Regulation and the pursuit of excellence

04-10-2022

Regulation and the pursuit of excellence

Craig Swan, CEO, Bermuda Monetary Authority.

Craig Swan, chief executive officer of the Bermuda Monetary Authority, shares his perspective on what defines Bermuda as a world-class jurisdiction.

“Why Bermuda?” We know the catalogue of reasons well: a deep pool of expertise; a well-capitalised sector with the ability to efficiently deploy this capital; and an internationally recognised regulatory framework with a regulator which is accustomed to responding to financial innovation appropriately.

These reasons define our jurisdiction, but they also have one common, seminal factor: people.

People are the bedrock of creativity, and their ability to collaborate has parented some of the financial services industry’s greatest wins, from the spread of Arabic numerals and double-entry bookkeeping to the forging of catastrophe bonds, insurance-linked securities and a regulatory framework that is built for these and other innovations.

Throughout my 16 years with the Bermuda Monetary Authority (BMA), I have witnessed this mentality in our staff, and in my first year as chief executive officer, we further galvanised it. We dedicated ourselves to continued excellence and carried out the improvements that maintain this commitment, including in innovation, governance and sustainability.

As financial services are unbundled and re-bundled, decentralised and increasingly digitally driven, new and existing registrants continue to leverage our traditional framework to pursue implementation of global solutions through financial services innovation.

Their activities cross sectors, and their products, services and operations are more technologically and innovatively intermediated than ever before. Over the past year, the BMA has met this new mode of financial services with a new medium—the General Regulatory Sandbox.

With this upsurge in financial services exploration, digitisation and inclusion, customer protection has come to the fore. To address emerging customer risks from digitisation to the broader umbrella of organisational culture, global standard-setting bodies have set consumer protection as a strategic priority.

The Organisation for Economic Co-operation and Development (OECD) conducted a consultation earlier this year on revisions to its G20/OECD High-Level Principles on Financial Consumer Protection and the International Association of Insurance Supervisors, of which the BMA is a member, published its “Issues Paper on Insurer Culture” late last year.

To strengthen the authority’s governance regarding this and further embed prudence in Bermuda’s framework, we developed and launched our conduct of business regime, including a soon-to-be-introduced portal for Bermuda financial services customer protection reporting. This widening of the BMA’s remit will become increasingly important in teasing out emerging challenges.

We can extrapolate the same logic to sustainability. With Bermuda’s position as the climate risk capital, the onus is on us (industry and regulator) to pioneer the best-in-class approach to how environmental considerations should be integrated into risk management practices. This is becoming an ever more urgent matter as we start to see just how valuable reinsurance capacity is becoming in places such as Florida, where the traditional insurance and alternative markets pulled back from recent renewals in Southeast US wind risk, according to Aon’s “Reinsurance Market Dynamics: June and July 2022 Renewals” report.

“With this upsurge in financial services exploration, digitisation and inclusion, customer protection has come to the fore.”

Undertakings delivered

Over the last year, the BMA delivered. We actively participated in international efforts to develop sustainability standards in financial services regulation, and we have integrated sustainability into Bermuda’s insurance regulatory framework (eg, the recently updated and published “Insurance Code of Conduct” and the consultation paper for the “Guidance Notes: Management of Climate Risks for Commercial Insurers”).

The above undertakings have been delivered by our supervisory, licensing and policy development units. These are the faces that our current and prospective registrants and international peers see during on-site supervisory visits, on informational panels and across the table at standard-setting meetings.

This is just the tip of the iceberg, though. The BMA’s operational and support units create a multiplier effect, allowing us to realise tremendous success through their ability to continue from strength to strength.

These continual regulatory improvements foster the Bermuda insurance industry’s delivery of substantial outcomes and, as mentioned in the BMA’s 2021 Annual Report, a sea-change.

When our jurisdiction’s regulatory framework and industry efforts conflate, it confirms Bermuda as the world’s climate risk capital and a significant contributor to closing the global protection gap (with a re/insurance industry that has paid out over half a trillion dollars to policyholders in the US, the UK and the EU over the past two decades).

It places Bermuda on the map as a jurisdiction where digital asset business can come for regulatory certainty and deep financial services expertise. It mobilises Bermuda as a place that welcomes prudent innovation, allows registrants to integrate products and services from various financial services sectors into a single entity and be regulated and supervised in a streamlined fashion. This is the pursuit of excellence, no holds barred.

BMA, Craig Swan, regulation

Bermuda Re