The Bermuda Monetary Authority will be able to hand over information to foreign regulators if a bill now before the House of Assembly is passed by legislators.

The intent of the amendment - which alters the section in the Bermuda Monetary Authority Act 1969 dealing with client secrecy - is to "clarify issues related to the power of the BMA to assist overseas regulators," Finance Minister Paula Cox said on Friday.

The change to the law would also overrule a court injunction put in place earlier this year barring the BMA from cooperating with overseas requests for client information needed for investigations.

The court injunction followed legal action launched by investment firm Lines Overseas Management (LOM) late last year against the BMA, after requests for information from British Columbia regulators and the US Securities and Exchange Commission (SEC).

The company is currently facing legal action in both Canada and the US, after saying Bermuda law prevented it from handing over client records.

Separately, LOM filed its suit against the BMA saying it wanted the court to determine if the BMA had the legal right to make LOM or any other Bermuda financial institution hand over what is considered confidential client information to foreign regulators.

Although the matter has not yet been decided, a court injunction was put in place.

But this move by Government was said to make it clear beyond doubt that the BMA does have the authority to assist overseas regulators and would override the court injunction.

On Friday, the BMA's superintendent of banking, trusts and investments, Munro Sutherland told The Royal Gazette that even though the injunction related to a specific case, legal advice had been that the Authority should not disclose any client information while the injunction was in place.

He said the legal advice had been given conscious of the fact that the court has not made a determination but ruled that there was a case to consider, and the BMA could therefore be vulnerable to legal suits.

But Mr. Sutherland said once the amendment was passed into law, it would effectively "nullify the grounds of the present challenge.

"The injunction would pass away at that time," he said, adding that this would be the case even in respect to legal challenge already mounted by LOM.

"The timing issue does not have anything to do with it," he said, when asked if the new legislation could be made to bear on earlier cases, or retroactively. "It is lucidly clear that once overwritten by other legislation, the grounds of the challenge fall away," Mr. Sutherland said.

In tabling the bill last week, which is named the 'Bermuda Monetary Authority Amendment (No. 3) Act 2004', and amends section 31 (1c), Ms Cox said Government was also making the change in order to comply with recommendations made in the KPMG report that was commissioned by the UK Foreign and Commonwealth office in 2000. But it is understood that Government has moved quickly to amend the Act - with the bill set down for debate by the House on July 23, and the expectation that it could be passed by legislators before they recess at the end of the month - after the BMA requested it do so, saying Bermuda's reputation could be damaged if it cannot help foreign regulators with legitimate regulatory queries.

Ms Cox said: "We accepted that there must be full transparency in the regulation of financial services.

"To comply with such principles Bermuda has accepted that the Bermuda Monetary Authority must be able to obtain and disclose information including specific information with other regulators...in limited circumstances."

Although Government had intended to completely repeal section 31 (1c) of the Act, it said it now intended to amend the legislation taking into account concerns from the industry that "such actions may be misunderstood and undermine Bermuda's protection of client privacy".

Other Bermuda laws already pave the way for authorities to help overseas regulators with investigations, including the Banks and Deposits Companies Act 1999, the Trusts (Regulation of Trust Business) Act 2001 and the Investment Business Act 2003.

But it said the "unclear wording" of the BMA Act's 31 (1c) left the BMA open to a challenge of their powers to assist overseas regulators.

Under the amendment, the restrictions under 31 (1c) will not apply under any of the circumstances already laid out in these laws.

In recent months LOM executives have cried foul over the BMA's stance saying this approach could do damage to the Island's investment and trust business.In a February letter to shareholders, LOM managing director Scott Lines said: "Bermuda and the Channel Islands were 'falling over themselves' to prove to the world's onshore regulatory bodies how co-operative they can be.

"Their priorities to a global 'bureaucratic brotherhood' are placed above the jurisdiction's duties and obligations to its clients," he said.

Yesterday LOM said it still saw the situation as such, but vice-president, group compliance, Scott Hill, said: "LOM is glad that it appears that the law will be clarified. This was the goal of LOM's legal action; it is now being carried out by Parliament instead."