Column: Bermuda & Digital Assets A Busy 2018 - Bernews

[Opinion column written by Chris Garrod]

The beginning

Looking at it from a Fintech perspective, 2018 was both a formative and busy year for Bermuda.

It primarily started back in January, 2018. The Premier and his Minister, Wayne Caines, along with representatives from the Bermuda Business Development Agency attended the annual World Economic Forum AGM in Davos, Switzerland. Two Blockchain working groups already had been formed in November, 2017 to encourage a distributed ledger technology industry to be created on the Island. But while at Davos, it became clear that the notion of Bermuda becoming a true “Blockchain hub” had spread based on the interest targeted towards the Island from the attendees.

So very quickly, in February, meetings were convened.

The Premier’s mandate to the attendees of those meetings was to ensure Blockchain legislation was drafted which would put Bermuda on the map in the growing worldwide Fintech space. OECD advisors and Blockchain experts were imported from Davos, and private industry experts, regulators, the Bermuda Government and various service providers all worked together as one collaborative group. Discussions were held, presentations given and whiteboards utilised to their fullest extent. How did other jurisdictions treat token or coin offerings? What were the distinctions between utility tokens, equity tokens, security tokens and digital tokens? What challenges did Bermuda face? How could we make Bermuda a better place for companies to conduct their token offerings instead of competing jurisdictions such as Malta, Gibraltar, Switzerland, Singapore, etc.?

The legislation

At great speed, in approximately a month or so, the Companies and Limited Company [Initial Coin Offering] Amendment Act 2018 was created as a draft, which was soon followed by the Companies [Initial Coin Offering Regulations] 2018, which contained all of the requirements to be a Bermuda ICO or token issuer. Bermuda stood out because unlike other jurisdictions, ICO or token offerings required to be vetted by an independent Fintech Advisory Committee and a new Fintech Business Unit which formed part of the Registrar of Companies.

Conferences were attended, panels given, press releases issued. And of course the legislation and regulations were passed and became effective, eventually in July 2018.

While that was occurring the Digital Asset Business Act 2018 [“DABA”] was drafted, along with its minimum criteria for licencing, for regulated vehicles wanting to do more than just issue digital assets or tokens: electronic exchanges, platforms, digital wallet providers and vendors. Companies would be required to have a presence in Bermuda and be subject to regulation by the Bermuda Monetary Authority. The legislation not surprisingly reflected many parts of the provisions of the Insurance Act 1978: well known, tried and tested.

MOUs were signed based on the new DABA. Because of the physical presence requirement, it was natural to for the Bermuda Government to promise that jobs would be created as a result of it. The legislation was passed in September 2018.

The Insurance Act was also amended to introduce the notion of innovative insurers and intermediaries to form on the Island. A “sandbox” approach was created to promote Insurtech vehicles to test their technology, such as automation, artificial intelligence, big data or cloud computing, in a less regulated basis but more controlled environment, under the close supervision of the Bermuda Monetary Authority.

And finally, the Banks and Deposit Companies Amendment Act 2018 was passed in the late summer of 2018 to encourage banking or financial institutions to form on the Island in order to service companies carrying on token offerings or digital asset business.

In summary in 2018, the Bermuda Government passed legislation to:

encourage token issuers to form on the Island to conduct public coin or token offerings;

allow licensed digital asset exchanges and other digital asset vehicles to set up on the Island with a physical presence;

attract new Insurtech vehicles to come to the Island to test their technology; and

permit new Fintech-friendly banks to eventually set up with a presence on the Island.

It has been a very busy time for Bermuda and there is absolutely no doubt that its Government has been successful at promising its goal for the Island to become a Fintech and Blockchain hub. But what has actually been accomplished?

The new ICO Regulations

1. Uulala, Ltd. – in October 2018, Uulala, Ltd. was approved by the Bermuda Government and became Bermuda’s first company to be able to conduct an initial coin/token offering using a Bermuda vehicle. No company has since.

The Digital Asset Business Act

1. Various non-legally binding Memoranda of Understandings have been signed between the Government and other digital exchange or asset organisations. None have yet to receive a license to operate as a digital exchange or asset business.

Insurtech innovation

1. No Insurtech vehicles have been licensed under the new insurance “sandbox” regime.

Fintech Banking

1. Not surprisingly, no Fintech banks have been formed.

A long term project

It may be that one could think that very little has been accomplished based on the above.

But this is a formative project.

The Bermuda Government has started a process which is going to take time. Mistakes are going to be made along the way, but there is no jurisdiction which is attempting to grow in the digital transformation arena which you can point to and say they are perfect.

It is going to take time and effort. Jobs are not going to be created immediately. The seeds of digital growth and education have just been planted.

You cannot just criticise the Fintech push and the embracing of digital assets or cryptocurrency on the basis that so may ICO’s fail or many might be “scams”. The legislation which has been introduced over the last year reflect more of a digital revolution, the acceptance of Blockchain and of innovation. Cryptocurrency and digital assets are already here and more are coming: whether you like it or not.

The Fintech door has now been opened, and Bermuda has established itself as being very much welcome to let new, cutting edge digital business in. So at the very least, perhaps be cautious, yes, but let it in.

- Chris Garrod – Opinions on Digital Transformation including Fintech, AI, Insurtech, Blockchain, Crypto and Legaltech.

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