Handling conflicts of interest within financial innovation: The case of regulation and supervision of Bermuda sidecars

Abstract

Purpose

The purpose of this paper is to describe the experience of a financial services regulator, the Bermuda Monetary Authority (BMA), in identifying and dealing with conflicts of interest in innovative financial markets and involving sophisticated counterparties.

Design/methodology/approach

The paper draws on Bermuda legislation and regulations in force, on corporate records, produced by the BMA, documenting its structure, policies, and procedures in place to identify and manage conflicts of interest, as well as on observation of current corporate practices in this respect. In addition, background and contextual information on Bermuda reinsurance market relies on secondary sources describing and analyzing it.

Findings

The paper argues that the BMA has approached the issue of identification and treatment of conflicts of interest within a highly innovative environment involving sophisticated counterparties through two key strategies. First, it has concentrated its regulatory and supervisory efforts and resources at the “entry” stage of the process (e.g. licensing of financial entities). Second, the BMA has drawn on its knowledge of, and partnership with, the close‐knitted network of financial services stakeholders operating in Bermuda.

Originality/value

This paper is of value to those wishing to explore and better understand conflicts of interest involving sophisticated financial counterparties, and the role of the regulator in identifying and managing them, especially within the dynamics of innovative markets.

Citation

Kattan, W., King, W. and Ramella, M. (2009), "Handling conflicts of interest within financial innovation: The case of regulation and supervision of Bermuda sidecars", Journal of Financial Crime, Vol. 16 No. 4, pp. 353-363. https://doi.org/10.1108/13590790910993762