Bermuda Crypto regulations

Over recent years, Bermuda has featured as one of the best jurisdictions in the regulation of cryptocurrencies and other digital assets. With a highly progressive mindset on this subject and with solid framing in regulations, Bermuda managed to position itself as the epicenter of innovation and investment in the fast-changing crypto space. This article takes an in-depth look at the regulatory landscape that prescribes the use of cryptocurrencies in Bermuda and what that portends for businesses and investors alike.

Bermuda’s Regulatory Framework

The centerpiece of the crypto regulatory landscape in Bermuda is the Digital Asset Business Act 2018. Following the increased popularity of cryptocurrencies, the DABA provides a general legal framework for issuing, selling, and trading digital assets from within or from Bermuda. As such, any business operation involved in any digital asset activity-for example, the issuance or trading of cryptocurrencies-under the DABA would be expected to seek licensing with the BMA.

DABA articulates explicit directives and standards to be followed: licensing, AML/CTF, cybersecurity, and investor protection-all these need to be clearly articulated in a digital asset business. With such a form of regulation, Bermuda looks forward to embracing innovation with due protection against potential risks.

Bermuda

Capital	Population	Currency	GDP
Hamilton	63,867	Bermuda Dollar	114,090 USD

Licensing and Compliance

Among Bermuda’s first salvo of crypto legislation is an onerous licensing regime imposed on digital asset businesses. Businesses that are in the business of digital assets must obtain a license from the BMA in the case of those activities being conducted from within Bermuda or in Bermuda. Licensees will be subject to an intensive due diligence and compliance process, which affirms the needed standard of integrity, competence, and financial soundness.

Also, DABA necessitates that digital asset businesses comply with AML and CTF requirements by the implementation of appropriate AML/CFT policies and procedures, customer due diligence, and reporting suspicious transactions to the proper authorities. Consequently, compliance by Bermuda with these norms should contribute to the general dampening of the risks of financial crime, in order to ensure integrity within the financial system.

Investor Protection and Market Integrity

In addition, the Bermudian regulatory regime places significant emphasis on investor protection and market integrity, besides licensing and compliance issues. Digital asset businesses are expected to subscribe to strict standards of transparency, disclosure, and investor education in a manner that will leave no area for investors to be inadequately informed or protected.

In addition, Bermuda’s regulatory authority is very alert to the crypto market for fraud activities, market manipulation, and other abuses. Fairly, it seeks to promote orderly markets in pursuit of attracting investor confidence in the crypto ecosystem, with a view towards long-term sustainability.

VASP Regulation in Bermuda

The crypto industry is one that literally changes by the minute. In that respect, Bermuda remains committed to fostering a regulatory environment that will enable innovation while protecting investors and making markets fair. The government and regulators continue to engage with relevant stakeholders in the industry to keep pace with developments in the crypto space and consider adjusting regulations where appropriate.

In short, Bermuda’s crypto regulations represent a progressive and pragmatic means of regulating digital assets. By providing clarity, certainty, and oversight, Bermuda has opened up its shores to reputable businesses and investors while minimizing risk and protecting against possible abuses. As the crypto industry continues to mature, Bermuda will be in an ideal place to continue its status as a global leader in crypto regulation and innovation.

Since then, Bermuda legislated complete cryptocurrencies regulation—one of the first complete legal and regulatory regimes developed for digital assets anywhere in the world. The major offshore financial center welcomed a business-friendly attitude toward digital assets and their operators.

In 2018, Bermuda gave effect to legislation intended to regulate initial coin offerings and digital asset businesses through the Digital Asset Business Act and the Companies and Limited Liability Company (Initial Coin Offering) Amendment Act 2018 (the “ICO Act”). Ancillary regulations included the Digital Asset Business (Cybersecurity) Rules 2018, the Digital Asset Business (Client Disclosure) Rules 2018, and the Digital Asset Business.

These legislative provisions detail the requirements that preside over ICO and digital asset businesses. Essentially, under Bermudian law, an ICO constitutes a restricted business activity. This means it requires prior approval from the Bermuda Monetary Authority.

Unlike other jurisdictions, Bermudan legislation does not have an in-country physical presence requirement for the conduction of a token sale. Mostly, it requires mere corporate incorporation in Bermuda. Equally, Bermudan legislation has an economic substance requirement. In turn, this leads to other compliance requirements.

In this regard, the digital asset businesses are subject to AML and ATF legislation, wherein licensed entities in Bermuda are obliged to adopt and implement effective AML policies.

