A balanced approach to evolving banking requirements

This article first appeared in the Bermuda Business Review 2025-2026 in June 2025.

Bermuda is internationally renowned for its thriving global reinsurance market and its status as a premier tourism destination. The Island’s dynamic financial services and banking industry supports the reinsurance industry and other international businesses operating from Bermuda while also funding the local tourism sector and local commerce. This makes the financial services and banking industry a cornerstone of the Bermudian economy.

At the end of Q3 of 2024, Bermuda banking sector assets exceeded $24 billion with the majority of the funding directed toward the local real estate sector.

Bermuda is undergoing a transformative shift towards digital banking. As part of this, Bermuda is actively promoting fintech initiatives targeted at digital assets businesses and banks that wish to service them. This evolution is driven by the Bermuda Government and is supported by the Bermuda Monetary Authority (BMA), whose proactive approach to banking and fintech regulation is positioning Bermuda as a global leader in digital finance.

A fintech friendly regulatory framework

The BMA has introduced several fintech friendly initiatives to foster innovation in the financial sector without compromising the financial stability of the Bermudian economy. In 2018, amendments to the Banks and Deposit Companies Act 1999 (the key banking legislation in Bermuda) established a new class of banking licence: the restricted banking licence. The restricted licence is designed to accommodate the priorities of fintech-focused banks whose primary focus is to service digital asset businesses like regulated digital asset users, international clients and businesses that offer digital asset insurance.

Under the restricted banking licence regime, the bank’s minimum net asset requirement is reduced to $5 million from $10 million and the bank’s ‘core services’ obligation may, subject to the approval of the BMA, be modified to allow an emphasis on digital asset business. The flexibility inherent in the restricted licensing regime allows the BMA to create a tailored supervision model that is suitable for licenced banks that wish to service digital asset businesses.

The seemingly inexorable rise of blockchain technologies, digital assets and decentralised finance platforms has been recognised by the BMA. In its 2025 Business Plan, the BMA emphasises its support for responsible digital innovation in financial services whilst also including commitments to adopting sustainable business practices, advancing green initiatives, evaluating regulatory frameworks in relation to climate change and leveraging technology to improve operational efficiency.

The arrival of digital banks

The introduction of digital banking licences and the digital asset regime created by the innovative Digital Assets Business Act 2018 (DABA) has paved the way for cutting edge financial institutions to establish their global headquarters in Bermuda, allowing them to take advantage of the secure regulatory and compliance platforms created by the Bermuda Government and the BMA. The DABA was one of the world’s first comprehensive regulatory regimes for digital assets and establishes a legal framework for the licensing and supervision of digital assets business in Bermuda. The BMA and the Bermuda Government have also taken steps to address the inherent risks associated with digital assets. For example, in February 2024, the BMA issued an updated Digital Asset Business Custody Code of Practice to provide market leading standards and guidelines for the safekeeping and custody of digital assets with the intention of reducing harm to customers from the theft of digital assets and the insolvency of a digital asset business.

It is expected that Bermuda’s first digital bank will become operational during 2025, increasing competition in the Bermuda banking sector and promoting innovation. Although the timeline is unclear, the Bermudian financial services sector could soon see its first use of stablecoins − cryptocurrencies pegged to fiat currencies − leading to time and cost efficiencies.

These developments signal a shift towards a progressive and innovative Bermudian financial ecosystem, where digital solutions benefit international clients and Bermudians alike.

Regulatory sandboxes: Nurturing innovation

To further encourage fintech innovation, Bermuda has created regulatory sandboxes. These controlled environments allow businesses to test new products and services within defined regulatory requirements. Sandboxes are especially useful for startups that want to experiment and refine their offerings before full scale deployment.

The BMA offers Class M and Class T licences under the DABA for entities seeking to pilot innovative solutions. Class T licences are testing licences allowing for pilot or beta testing of specific digital asset business activities for an initial duration period of three to 12 months (with the potential for extension). Class M licences are modified licences issued for a limited period (typically 12 months) designed for entities exploring innovative business models. The intention is for a digital assets start up to begin with a Class T licence, move on to a Class M licence and eventually transition to a Class F licence (a full DABA licence).

Strengthening cybersecurity and custody standards

As digital banking grows, so does the importance of cybersecurity. The BMA has introduced the Digital Asset Business (Cyber Risk) Rules 2023 and the Cyber Risk Code (2022) to establish comprehensive cybersecurity standards. These regulations require all financial institutions (including banks and digital asset businesses) to implement robust risk management frameworks, including board oversight, dedicated cybersecurity roles and the adherence to a three-lines-of-defence model. These changes in cybersecurity regulations are timely as Bermuda banks expand the banking services that are accessible through various digital platforms.

Protecting traditional banking consumers

The protection of consumers and improvements to the strength and stability of the Bermuda banking sector, have been constant themes since the global financial crises of 2008 and have reinforced the emphasis on consumer protection, cybersecurity and the adequacy of minimum capital requirements for banks.

As part of the Bermuda financial safety net, a new mandatory deposit insurance scheme was introduced in 2016 which guarantees the deposits of eligible investors up to the maximum of $25,000 per bank. Since 2022, Bermuda banks have been required to comply with the capital and liquidity standards proposed by Basel III. Additional consumer protections include the new Bermuda Banking Code of Conduct and improvements to Bermuda’s anti-money laundering legislation.

In its 2025 business plan, the BMA describes the banking sector regulatory landscape as ‘dynamic’ and commits to developing revised prudential requirements for banks in Bermuda with increased emphasis on operational resilience and consumer protection. The BMA also intends to further develop proposals to improve the Bermuda financial safety net by revisiting the Special Resolution Regime for Banking established in 2016 by the then Minister of Finance (the Hon. Bob Richards) but which was never brought into force.

Challenges and future outlook

Looking ahead, Bermuda’s focus on innovation, regulatory clarity and the dynamism of the Government of Bermuda and the BMA, position Bermuda to capitalise on the growing global demand for digital financial services and will enable Bermuda to navigate the regulatory challenges posed by artificial intelligence and the integration of traditional banking systems with new digital platforms.

By maintaining a balanced approach that encourages innovation while safeguarding financial stability and consumer protection, Bermuda is well positioned to solidify its status as a premier destination for the banking and financial services industry, particularly digital banking and fintech enterprises.