Bermuda Continues to Develop Digital Assets Legislative Framework

Bermuda Continues to Develop Digital Assets Legislative Framework

Hot on the heels of the Companies and Limited Liability Company (Initial Coin Offering) Amendment Act 2018 (the “ICO Act”), which seeks to introduce a statutory framework for initial coin offerings (“ICOs”) and has now passed both the House of Assembly and the Senate, comes the tabling of the Digital Asset Business Act 2018 (the “DAB Act”).

Digital Assets are defined as anything that exists in binary format and comes with the right to use it and includes a digital representation of value that:

(a) is 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) is intended to represent assets such as debt or equity in the promoter;

(c) is otherwise intended to represent any assets or rights associated with such assets; or

(d) is intended to provide access to an application or service or product by means of distributed ledger technology;

but does not include:

(e) a transaction in which a person grants value as part of an affinity or rewards program, which value cannot be taken from or exchanged with the person for legal tender, bank credit or any digital asset; or

(f) a digital representation of value issued by or on behalf of the publisher and used within an online game, game platform, or family of games sold by the same publisher or offered on the same game platform.

Whilst Digital Asset Business is defined as the business of providing any or all of the following digital asset business activities to the general public:

(a) issuing, selling or redeeming virtual coins, tokens or any other form of digital asset;

(b) operating as a payment service provider business utilising digital assets which includes the provision of services for the transfer of funds;

(c) operating as an electronic exchange;

(d) providing custodial wallet services; or

(e) operating as a digital asset services vendor.

Along with published statement of principles and codes of practice, the DAB Act will establish a licensing and supervisory regime for entities engaged in digital asset business. To conduct digital asset business in or from within Bermuda, a person must be licensed under the DAB Act, by means of the grant of either an indefinite (Class F) or fixed term (Class M) licence, and be directed and managed from Bermuda. Criteria are set out with regard to licensing, including a fit and proper person test, the carrying on of the business in a prudent manner and corporate governance requirements.

Following on from the ICO Act, the DAB Act is the second piece of legislation evidencing the avowed intent of the Bermuda Government to provide regulatory certainty and a reliable legal framework with a view to creating an environment within which companies focused on blockchain, virtual currencies and other digital assets will thrive, whilst also implementing the highest standards of corporate governance, transparency and consumer and market protections.