Bermuda has long been known for its reputation as a leading jurisdiction for financial services, insurance, asset management and private-client business. Bermuda has proven once again that it is a sophisticated, modern and well- regulated jurisdiction in which to do business by positioning itself as an international leader in the technology and innovation sector.
Bermuda has implemented a regulatory structure that effectively balances the innovative drive of the technology industry and compliance with prudential international legal and regulatory standards. These recent developments have successfully attracted entrepreneurs, developers and innovators looking for a jurisdiction in which they can operate efficiently and legally under a stable and balanced regulatory regime. Leaders in the technology industry believe that the rapid growth of the industry represents new opportunities for the use of blockchain. Technology has had a disruptive impact on varying sectors, including insurance and financial services, and Bermuda has emerged at the forefront.
During 2018, the Government of Bermuda, with the cooperation of industry stakeholders, actively worked on various swift-moving developments to govern initial coin offerings (ICOs), security tokens, digital asset business, including utility tokens and cryptocurrencies, digital asset exchanges and trading platforms, insur-tech, and electronic identification.
Initial Coin Offerings
The Companies and Limited Liability Company (Initial Coin Offering) Amendment Act 2018 (ICO legislation) came into effect in July 2018. Under the ICO legislation, an ICO is treated as a restricted business activity and requires the consent of the Minister of Finance. This consent is subject to an application process and the issuance of a “white paper” or offering document meeting the criteria set out in the ICO legislation including risk warnings and other investor protections.
Digital asset business and exchanges
The Digital Asset Business Act establishes the regulatory framework governing the licensing and supervision of digital asset business which includes 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; and operating as a digital asset services vendor.
The Bermuda Monetary Authority (BMA) regulates any such digital asset business recognising the need for effective regulatory supervision including the regulation of anti-money laundering (AML) and anti-terrorist financing (ATF), fraud prevention, valuation (or price) manipulation and the integrity of owners. The digital asset business regime includes minimum criteria for licensing, as well as a code of practice, statement of principles, client disclosure rules, prudential standards annual returns rules and cybersecurity rules.
The Insurance Regulatory Sandbox is a mechanism by which licensed insurance companies under the Insurance Act 1978 are able to apply for a license from the BMA to allow them to test new technologies and offer new products, services and other delivery methods to certain policy holders (for a set amount of time). A BMA review is necessary to determine appropriate regulatory requirements and modifications to allow the Sandbox testing. Upon successful completion of the Sandbox testing, the company is re- licensed under the relevant legal and regulatory requirements.
To facilitate the development of Sandbox applications, the BMA has formed an insurance innovation working group (BMA IWG) that is dedicated to providing a platform where insur-tech companies can network, exchange ideas and eventually cultivate sandbox-ready products and services. This enables companies to develop innovative concepts simultaneously ensuring that the BMA IWG is actively engaged in open dialogue with insur-tech companies throughout the development of broader insurance solutions.
Electronic identification ledger
Using blockchain technology, the Government of Bermuda announced the development of a national identification ledger referred to as a E-ID to create a uniform platform for KYC/AML requirements in Bermuda accessible to both public and private institutions. The E-ID is intended to reduce duplication of efforts in relation to obtaining hard copies, wet signatures, supporting documents, background check, and more. The goal is to ensure that the E-ID complies with international KYC/AML standards and regulations, including the Personal Information Protection Act (PIPA) in Bermuda and the General Data Protection Regulation (GDPR) in Europe. At the core of the E-ID is the individual’s ability to control third-party access to their information, creating a secure log of personal information and a more efficient way to conduct business in Bermuda.
Immigration policy for fin-tech companies
The Bermuda Government announced the implementation of a new Immigration policy for fin-tech companies desirous of setting up businesses in Bermuda which allows a fin-tech company that is new to Bermuda to receive immediate approval for certain work permits related to Fintech business.
Bermuda’s legislative and regulatory landscape has evolved quickly to foster a jurisdiction that embraces technology and innovation, and as a result the jurisdiction has taken the global stage in this regard. We anticipate further modifications and adaptations as the sector continues to develop.