Column: The Fintech Flexibility Of Bermuda

May 15, 2020

[Opinion column written by Chris Garrod]

After less than two years, the island’s core digital asset laws are being amended.

Bermuda’s new Digital Asset Issuance Act 2020, which became effective on May 6th, 2020, comes soon after the introduction in 2018 of two fundamental pieces of Fintech legislation.

First, we had what is commonly called Bermuda’s “ICO legislation”, amending the island’s companies’ laws to allow the issuance of digital assets to the public.

Second, we introduced digital asset business legislation, the Digital Asset Business Act 2018 [DABA], creating a framework for the regulation of Bermuda-based digital asset businesses.

The ICO legislation provided that any issuance of, say, coins or tokens to the public required that the proposed offering document related to the ICO be approved by Bermuda’s Minister of Finance [who could call upon the advice of a Fintech Advisory Committee]. The offering had to be vetted initially, but once clearing that hurdle, the offering could commence and it would not be regulated on an ongoing basis.

Fintech Bermuda May 14 2020 1

The DABA regulates those in the business of providing digital asset services: digital asset custodians, crypto exchanges, market makers, for instance. This legislation is aimed at companies providing these as digital services on an ongoing basis. The Island’s regulator, the Bermuda Monetary Authority [BMA] regulates these entities with the mindset of consumer protection.

here is a high bar to meet certain minimum criteria to be able to register as a digital asset business with the BMA and, once established, there are stringent ongoing AML/ATF requirements along with head office requirements.

So, in addition to the DABA and replacing the ICO legislation, we have the new Digital Asset Issuance Act 2020 [DAIA].

The Major Change

Say goodbye to the ICO legislation which was embedded into the Island’s Companies Act and Limited Liability Companies legislation. In 2018, when the legislation was drafted, the term “initial coin offerings” was popular. The term is now viewed less favourably and often associated with fraud, crypto scams and unfortunate issuances like … cryptokitties.

Call it what you want, but an initial coin offering, or any form of digital asset offering, fundamentally has one underlying purpose: crowdfunding using distributed asset technology — blockchain.

One of the key advantages to such offerings is that they offer financing for small and medium-sized enterprises [“SME’s”] and start-ups: entities which cannot contemplate undertaking an expensive initial public offering, or other traditional methods of funding to begin their business.

So Bermuda has now created the Digital Asset Issuance Act  regulating “digital asset issuances” and not “initial coin offerings”. The scrapping of the ICO legislation and the introduction of a new digital asset issuance regime ,  the DAIA ,  is dramatic. Digital asset issuances, unlike the majority of other jurisdictions, are now subject to regulation.

Bermuda’s House of Parliament [Darryl Brooks]

House of Parliament Bermuda May 14 2020

The DAIA: Regulation

Digital asset offerings have become increasingly less attractive. One of the main reasons for this is the fact that there is no, or very little, regulation of this space. A majority of countries still have no digital asset offering regulation in place.

While the regulation of digital asset issuances brings certain disadvantages [such as a lack of speed to market, a degree of inefficiency and inflexibility], the increase in consumer and investor protection, greater legal certainty, and overall regulatory supervision are very attractive features for potential digital asset buyers which could help foster confidence in this sector.

For SME’s looking to raise capital a safe regulatory environment can have huge benefits.

Step forward Bermuda with the introduction of DAIA, looking to create a positive and safer environment for digital issuances.

Prospective digital asset issuers will require an application process similar to that of the DABA. An entity making an offering to the public [over 150 persons, rather than 35 persons which the ICO legislation required] must file a business plan for review and vetting by the BMA [not the Ministry of Finance]. The BMA is a longstanding, well respected regulator and the application will attract a significant level of scrutiny from the BMA.

At its core, much of the legislation has been drafted with the protection of the average digital asset investor or purchaser in mind.

Built into the legislation are numerous powers granted to the BMA specifically to ensure that digital asset issuers are held accountable for their offerings. There are certain content requirements for the disclosure documents in order for potential investors to have as much information as possible.

For example, the persons behind the issuance should be disclosed. An appropriate risk warning must appear in the issuance document clearly setting out any rights or risks in relation to the digital assets being offered. That would include detailed information regarding the investor’s rights if the offering doesn’t proceed and what substantial risks there may be which are reasonably foreseeable.

The application to the BMA must include a copy of the issuance document for the BMA’s Fintech team to review, along with the applicant’s arrangements for the management of the offering. The BMA, of course, can request such other information it views as reasonably necessary in order for it to assess the application.