The 2018 Act regulates “digital asset businesses” in Bermuda, requiring businesses, whether incorporated or formed in or outside Bermuda, to conduct digital asset business within or from Bermuda to be licensed by the BMA. Digital assets means binary format entities granting rights to use them, including digital representations of value that function as a medium of exchange, unit of account, or store of value. Excluded, but not limited to, are specific transactions included in an affinity or rewards program or digital representations of value used in online games.

Pursuant to section 4D of the Bermuda Monetary Authority Act 1969, the Bermuda Monetary Authority, hereinafter referred to as the Authority or BMA, may delegate its functions and powers to an officer, servant, or a committee constituted from among the Authority’s personnel by the board. Further, this delegation extends authorization to the sector-specific ALC to make decisions on applications for licensing under the Act.

It was set up in 2007 by the Authority’s board of directors to specifically review applications for licensing from financial services businesses proposing to operate within or from Bermuda. The sector-specific ALC for digital assets includes a chairperson, usually the Senior Advisor, FinTech, or Managing Director overseeing Digital Asset Businesses. The technical committee shall be made up of a multi-disciplinary panel drawn from various different departments within the Authority, including FinTech, Supervision, Actuarial, Policy Development, and Anti-Money Laundering/Anti-Terrorist Financing.

Meetings of the Committee are usually held on Thursday mornings at 9:00 a.m. to deliberate on the various applications before it for a collective decision on the licensing requests for approval, deferral, or rejection. An applicant is immediately informed of the decision reached by the ALC right after the meeting and followed up with a formal letter from the Authority.

Applications for licensing under the Digital Asset Business Act 2018 shall be in such detail and form as prescribed herein.

The application shall be completed and received by the Authority no later than 5:00 p.m. each Thursday. This allows consideration by the ALC four weeks from Thursday. Failure of this, there will accrue a backlog within the review process at the ALC.

Applications should be emailed to [email protected]. No hard copies are required. Should applicants find difficulties with attaching documents within the application form or find the total document size exceeds the limit for email attachments, contact the FinTech Department at the email address above for further instructions on the provision of documents via the Authority’s secure drive.

All documents submitted as part of the DAB application must be in the English language.

Applicants shall use the appropriate form of application for the class of licence applied for. The appropriate application form shall be accessed from the BMA website on each of the following links corresponding to:

• T – test licence
• M – modified licence
• F – full licence

The Authority is cognizant that certain of the documents that may be germane in a full DAB application may, at the time of making such an application, not be available or may simply be not applicable given the nature of the proposed business. In respect of any document not submitted, a written explanation as to why such a document has not been submitted is required.

Applications not so supported with documentation may result in deferral or incompleteness to present before the review authority.

These Principles of Statement are issued pursuant to section 5 of the Digital Asset Business Act 2018 which requires the Bermuda Monetary Authority (hereinafter referred to as the Authority or BMA) to issue Principles determining its actions or proposed actions in respect of:

• the meaning of the minimum criteria outlined in Schedule 1 of the Act; and
• the grounds upon which a licence is revoked under section 24 of the Act.
• Exercising its power to grant, revoke or restrict licenses.
• Using its power to require information, reports and documents.
• Other powers of enforcement.

These Principles are written in a principle-based and principles-oriented style to be of general application and to be flexible enough to accommodate the diversity of DAB service providers that may be licensed under the Act, as well as any institutional and market developments that may occur in the future. Accordingly, these Principles are expected to be revised and updated from time to time. In the event of a material change to the Principles, the Authority will publish an updated version. It is also recommended that these Principles be read in conjunction with any Guidance Notes issued under section 5(2) of the Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing Supervision and Enforcement) Act 2008 (SEA Act 2008), pursuant to section 49M of the Proceeds of Crime Act 1997 (POCA 1997), and section 12O of the Anti-Terrorism (Financial and Other Measures) Act 2004 (ATFA 2004).

This document should be read in conjunction with the Statement of Principles on the Use of Enforcement Powers (SPUEP). The SPUEP states the principles that the Authority will use when deciding whether to use, or not use, a formal power to require or punish non-compliance with any statutory or regulatory requirement. In the event of any conflict or inconsistency between the SPUEP, the Statement of Principles on the Use of Enforcement Powers under the Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing Supervision and Enforcement) Act 2008 (“AML Principles”) and these Principles, the content of the SPUEP prevails.

