Digital assets: on Bermuda’s wishlist
When it came to power last year the Bermuda Progressive Labour Party government made it clear that it wanted to work on expanding the economy into new areas, in a bid to improve Bermuda’s financial position.
One of these areas is cryptocurrencies such as Bitcoin, which have been gaining a more prominent profile around the world. This year the government of Bermuda has been making a high-profile push to attract digital asset firms to the Island.
In September the Premier and Minister of Finance, David Burt, travelled to Paris where he addressed the Organisation for Economic Cooperation and Development (OECD) Blockchain Policy Forum, Distributed Ledgers: Opportunities and Challenges. The prestigious conference was hosted in Paris by the Secretary-General of the OECD, Ángel Gurría.
In his speech Burt highlighted three turnkey initiatives which, he said, give Bermuda the most advanced position in comprehensive initial coin offerings (ICOs) and digital asset legislation.
Three prongs to success
The first initiative came in July, when the Companies and Limited Liability Company (Initial Coin Offering) Amendment Act 2018—legislation governing ICOs in Bermuda—was enacted, requiring potential investors and owners to meet the ‘Bermuda standard’ on beneficial ownership and transparency, one highly regarded by regulators the world over.
The second was the Digital Asset Business Act 2018. Related legislation, which is fully administered by the Bermuda Monetary Authority, is expected to serve as a global model of best practices for regulation of digital asset service providers. This came into effect in September.
Third, Bermuda amended its banking laws: the Banks and Deposit Companies Amendment Act 2018 (Restricted Banks Act) allows banks in Bermuda to service companies that provide digital asset services in Bermuda.
Speaking after the Forum, Burt said: “We are already well known as the risk capital of the world, with billions of dollars in reinsurance claims being resolved from our pink sand shores.
“As the world’s leading catastrophe market, we have contributed over $280 billion in claims to EU and US policyholders and cedants over the past 20 years.”
Referring to “a future that continues to see many of the banked become unbanked,” because of widespread de-risking, the Premier set a challenge to international organisations including the OECD “not only to do the work to combat financial crime, but to ensure that innovations like distributed ledger technology can make that fight more effective while not causing the collateral damage to citizens, business, and countries”.
“Bermuda is a world leader in the fintech regulatory environment. We are on track to introduce an e-ID programme. We plan to leverage our ability to be nimble, our experience in crafting and enacting quality regulation, and our business-friendly environment to continue to deliver to the world a prime jurisdiction for digital financial assets.
“The world’s future will be fuelled by continued technological innovation of digital assets based on the trusted nature of distributed ledger technology.
“Bermuda is committed to building a model platform that will prepare us for that future and we look forward to working with the OECD to ensure that Bermuda can serve as an example for how other states can help their populations achieve the OECD’s mission of improving the economic and social wellbeing of people around the world,” he said.
Cautious progress
The BMA has added to the cryptocurrency push, amending the BMA Act 1969 in order to revise and update the provisions relating to the Digital Asset Business Act 2018. In it, the level of client receipts required to do business in this area on Bermuda is changed, reducing it from above $150,000 to above $15,000.
In addition, clause 2 amends the Fourth Schedule to the BMA Act 1969 under the Digital Asset Business Act 2018 heading. The amendments are to the formulae used for calculating the fees payable by digital asset businesses, and there is further clarification of the definitions of terms “client receipts” and “estimated client receipts”.
In September the BMA’s Assessment and Licensing Committee (ALC) also announced its digital asset business application process. The process states clearly that a detailed, comprehensive Digital Asset Business application must be submitted for the licensure of an entity under the act.
The information required includes a business plan, which should include information on the ownership of the applicant, including identification of its ultimate parent and other relevant details of its group organisational structure, details about the applicant’s board of directors and senior management, a description of the applicant’s business purpose for licensing in Bermuda, outlining the rationale for Bermuda as the chosen jurisdiction and an assessment and description of the business environment. Clarity and transparency are required by the BMA.
The government of Bermuda has already signed a number of memoranda of understanding (MoUs) with companies involved in the digital assets industry, under which those companies will open an office in, or at least do business with, Bermuda.
The market remains cautious so far, with only a few companies such as Allianz, Marsh and Aon stating that they deal in insurance for cryptocurrencies. The question of who will follow their lead remains, for the moment, unanswered.
This area will be carefully watched for further developments, but Bermuda has not just survived but thrived in the world of finance by being open-minded about economic developments. ICOs should be viewed in this wider context.
