As a result, more Bermuda residents have been introduced to terms like “ICOs”, “blockchain”, “digital assets”, “cryptocurrencies”, “tokens”, “FinTech”, “InsurTech”, “E-ID” and others.

Bermuda’s approach has been to embrace blockchain technology while developing legislative and regulatory tools to minimise risks associated with such technology. This philosophy is reflected in both the Companies and Limited Liability Company (Initial Coin Offering) Amendment Act 2018 (ICO Act) and the Digital Asset Business Act 2018 (DABA).

The ICO Act provides the framework for ICOs in or from within Bermuda.

An ICO is an offer by a Bermuda company to the public to purchase or otherwise acquire digital assets including all forms of cryptocurrencies, digital coins and tokens issued in connection with an ICO. This would also include companies seeking to raise capital through an ICO.

Prior to launching an ICO, a Bermuda company must apply to the Minister for consent as such activity is designated a “restricted activity”. To assist with such applications a FinTech Advisory Committee will review each application and make a recommendation to the Minister.

The application to the Minister must include the names of the persons managing the business and conducting the ICO and the underlying digital assets offered. The application must also include details on the development and implementation of any product, services or other products related to the ICO, including the timeline for completion. The rights, features, functionality and intended transferability must also be set out as must details about compliance and auditing of the ICO. The platform must also enable the collection, confirmation and storage of the identity of purchasers of the coins or tokens.

Once the Minister has given consent, the company must publish an ICO offer document in electronic form setting out the promoters of the business, details of the business or proposed business, descriptions of the project and any milestones, rights and restrictions on the digital assets and ICO warning language, among other things.

This offer document must be filed with the Registrar of Companies unless the digital assets are listed on an appointed stock exchange or appointed digital asset exchange.

DABA, meanwhile, will regulate digital asset business carried on in or from within Bermuda, including payment service providers, electronic exchanges, custodial wallet services and market makers or traders of digital assets.

Unless exempted these companies must obtain a licence from the Bermuda Monetary Authority (BMA) in order to conduct digital asset business in or from within Bermuda. They also require the consent of the Minister as this is also considered a restricted business activity.

Application for a digital business licence is made to the BMA. There are two classes of licence (class F and class M).

The application to the BMA must be accompanied by a business plan setting out the nature and scale of the digital asset business activity that is to be carried out by the applicant, particulars of the applicant’s arrangements for the management of the business, policies and procedures to be adopted by the applicant to meet the obligations of DABA and the Proceeds of Crime (Anti-Money Laundering and Anti- Terrorist Financing) Regulations 2008 and such other information and documents as the BMA may reasonably require for the purpose of determining the merits of the application together with an application fee.

Entities licensed under DABA are required to maintain a head office in Bermuda from which the digital asset business must be directed and managed. This means that there must be senior executives in Bermuda who are involved in decision-making related to the digital asset business.

The BMA shall publish on bma.bm a list of every licensed undertaking and the class of licence issued to it.

The BMA shall not grant a licence unless it is satisfied that the minimum criteria set out in Schedule 1 of DABA is fulfilled in respect of the application. This includes:

having controllers and officers who are fit and proper persons;

having policies and procedures including in relation to AML/ATF, sanctions and any codes of practice under DABA;

maintaining minimum net assets of $100,000 or such amounts as the BMA may determine taking into consideration the nature, size and complexity of the licensed undertaking;

maintaining adequate accounting or other records and adequate systems of control of its business and records;

having insurance to cover the risks inherent in the operation of its business of an amount commensurate with the nature and scale of its digital asset business or has implemented such other risk mitigation measures as the BMA may agree; and

being effectively directed by at least two persons and under the oversight of the Board with such number of non-executive directors as the BMA considers appropriate given the nature, size, complexity and risk profile of the licensed company.

Statements of principles will be issued by the BMA to provide guidance for the interpretation of the minimum licensing criteria.

DABA also imposes a number of other continuing obligations including annual prudential filings and fees.

Share
Twitter LinkedIn Email Save as PDF
More Publications
19 Nov 2020 |

Issues to consider on terminating employment

In this article we discuss some of the key issues that employers and employees should consider when ...

5 Nov 2020 |

Data Protection Authority Registration and Data Protection Officer Requirements for Data Controllers: Bermuda

This Q&A discusses the obligations for private-sector data controllers in Bermuda to notify, reg...

Contributors: Bradley Houlston
30 Oct 2020 |

When Worlds Collide – How COVID is Connecting Technology with Natural Resources

Dating back to the beginning of 2020, the natural resources sector has been extremely active at both...

26 Oct 2020 |

Giving notice: key considerations

In this month’s article we discuss some of the key issues to consider when giving notice to termin...

26 Oct 2020 |

Ownership and Governance Structures

This chapter will explore aspects of private trust companies, but as necessary background will first...

22 Oct 2020 |

Preparing for a virtual AGM in Bermuda

As the global Covid-19 pandemic continues, remote working is becoming the new business normal.

21 Oct 2020 |

Robust, reliable, resilient—amid change

Bermuda’s reinsurance industry has endured many challenges over the years, but its unique mixture ...

9 Oct 2020 |

Insurance M&A activity may be on horizon

Companies with a view to pursuing strategic acquisitions often look for opportunities in the insuran...

22 Sep 2020 |

Cost-cutting and the alternatives to redundancy

Even as Bermuda acclimatises to the ‘new normal’, it is clear that the economic effects of the p...