The Principles are read in conjunction with the SPUEP and form the basis on which the Authority will decide whether to license a company as a DAB and whether a license should be revoked or restricted. Principles These Principles, together with the Authority’s interpretation of the minimum licensing criteria set out in Schedule 1 and the grounds for revocation in section 24 of the Act provide the main bases upon which the Authority exercises its supervisory functions over DABs.

The supervisory functions regarding the DABs involve ongoing compliance monitoring in respect of the previous standards and for conformity with the requirements imposed by the Act, the internal policies and procedures of the DAB, and relevant external regulatory requirements such as the Proceeds of Crime Act 1997, the Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing Supervision and Enforcement) Act 2008, and relevant regulations.

Where a problem arises involving either a senior representative or the company itself, the Authority would consider what action is appropriate. Where possible, the Authority would look to remedial action through persuasion and encouragement. If such action does not work, then stronger measures may be taken to secure compliance. Where the Authority considers it necessary in the public interest, it may exercise any of its powers under the Act, which includes restricting a license or, where necessary, revoking it.

The Principles refer to a number of policy and guidance documents published by the Authority, which are generally available from its website: www.bma.bm. Part III of the Principles addresses interpretation of each licensing criterion stated in Schedule 1 of the Act. Part IV addresses considerations relevant to the discretion conferred upon the Authority regarding an application for a license. Part V covers principles relevant to the power of the Authority to require information, reports and documents.

On the other hand, SPUEP elaborates on the meaning of the bases upon which enforcement action may be initiated, where determinations would be carried out on a case-by-case basis, centering on consideration of the greater context. Such review covers whether alternative measures might not be more appropriate in light of relevant considerations, including the circumstances of the regulated financial institution, the conduct under consideration, and general contextual factors.

In respect of enforcement processes, the Authority may use its powers of restriction and revocation. In the context of supervision, such powers can be invoked, for instance, in order to impose additional reporting requirements on an institution, or when an institution ceases business or operates only in a limited scope mode. Such powers may also be applied in the interest of public protection, even in those cases in which the risk may not relate to the conduct of the DAB itself, under section 8 of the Act.

The Authority will not license any DAB unless satisfied that the applicant meets or is capable of meeting all the criteria in Schedule 1 of the Act. A licensed DAB would be subject to the continuing supervision and regulation by the Authority, which includes ongoing compliance with licensing criteria. According to the Act and rules, regulations, guidance notes, or codes made thereunder, the DABs shall furnish information relating to their operations at such frequency as may be directed by the Authority. In the event of any of the above requirements not being fulfilled by a DAB, the Authority may, to the extent provided under the Act and herein described under the Principles, the AML Principles, and the SPUEP, exercise powers.

The Act provides the framework that outlines minimum standards that a licensed DAB must comply with. These standards should be applied and interpreted in light of any development relevant to the sector within the context of the particular circumstances of an individual DAB. The Authority’s supervision includes prudent detailed discussions with the senior management of DABs where necessary, in addition to considering periodic, annual, and other reports received from DABs. The nature, size, complexity, and risk profile of the DAB and its business drive the frequency of the discussions. The discussions can be held face-to-face or virtually and at either the Authority’s offices or the DAB’s premises.

Furthermore, compliance visits are made either in physical presence or virtually to the premises of DABs as part of the regime to further enhance the Authority’s understanding of their management structures, operations, policies, and controls. This helps the Authority further verify that each DAB continues to carry on its business with prudence and in a manner that is consistent with all the relevant criteria.

Where DABs become aware of any breaches or possible breaches, these should be notified to the Authority without delay so that remedial action, if necessary, can be agreed as soon as possible. They should also notify the Authority of any proposed major changes to their business activities. This will enable the Authority to assess whether such changes affect the DAB’s continuing ability to meet the minimum requirements.

Any licence issued under the Act is to be done by the Authority if it is satisfied that all the minimum licensing criteria specified in Schedule 1 are met. Such satisfaction shall depend on whether or not the applicant and any other relevant party provides all information that may reasonably be required by the Authority concerning an application. Even in instances where the Authority is satisfied that such criteria have been or will be met, it can still withhold a licence. Where there are doubts about ongoing satisfaction of the criteria, or there are perceived significant risks to the public interest, or the interests of the clients or potential clients of such a DAB, this discretion may be applied.

The Authority also takes into consideration whether, from the DAB and relevant parties, it will receive sufficient information so as to effectively monitor its compliance with the criteria and to identify any potential risks to the clients of the DAB.