coin offerings and will, consistent with our vision, build a world-class regulatory framework for the oversight of digital asset exchanges and digital currency businesses in Bermuda.”
IFC: Where do you see the offshore finance industry 10 years from now?
DB: Common compliance with international standards will underpin all financial centres going forward, irrespective of where they are located. The nature of the product offered will need to take account of international standards. Some wealth management products that may be perceived to facilitate socially unacceptable legal tax avoidance could be discontinued.
David Burt Premier and Minister of Finance