Mr. Speaker, I wish to address the subject of the Bank of Bermuda Limited and its application to the Minister of Finance for a licence which would relieve it from the non-Bermudian ownership restrictions commonly known as the "60/40" law.
Mr. Speaker, Bermuda is at a turning point in the development of its financial services sector. To date, we have been well served by the rules that we have applied to ensure that Bermuda's interests have been maintained and furthered. In particular, the requirement for all of our local companies to maintain at least 60 percent Bermudian ownership has provided our domestic businesses with the opportunity to become established and grow recognising our unique situation as a small, isolated jurisdiction. In recent years, however, there have been pressures both domestically and globally for our businesses to have more flexible ownership structures.
More specifically, Mr. Speaker;
1. local businesses are seeking access to more capital. It is a tribute to the ingenuity and acumen of our business leaders that they have been so successful and that in some instances their businesses have outgrown the local capital base. It is also timely and necessary to consider whether a small Island community such as Bermuda can realistically continue to raise the necessary capital internally to finance the growth and cover the risk of all of its businesses. This is a particularly relevant question within the realm of financial services, where the businesses may be focused heavily on international markets. It is important to consider how to best allocate our scarce resources and whether, for instance, it might not be better to encourage local investors to finance local projects that cannot attract foreign funding.
2. The recently concluded KPMG review has highlighted the maturity of Bermuda as a financial services center and emphasised that we are a well regulated jurisdiction. However, in order to ensure continued high standards, we must be cognisant that businesses must maintain the necessary capital to cover their risks, and we must be prepared to respond to those prudential concerns.
3. The OECD has stated very clearly that it considers the existence of two tiers of business structures within a jurisdiction, with different rules and restrictions applying to each, to be a potentially harmful tax practice. While Bermuda has been accepted as a co-operative jurisdiction that conducts legitimate business, it is recognised that different company ownership structures exist here and we have stated that we shall review this situation. We have also, however, emphatically stated that local needs must be weighed carefully in this review and that any changes contemplated would have to give special consideration to small businesses and industries of local importance. The OECD accepted this approach as a reasonable one for developing our domestic market.
Under these circumstances, Mr. Speaker, I have considered the best approach for moving Bermuda forward. Earlier this year I constituted a Ministerial Committee to review generally the financial services sector and to make recommendations for the further development of the financial services sector. The Committee recommended that the banking sector be relieved of the foreign ownership restrictions inherent in the "60/40" rule. The Committee found that in terms of capital needs, the banking sector was no different from the hotel and telecommunications sectors, both of which are heavily dependent on foreign capital.
Mr. Speaker, the facts are indisputable and the logic of the argument is both clear and compelling. My duty as Minister is to adapt the existing policy and legislative framework to enable positive changes to develop in accordance with Bermuda's long term interests.
Mr. Speaker, since the inception of the Companies Act 1981, the Minister of Finance has had the authority to permit local companies, upon application, to be assessed on their individual merits, to carry on business in Bermuda with no limitation on non-Bermudian ownership. Any local company which makes such an application to be relieved from non-Bermudian ownership restrictions must meet a high test in that the Minister must be convinced that approval of the application will lead to a positive impact with regard to the following statutory criteria:
· The economic situation in Bermuda and the protection of persons already engaged in business in Bermuda
· The nature and previous conduct of the company and the persons having an interest in the company whether as directors, shareholders or otherwise
· Any advantage or disadvantage which may result from the company carrying on the business in Bermuda
· The desirability of retaining in the control of Bermudians the economic resources of Bermuda
In the case of the Bank of Bermuda Limited, I have carefully weighed each of these statutory directives which have served Bermuda so well in the past in order to determine whether the Bank's application meets the test. In essence, I am required to consider whether the national interest will be served by granting the Bank a licence.
There are, Mr. Speaker, compelling reasons for granting the licence which the Bank of Bermuda Limited seeks. The Bank is a global institution, with operations in 14 different jurisdictions and over 2,500 employees world-wide. Significantly, the Bank is competing with other global businesses that are not restricted in their ability to access international capital markets to finance growth and further development. Secondly, it must be recognised that the provision of international banking services on the scale presently undertaken by the Bank inherently involves various elements of risk. It is essential, for prudential purposes, that the capital required to mitigate such risks is readily accessible. Moreover, international regulatory standards embodied in the new Banks and Deposit Companies Act 1999 impose significant capital requirements upon banks licensed to operate in Bermuda. As I stated earlier, one must also consider the advisability of a small jurisdiction being forced to utilise domestic equity capital, that might otherwise have been available to finance domestic initiatives, to provide growth and risk financing to its home-grown but internationally focused businesses. Listing on a major stock exchange is an internationally accepted alternative by which to address the aforementioned needs for readily accessible capital, and it is such a listing that the Bank of Bermuda wishes to pursue. Such a listing is not practical where ownership restrictions exist.
Notwithstanding the above compelling reasons for granting the Bank the licence that it seeks, I must also address certain concerns to ensure that the national interest is served. Our banking sector is a vital and strategic component of our financial services infrastructure. Accordingly, I have weighed carefully the risk of control of the Bank by foreign shareholders who may not have Bermuda's interests and the development of our domestic marketplace as a priority. As Bermuda has few banking institutions it is imperative that any controlling shareholders embrace the national interests that the Bank presently serves. Other concerns that I have weighed are the nature of the mind and management of the Bank, the retention of the head office in Bermuda, the continuation of the employment and training of Bermudians by the Bank, the wind-up of strategic operations of the Bank and the maintenance of key domestic services.
To meet these concerns, Mr. Speaker, the licence that I have today issued under section 114B of the Companies Act to the Bank will impose conditions on the Bank to:
· adopt a bye-law which will prohibit shareholder controllers with more than 40 percent of the shares of the Bank from exercising the voting rights of those shares in excess of 40 percent without the permission of the Minister
· report to the Minister on shareholders who have ownership control of 10 percent, 30 percent and 40 percent
· report annually to the Minister on the domestic programs which the Bank maintains including loan programs and community development initiatives
· report to the Minister on training and employment initiatives
· consult with the Minister on any strategic plans to change, wind-up or relocate services overseas
· maintain the Bermudian mind and management of the Bank. This means that the majority of the Board of the Bank must be Bermudian, the head office must remain in Bermuda and the shareholders' meetings must be held in Bermuda.
I am confident, Mr. Speaker, that the access to capital from international sources that this licence will provide to the Bank of Bermuda Limited is warranted and will be beneficial for both the Bank and, most importantly, Bermuda at large. As such, I am confident that in issuing this licence to the Bank of Bermuda Limited I have met my statutory duty to further the national interest.