Less than two years after the introduction of two fundamental pieces of fintech legislation, one of Bermuda’s core digital asset laws has been revised to introduce the regulation of digital asset issuances.
The Digital Asset Issuance Act 2020 (DAIA), which became effective on 6 May 2020, replaces the ‘Initial Coin Offering’ (ICO) legislation of 20181, which amended Bermuda’s company laws to allow the issuance of digital assets to the public. The ICO legislation required that offerings of digital coins or tokens be approved by the Minister of Finance, but once approved, offerings were not regulated on an ongoing basis. However, digital asset offerings became increasingly less attractive worldwide, as the lack of regulation of this space in the majority of countries meant ICOs and other forms of crypto offerings became associated with fraud and scams.
The DAIA aims to create a positive and safer environment for digital issuances. It provides for digital asset issuers to be regulated by the Bermuda Monetary Authority (BMA) in the same way that the Digital Asset Business Act 2018 (DABA) created a framework for the regulation of Bermuda-based digital asset businesses, including digital asset custodians and electronic exchanges. There is a high bar of minimum criteria to be able to register as a digital asset business with the BMA. Once established, there are stringent ongoing AML/ATF requirements along with head office requirements.
The fundamental underlying purpose of most digital asset offerings – crowdfunding using distributed asset technology ( blockchain) – means they can play an important role in financing small and medium-sized enterprises and start-ups. Such entities cannot usually contemplate undertaking an expensive initial public offering, or other traditional methods of funding. While the regulation of digital asset issuances brings certain disadvantages (such as reduced speed to market and less flexibility), the increase in consumer and investor protection, greater legal certainty, and overall regulatory supervision are very attractive features for potential digital asset buyers, which could help foster confidence in this sector. The core of the DAIA legislation has been drafted with the protection of the average digital asset investor or purchaser in mind.
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Regulation of Digital Assets Issuances Should Foster Confidence
1 Companies and Limited Liability Company (Initial Coin Offering) Amendment Act 2018, The Companies (Initial Coin Offering) Regulations 2018, and the Limited Liability Company (Initial Coin Offering) Regulations 2018