On November 22nd 2017, Bermuda’s Premier, the Hon. E. David Burt, JP, MP held a press conference regarding the potential impact of blockchain on Bermuda’s economy. In summary, he said that the Island was going to look at blockchain opportunities as a new aspect of its overall economic plan, seeking to attract initial coin offering (ICO) and cryptocurrency businesses to Bermuda through the introduction of a sensible and credible regulatory framework.
Bermuda’s blockchain approach
From a financial standpoint, the starting point was this: broadly, two different categories of blockchain vehicles would be recognised:
- Issuers who were conducting ICOs for crowdfunding purposes would be regulated by amendments to Bermuda’s existing Companies Act and Limited Liabilities Companies Act legislation (the ICO Act).
- Issuers of virtual currencies and those operating digital asset exchanges, as well as anyone providing services related to digital assets (e.g. those operating digital asset exchanges, e-wallets and similar structures), would be regulated via a brand new piece of legislation, the Digital Asset Business Act 2018, and by Bermuda’s primary regulator, the Bermuda Monetary Authority (BMA).
The ICO legislation
The ICO Act was drafted primarily by the legal department of the Government’s business development unit, in consultation with other Government stakeholders, the BMA, the Bermuda Business Development Agency, external consultants and various private sector representatives, including law firms and technology-based companies. This collective approach is the Bermuda standard: new laws, rules and regulations which will have an impact on the Island’s economy are created through collaboration between the public and private sectors to ensure the best possible result is achieved.
The new ICO Act regulates offerings of “digital assets”, which are meant to capture all of the various categories of digital coins and tokens (whether they be utility tokens, security tokens, equity tokens or otherwise) which are being issued as ICOs and via token sales. It excludes rewards programs and gaming platform-related tokens.
Under the new ICO Act, an ICO will be treated as a restricted business activity that will require the consent of the Minister of Finance prior to an offering being made to the public. A FinTech Advisory Committee will be appointed to assist the Minister with initial reviews of applications and to ensure that they meet certain minimum criteria set out in the offering document issued to the public in connection with the ICO. In most cases, this offering document will consist of the issuer’s white paper.
A company (or LLC) wishing to launch an ICO can set up within the typical timeframe of 24 to 48 hours using Bermuda’s usual incorporation procedures. However, it will not be able to commence its ICO offering without first obtaining the Minister’s consent (which means that the applicant should file a copy of its draft white paper with the Ministry of Finance prior to the ICO). The minimum criteria for the offering document include details about:
- the founders
- the implementation of the ICO
- the proposed target market
- the amount of money to be raised
- the digital assets rights
- the technology which will be used.
Most of the criteria are industry standard, but the aim is to ensure they are imposed on issuers via statute and regulations.
The issuer will also be required to collect, verify and maintain customer identity information from an AML/ATF perspective.
The provisions of the ICO Act are largely similar to the provisions of Bermuda law which relate to initial public offerings, including requirements to file the ICO offering document with the Registrar of Companies (Registrar) and to file updates of the offering document with the Registrar on an ongoing basis. The ICO Act requires issuers to include a general risk statement (e.g. what happens if the project fails and what is the impact on proposed investors) and imposes penalties for untrue statements.
Bermuda works hard in all its industry sectors to attract the best business to the Island and it has always gone for quality over quantity. In seeking to attract ICO issuers, it is committed to the same approach. Those issuers who do not make the cut will have to choose another jurisdiction.