The BMA is further able to make rules relating to the issuance of the digital assets and these could cover matters such as risk management, information technology and cybersecurity, financial reporting, KYC, due diligence, recording keeping, custody arrangements and any other matter which the BMA deems appropriate.

A digital copy of the signed issuance document and whatever accompanying documents are required to comply with any rules promulgated by the BMA will all be published by the BMA. An electronic “communication facility” must also kept open during the period of the offering for people to be able to post messages, see messages made by others and ask the issuer questions regarding the offering.

The facility is an excellent way to allow the persons behind the issuance to be able to respond to any queries which potential investors may have prior to investing.

Other DAIA Protections

From a high level perspective, the DAIA has embedded within it certain other protections which are provided to the BMA:

  • a requirement to appoint a BMA-approved local representative who must report certain events to the BMA [e.g. a possibility of insolvency, failure to comply with BMA conditions, material misstatements, etc.];
  • material change approval requirements [such as if the entity plans to make a new offering of digital assets or wishes to make any change to its most recent issuance document];
  • imposing a broad range of conditions, prohibitions or requirements such as removing officers, limiting the scope of the issuance and entering into any other class of transactions;
  • revoking the authorisation to act as a digital asset issuer; and
  • winding up the issuer.

There are also requirements to seek the BMA’s no-objection in connection with changes to any 10% shareholder controller or a majority shareholder [i.e. one with more than a 50% controlling interest in the entity] and there are notification requirements if there are changes of directors, senior executives, managers or officers of the entity which must be made to the BMA.

In addition to the above, the BMA has been granted various disciplinary measures [e.g. injunctions, public censure and prohibition orders], rights to obtain information [including rights of entry, if need be] and investigation rights and powers to require documents.

Map and Flag of Bermuda [blodg]

Map and Flag of Bermuda May 14 2020

Regulation Works

Government: Bermuda is a jurisdiction which already has a Fintech framework in place. It has a very Fintech-friendly Government, led by Bermuda’s youngest ever Premier, the Hon. E David Burt. He is backed by a Fintech and Blockchain development team led by Denis Pitcher, an Economic Development Department and also several private industry Fintech committees and organisations looking to help the jurisdiction develop this industry.

To facilitate formations, there is a Government of Bermuda Concierge Service which will assist entities seeking to incorporate and set up their operations on the Island. This includes assistance on matters such as registering with the Department of Social Insurance, payroll tax registration and any necessary work permit applications from the Department of Immigration.

The Regulator: Bermuda is the second-largest reinsurance jurisdiction in the world and is regulated by an advanced and sophisticated regulator which has been operating and regulating insurance companies since 1978. It has a dedicated Fintech devoted team, which operates and regulates Fintech vehicles using very similar legislation to the Island’s insurance legislation.

Just as the BMA treats insurance applicants, its door is always open to DABA and DAIA applicants. They are happy to discuss applications prior to being formally filed; that is an opportunity which is invaluable to potential issuers thinking of starting down the road towards a Bermuda formation. From the BMA’s perspective, it can be an early opportunity to weed out applicants that clearly do not meet Bermuda’s standards.


The Government and its advisors remain very keen to stay on top of the Fintech environment and the industry it has already built. It has been repeated many times: Bermuda is in favour of quality over quantity. The island wants to admit those who understand this regime; not those who don’t.

Bermuda will listen, and it will assist those who do. Also, with the current financial uncertainty as a result of the COVID-19 virus, the new DAIA, along with the growing digital asset business sector, should help foster increased foreign direct investment into Bermuda’s economy.

The aim of DAIA is to attract those digital asset issuers to Bermuda who wish to be regulated in a well respected, blue-chip environment which could help potential purchasers overcome their fears of investing in an unregulated space. Based on the experience the island has with its current Fintech leadership, Bermuda has an understanding of the potential for over-regulation.

The tightrope between under-regulating and over-regulating in the digital asset world is a difficult one to navigate but Bermuda is confident it has struck the right balance.

With the regulatory and legal infrastructure that has been carefully assembled, the Island offers Fintech flexibility, an element very much required in this still nascent and ever evolving industry.

- Chris Garrod – Opinions on digital transformation including Fintech, AI, Insurtech, Blockchain, Crypto and Legaltech.


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Comments (2)

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  1. Jack Archer says:

    Ok, great – but what does this mean for Bermuda and jobs for Bermudians?

  2. Hey says:

    What happened to Arbitrade and the building behind City Hall?

    Isn’t blockchain dead?