Bermuda Blockchain And Cryptocurrency Regulation 2023 (GLI Chapter)

Published date02 December 2022
Subject MatterTechnology, Security, Fin Tech
Law FirmCarey Olsen
AuthorMr Steven Rees Davies, Charissa Ball and Alexandra Fox

Steven Rees Davies, Charissa Ball and Alexandra Fox have authored the Bermuda chapter of Global Legal Insight's fifth edition guide to blockchain and cryptocurrency regulation. The chapter covers the Bermuda legal requirements relating to cryptocurrency and blockchain, including government attitude and definition, taxation, money transmission laws and AML requirements, mining and licensing requirements.

CONTENTS

  1. Government attitude and definition
  2. Cryptocurrency regulation
  3. Ongoing obligations
  4. Sales regulation
  5. Taxation
  6. Money transmission laws and anti-money laundering requirements
  7. Promotion and testing
  8. Ownership and licensing requirements
  9. Mining
  10. Border restrictions and declaration
  11. Reporting requirements
  12. Estate planning and testamentary succession

Government attitude and definition

Bermuda has been recognised as a global leader in the regulation of blockchain and cryptocurrency-based services and related activities. The Bermuda government has pioneered one of the world's first comprehensive regulatory frameworks specifically designed to provide legal and regulatory certainty to industry participants whilst ensuring that business in the sector is conducted in accordance with the highest international standards.

The framework comprises two legislative arms that, subject to certain exemptions, treat all cryptocurrencies, digital coins and tokens as the same for regulatory purposes and use the term 'digital assets' to identify them all. The Digital Asset Business Act ('DABA') introduced a licensing regime for businesses seeking to conduct 'digital asset business' (defined below) whilst the Digital Asset Issuance Act ('DAIA') introduced a regime to regulate persons seeking to carry on a 'digital asset issuance' (defined below).

The Bermuda government also introduced an Insurtech Sandbox as an additional licensing regime designed to promote innovation in the use of technology in the insurance and reinsurance sectors. The government is currently in the process of widening the scope of the Sandbox regime to encompass other industry sectors, including funds and investment business. Bermuda also introduced one of the world's first digital asset business bank licensing regimes that provides for a banking licence to be issued to persons seeking to provide traditional banking services to the digital asset sector. Jewel Bank is the first bank to be issued a DABA and banking licence under the regime. The Bermuda government has announced that it will be launching a blockchain-based stimulus token for use in Bermuda's retail market and which will be a Bermuda dollar-backed stablecoin using technology developed by one of the first companies to be regulated under the DABA in Bermuda. The government has also been working on numerous other technology projects to further enhance the island's digital infrastructure, including the development of a digital ID system that meets internationally recognised standards of both privacy and anti-money laundering and anti-terrorist financing ('AML/ATF') regulation and the introduction of submarine cabling legislation to protect both the environment surrounding the island and the submarine cables themselves that are the core infrastructure supporting the digital asset sector.

Bermuda has developed a collaborative business culture that involves government and industry working together to create opportunity and commercial success with a truly independent, actively engaged and globally recognised regulator maintaining the balance between the promotion of innovation and adherence to worldwide standards of regulation, compliance and transparency.

The Bermuda Monetary Authority ('BMA'), as Bermuda's financial sector regulator, is a member of the Global Financial Innovation Network ('GFiN') and also a member of the GFiN Coordination Group. GFiN was created to provide an efficient mechanism for innovators to interact with regulators and assist in navigating between jurisdictions as they look to scale and test new products and services. GFiN also provides a means for regulators to cooperate and share knowledge and experience in working with new and innovative product and service lines.

Cryptocurrency regulation

Digital Asset Business Act

Since the DABA became law in 2018, the BMA has continued to promulgate rules, regulations, codes of practice, statements of principles and guidance in order to supplement the DABA, with the result that the DABA operates in a similar manner to the regulatory frameworks in place for other financial services regulated by the BMA. In summary, the DABA specifies the digital asset-related activities to which it applies, imposes a licensing requirement on any person carrying on any of those activities, lays out the criteria a person must meet before it can obtain a licence, imposes (and permits the BMA to impose) certain continuing obligations on any holder of a licence, and grants to the BMA supervisory and enforcement powers over regulated digital asset businesses. The BMA and other industry stakeholders are constantly reviewing and monitoring the framework to ensure that it remains fit for purpose and meets with all international standards of regulation, compliance and transparency. Through consultation with industry, the BMA, together with the Bermuda government, has already updated and improved the provisions of the DABA to give greater clarity and to facilitate more effective administration of its provisions, evidencing an actively engaged and responsive regulator.

Scope of the DABA

The DABA applies to any entity incorporated or formed in Bermuda and carrying on digital asset business (irrespective of the location from which the activity is carried out) and to any entity incorporated or formed outside of Bermuda and carrying on digital asset business in or from within Bermuda.

A 'digital asset' is defined as anything that exists in binary format and comes with the right to use it, and includes a digital representation of value that is (a) used as a medium of exchange, unit of account, or store of value and is not legal tender, whether or not denominated in legal tender, (b) intended to represent assets such as debt or equity in the promoter, (c) otherwise intended to represent any assets or rights associated with such assets, or (d) intended to provide access to an application of service or product by means of distributed ledger technology.

'Digital asset business' is defined as the provision of the following activities to the general public as a business:

  • Issuing, selling or redeeming virtual coins, tokens or any other form of digital asset: this is intended to regulate any person providing these services to other persons, whether such other person is situated in or outside Bermuda. It does not include a digital asset issuance to fund an issuer's or promoter's own business or project, which is regulated under the DAIA (see below).
  • Operating as a payment service provider business utilising digital assets, which includes the provision of services for the transfer of funds: the term 'payment service provider' is used globally in AML/ATF laws, regulations and guidance, and is defined in Bermuda's Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Amendment Regulations 2010 as 'a person whose business includes the provision of services for the transfer of funds'.
  • Operating as a digital asset exchange: this means the operation of a centralised or decentralised electronic marketplace used for digital asset issuances, distributions, conversions and trades including primary and secondary distributions, with or without payment.
  • Carrying on digital asset trust services: this means the carrying on of the business of acting as a fiduciary agent, or trustee on behalf of another person for the purpose of administration and management of a digital asset.
  • ...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT