Bermuda continued its brisk roll out of legislative and regulatory changes right up until the end of 2020 and we have included in this update an overview of the most significant changes which took place during the last quarter of 2020. These changes serve to highlight the pro-active nature of the regulator in seeking to improve its supervisory and regulatory functions as well as the adoption of legislation to introduce further business efficiencies and to allow Bermuda to retain its competitive advantage.
Digital Asset Business Amendment Act 2020 and Digital Asset Issuance Rules 2020
The Digital Asset Business Amendment Act 2020 (DABA Amendment 2020) became operative on 11 December 2020 and aims to give greater clarity to certain provisions, and improve the overall administration, of the Digital Asset Business Act 2018 (Act). In doing so, the DABA Amendment 2020 will establish a new testing licence, repeal and replace some definitions, extend the Bermuda Monetary Authority's (Authority) ability to modify applicable fees, and introduce notification requirements for companies that seek an exemption order.
At present, a company investing in digital assets may be required to pay fees for both an investment business licence under the Investment Business Act 2003 and a digital asset business licence under the Act. In these particular cases, the Authority takes the view that a flexible fee structure may be appropriate. As such, the Authority is proposing to exempt a registered person from the requirement to pay any fee under section 16 of the Act, or to reduce any fee required to be paid, provided the Authority is satisfied that it is appropriate to do so having regard to the nature, scale and complexity of the business carried on by the registered person.
Perhaps one of the most significant proposed changes to the Act is the addition of the new class "T" licence. By making provisions for the testing of a minimum viable product/service via beta testing or piloting, this licence class will allow Bermuda's digital asset business regime to support and foster all stages of innovation in the ever evolving digital asset business sector. It is proposed that applicants must: (i) develop success criterion for the test, (ii) list their pre-identified or targeted customers or counterparties, (iii) hold a minimum capital of at least $10,000, and (iv) ensure that appropriate risk disclosures for potential counterparties are in place.
The "T" licence will have an initial duration of 12 months or less and appropriate regulatory requirements based on proportionality, and if the DABA Amendment 2020 is approved as is, the licencing fee for the Class "T" licence will be limited to BD$1,000.
In February 2020 the Bermuda Government passed the Digital Asset Issuance Act 2020 (DAIA 2020) which effectively transferred the responsibility for the administration of offerings of digital assets to the public from the Registrar of Companies to the Authority. The DAIA 2020 makes provisions requiring the Authority to create rules in relation to certain matters that all authorised undertakings must comply with, amongst other things. In furtherance of this obligation and in continuance of its commitment to maintaining a safe environment for digital issuance to the public, the Authority has provided rules under the Digital Asset Issuance Rules 2020 (DAIR 2020) that explicitly outline the requirements for the way in which digital asset issuances are to be conducted.
These rules are particularly significant as they provide clarity to authorised undertakings of what is required by the Authority. More specifically, DAIA 2020 sets out the minimum required information that must be made available to digital asset acquirers via the issuer's issuance document, which include details relating to the issuer and all of the persons involved in the issuance, a detailed description of the underlying project, the digital asset and the terms and conditions of the digital asset issuance, amongst other things.
To further protect the interests of digital asset acquirers, DAIA 2020 requires that ongoing communications and disclosures be made by the issuer to the digital asset acquirers with updates on the progress achieved with respect to the milestones set out in the issuance document. Other important rules include the requirement for issuers to have adequate mitigating controls in place against market abuse, for issuers to implement and maintain a robust risk management framework and a robust cybersecurity programme, and to establish and maintain a data node in Bermuda where all information relevant to the digital asset issuance will be stored.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.