Bermuda will stake its claim to be a significant financial technology centre by creating a world-leading regulatory and legal framework.
That was the clear message in an information session on the Bermuda Government’s plans for virtual currency and blockchain-based technology, which drew a large crowd of invited business people to the Bermuda Underwater Exploration Institute yesterday.
The event was hosted by Wayne Caines, the Minister of National Security, and came as the Government prepares to table the first part of a planned wave of new fintech-related legislation in the House of Assembly tomorrow.
Mr Caines told the standing-room-only audience that far from deterring fintech entrepreneurs, the Government’s plans to regulate virtual currency-based business was attracting them.
“We can’t keep up with the amount of people who want to come to Bermuda,” Mr Caines told the audience in a question-and-answer session after a string of presentations by members of the Government’s fintech team.
“We’re going to London at the weekend and we have 20 companies lined up to meet us. It’s actually phenomenal.”
Lydia Dickens, manager of Government’s Business Development Unit, explained why cryptocurrency entrepreneurs wanted rules to govern their activities in what is a largely unregulated corner of finance around the world.
“People are looking for legal certainty,” Ms Dickens said. “They just want to be sure they can conduct this activity and not go to jail.”
John Narraway, a tech entrepreneur and member of the Government’s Blockchain Business Development Working Group, told the audience: “What we have seen in conversations overseas in the last six months that is encouraging for the future of Bermuda is that they’re not talking about tax — they’re looking at regulatory certainty, not tax advantage.”
The Government has set out an ambitious timeline as it vies for first-mover advantage for Bermuda in crypto-business.
Initial coin offering legislation is scheduled to be tabled tomorrow, followed by the Virtual Currency Business Act next month. Before the end of the year it is also looking to set out plans for a Bermuda E-ID scheme, effectively a national digital identification scheme for residents and businesses that will bolster the island’s fintech credentials, and rules for establishing cryptocurrency exchanges.
Ms Dickens presented on the ICO legislation due to be tabled tomorrow, which will treat ICOs as a restricted business activity that will require consent from the Minister of Finance.
The new rules will be enacted through amendments to Companies Act 1981 and the LLC Act 2016 and are intended to decrease risks associated with ICOs.
Requirements of ICO issuers will include that they collect, verify and maintain customer identity information.
With a crucial upcoming assessment of Bermuda’s Anti Money Laundering and Anti Terrorist Financing regime by the Caribbean Financial Action Task Force this year, it was clear from yesterday’s session that the Government is treading carefully into the cryptocurrency space.
Kevin Anderson, of Bermuda Monetary Authority, the financial-services regulator, spoke on the proposed Virtual Currency Business Act.
“It’s been a challenge for us, because normally we look at what other jurisdictions are doing, but in this case there are no examples,” Mr Anderson said.
“We have taken on board everything that everyone has said to us. We believe this act will be fit for purpose and will stand up as a shining example of what can be done on this small island.”
Areas the new rules will focus on include the intersection of cryptocurrency and fiat, or conventional currencies, the prevention of fraud and market manipulation, and integrity of owners, as well as clear descriptions of the risks for prospective investors, plus enforcement powers for the BMA.
He added that the BMA would be taking on extra staff to deal with its new crypto-business responsibilities.
Mr Anderson added: “We don’t want to be making mistakes — we don’t want to be the first to go down in flames, so we have raised the bar very high.”
The BMA published a 150-page consultation paper on the Virtual Currency Business Act, including the draft legislation, on its website, www.bma.bm, yesterday. A copy is attached to this webpage under the heading Related Media. The deadline for members of the people to submit feedback is May 2, Mr Anderson said.
Mr Narraway talked on plans for the Bermuda E-ID scheme, which are still at a preliminary stage. The aims of the national ID scheme will include removal of the need for multiple hard copies of documents, and to give individuals control over their data — by allowing them to grant data permissions of specific data for a specified time.
The scheme would provide a single aggregation platform to comply efficiently with Know Your Customer and Anti Money Laundering rules, he added.
The scheme would provide the “highest levels of gatekeeping” for crypto-business in Bermuda, Mr Narraway said, speed up customer verification for banks and financial services and enable fast-track immigration.
He stressed that what the E-ID scheme would not be an invasion of privacy, would not give away status or permanent residency, and would not be proof of citizenship or a travel document. Nor would there be a potentially hackable central database, he added.
Kevin Richards, of the Bermuda Business Development Agency, outlined how the island had reached this stage, tracing the roots of the fintech drive to the Bermuda 4.0 think-tank meetings in 2016 and consequent fintech study conducted by professional-services firm EY on behalf of the Government.
“EY identified gaps in Bermuda — talent, capital, policy and demand — and they said that a shared collective vision was needed,” Mr Richards said.
“We have addressed policy. And the excitement that this [the new legislation] will generate will bring a lot of talent to Bermuda.”
Mr Caines said the country could expect to see fintech-related legislation being presented “every other month” or so as the island builds out a robust legal and regulatory framework for crypto-business. He expected the benefits to spread through the community.
“We think this is an opportunity for ancillary businesses, for entrepreneurship and opportunities for Bermudians,” Mr Caines told The Royal Gazette.
“I believe the country as a whole will see new opportunities to seek employment and to benefit from this fintech endeavour.”
Asked how he would convince those who had doubts about crypto-business, Mr Caines said: “There is a legitimate reticence around this space.
“We have focused on the legal and regulatory elements of this process — that has been paramount. Not only is this an economic opportunity, but it’s being done with best practices in terms of KYM and AML. That is paramount to this island.”