Bermuda’s recently passed Digital Asset Business Act, 2018 (“DABA”) adds a new layer to the Island’s fintech transformation. The legislation, which is likely to come into force in September, covers the licensing of entities which will carry on digital asset business in or from Bermuda. It is completely separate from the new initial coin offering (ICO) legislation and its regulations, which are already in force and regulate coin and token offerings being made by Bermuda issuers for public crowdfunding purposes.
What is ‘Digital Asset Business’?
As defined in the DABA, ‘digital asset business’ means the business of providing any or all of the following services to the general public:
- (a) issuing, selling or redeeming virtual coins, tokens or any other form of digital asset;
- (b) operating as a payment service provider business utilising digital assets which includes the provision of services for the transfer of funds;
- (c) operating as an electronic exchange;
- (d) providing custodial wallet services; or
- (e) operating as a digital asset services vendor.
Companies which are merely setting up in Bermuda in order to raise funds through a token or coin offering, which fall within the ambit of the ICO legislation, are not subject to ongoing regulation once the offering is approved. However, entities which carry on digital asset business under the DABA are regulated on an ongoing basis by the Bermuda Monetary Authority (BMA), similar to the way commercial reinsurers are regulated pursuant to the Bermuda Insurance Act, 1978 and its regulations.
Indeed, when drafting the DABA, the Government, the BMA and their advisors looked at not only many of the recommendations which had been set out by the Financial Action Task Force (FATF) and the OECD, but also at Bermuda’s already tried and tested insurance legislation. Bermuda is the second largest reinsurance jurisdiction in the world, after Lloyd’s of London, with legislation and regulations which are Solvency II equivalent.