Some of them, like the British Overseas Territory of Bermuda are embracing the revolution and are making swift, progressive efforts in order to regulate the matter.
Indeed, in 2018, Bermuda’s government published a complete regulation dedicated to the blockchain technology with (I) the Companies and Limited Liability Company (Initial Coin Offering) Amendment Act 2018 (The ICO Act) and (II) the Digital Asset Business Act 2018.
- The ICO Act
The ICO Act 2018 came into force on the 9th of July 2018. It provides the framework for ICOs in or from Bermuda.
A definition of an ICO is now available in the article 34A of Part IIIA of the Company Act 1981 (amended by the ICO Act): “an ICO is an offer by a company to the public to purchase or otherwise acquire digital assets” (cryptocurrencies, digital coins and tokens).
So, this legislation concerns anyone who is interested in creating, promoting, investing in and using an ICO, as well as companies who are seeking to raise capital through an ICO.
In order to launch an ICO, a company must fulfill a number of obligations.
- The application to perform a restricted business activity
Under the ICO Act, an ICO will be treated as a restricted business activity that will require the consent of Bermuda’s Minister of Finance prior to an offering being made to the public.
Thus, prior of launching an ICO, a Bermuda company must apply to the minister for consent as such activity (Section 67 of the Limited Liability Company Act 2016)
The application will include several documents such as:
- the names of the persons managing the business and conducting the ICO
- the underlying digital assets offered;
- details on the development and implementation of any product, services or other products related to the ICO, including the timeline for completion;
- a detailed description of the rights, features, functionality and intended transferability with respect to compliance and auditing of the ICO issues
- a presentation of the platform that must also enable the collection, confirmation and storage of the identity of purchasers of the coins or tokens.
- The FinTech Advisory Committee’s recommendation
The second step consists in the appointment of a FinTech Advisory Committee which will assist initial reviews of applications and will ensure that they meet certain minimum criteria regulations.
The Committee delivers a recommendation to the minister.
Once the minister has given consent, a final task must be completed by the company.
- The publication of ICO documents
The article 34 B of Part IIIA of the Company Act 1981 provides that once the minister has given consent, the company must publish an ICO offer document in electronic form setting out, among other information :
- The promoters of the business
- Details of the business or proposed business
- Description of the projects and any milestones
- Rights and restrictions on the digital assets
- ICO warning language
Then the company must file this document with the Registrar of Companies unless the digital assets are listed on an appointed stock exchange or appointed digital-asset exchange.
- The Digital Asset Business Act 2018
The Digital Asset Business Act 2018 (DABA) came into force on the 10th of September 2018.
The Act covers the licensing of entities which will carry on digital asset business in or from Bermuda. Digital asset business is defined as the business of providing any or all of the following digital asset business activities to the general public:
- issuing, selling or redeeming virtual coins, tokens or any other form of digital asset;
- operating as a payment service provider business utilising digital assets which includes the provision of services for the transfer of funds;
- operating as an electronic exchange;
- providing custodial wallet services; or
- operating as a digital asset services vendor.
Unless exempted, these companies must obtain :
- license from the Bermuda Monetary Authority in order to conduct digital-asset business in or from Bermuda
- The consent of the Minister
- A business plan (nature and scale of the digital-asset business activity)
- Applicants’ arrangements for the management of the business
- Policies and procedures to be adopted by the applicant to meet the obligation DABA and the Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulations 2008
- Any information and documents as the BMA may reasonably require for the purpose of determining the merits of the application together
- An application fee
In addition, entities licensed under DABA are required to :
- Establish a headoffice in Bermuda from which the digital-asset business must be directed and managed.
- Employ senior executives in Bermuda who are involved in decision-making related to the digital-asset business.
- Employ controllers and officers who are fit and proper persons.
- Implement policies and procedures including in relation to AML/ATF, sanctions and any codes of practice under DABA.
- Maintain minimum net assets of $100,000 or such amounts as the BMA may determine taking into consideration the nature, size and complexity of the licensed undertaking.
- Maintain adequate accounting or other records and adequate systems of control of its business and records.
- Have insurance to cover the risks inherent in the operation of its business.
- Be effectively directed by at least two persons and under the oversight of the board with such number of non-executive directors as the BMA considers appropriate given the nature, size, complexity and risk profile of the licensed company.
In conclusion, these two Acts represent a good initiative from Bermuda.
However, some points should be clarified.
For instance, according to the ICO Act, it seems that only one type of license is given by the authorities, whereas in other jurisdictions (such as Switzerland), the license given to issue an ICO depends on the category of the token (payment token, utility token, asset token).
Distinguish different categories which allow the application of some existing laws to the ICOs (for example: asset tokens are subject to securities regulations).
Further, it also permits the delivery of a different license with determined rights and obligations for different ICOs issuers. Indeed, a payment token does not represent same risks as asset tokens for instance.
Furthermore, the ICO Act does not regulate persons or companies that are concerned solely with private sales or whose ordinary business involves the acquisition, disposal or holding of digital assets.
For more information, please contact Damien Concé: d.conce@rosemont.mc