Innovation
Sandbox & hub: an introduction to innovation
Recognising the growing importance of disruptive innovation, three years ago the Bermuda Monetary Authority launched two parallel innovation tracks. A spokesperson outlines the progress made so far and future plans.
In early 2018, the Bermuda Monetary Authority (BMA) created two distinct innovation-focused tracks for fintech and insurtech: a regulatory sandbox for the regulated/licensable activities and an innovation hub for the non-licensable activities, or those not yet ready for live market testing.
The rationale behind the introduction of these two tracks is twofold. The first is to allow innovative companies to test their ideas or proof of concept in Bermuda. This applies to those that are currently licensable under any of the financial acts we regulate as well as those that are not currently captured in those acts.
The second rationale is for the BMA to learn directly from the market about emerging trends and build and enhance its regulatory frameworks to cater to these innovations and innovative companies.
How many companies have applied for a licence?
In 2020, we saw two new entrants to the sandbox, while one firm has graduated as a full Insurance Marketplace Provider (IMP). We have also seen a good level of interest from companies that were not approved or are still in the process of satisfying our requirements.
Finally, in some cases, we determined that sandbox applicants were ready to bypass the sandbox and go straight to the regular/full classes, such as the Innovative Insurer General Business (IIGB) or insurance agent.
Has either of the tracks changed since their inception?
In terms of the application process, not much has changed overall. We still make ourselves available for pre-application discussions to ensure companies pursue the most appropriate innovation track based on their intended outcome and operational readiness.
We have also started charging companies that are entering the innovation hub a fee to make sure we are able to allocate the appropriate resources to review and supervise them once admitted.
Our supervisory frameworks continue to evolve to ensure they remain responsive to the market and effective and appropriate for the commensurate level of risk being undertaken by innovative entities.
Have the tracks worked well?
Yes—we have successfully graduated our first sandbox company into a full IMP. With its graduation, more companies have come to Bermuda to enter the sandbox and go through the same journey in the hopes of bringing their novel business ideas to market.
Since then, we have licensed two more companies into the sandbox, and admitted two more companies to the innovation hub. More companies are currently in the pipeline for both innovation tracks, and we expect them to be able to comply with our requirements and eventually register and be admitted throughout the year.
Do you envisage more companies will join a track?
Yes, despite COVID-19, we are already seeing an uptick. Additionally, we believe that opening the sandbox to all financial sectors should encourage a wider array of companies to join.
Further, we have enhanced our regimes to facilitate the proper implementation of the Incorporated Segregated Account Companies Act 2019, which opens up the option for innovative hybrid structures to test their ideas in the sandbox. We expect this will complement Bermuda’s already robust segregated accounts companies sector.
What are your plans for the tracks?
Since their introduction, the innovation tracks have exposed the BMA to a new form of engagement with market players, effectively ensuring our frameworks remain open to innovation and fit for purpose.
For example, through interacting with the early participants and innovations via the sandbox, we saw the need to introduce new intermediary classes that cater to these growing sectors, which would otherwise not be captured under the existing framework. Therefore, in 2019, the BMA introduced the IMP and IIGB classes.
As our supervisory framework and licensing regime continue to evolve, so too will the tracks themselves. When we introduced the regulatory sandbox and innovation hub, it was natural to build upon our experience as a leading, internationally recognised re/insurance regulator. This was closely followed by building it out to accept digital asset business entities. However, the idea was always to expand the sandbox to all sectors so that our innovation tracks could evolve alongside the entire industry.
This year, we will do just that, expanding the sandbox across all other financial services sectors supervised by the BMA (eg, banking, trust, corporate service providers and asset management). Later this year, we will initiate this process by publishing a consultation paper.
Visit the Bermuda Monetary Authority at: bma.bm
