DARE Legislation Opens the Door for a New Industry

LionPress Summer 2021 Issue

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The recent passage of the Digital Assets and Registered Exchanges Act, 2020 (DARE) puts in place the legal framework for a vital, well-regulated and compliant industry in The Bahamas for those interested in entering the digital asset space.

It also creates specific opportunities for entrepreneurial Bahamian FinTech firms to enjoy the credibility of being licensed and functioning under a comprehensive regulatory regime and to participate in the FinTech industry that is being forged with DARE.

DARE legislation, enacted on December 14, 2020, facilitates the registration of digital token exchanges, and the provision of services related to digital token exchanges. It also provides for the regulation of digital assets-based service providers and businesses as well as the regulation of financial services related to the creation, offer, issuance or sale of digital tokens and other digital assets.

Prime Minister, Dr. the Most Honourable Hubert Minnis recently said that a Fidelity Digital Assets’ Institutional Digital Assets Report illustrates the explosive growth of virtual assets, including virtual currencies, and the need for a jurisdiction like The Bahamas to equip itself with compliant and competitive legislation to participate in the digital asset space.

“The survey of almost 800 institutional investors across the US and Europe indicated that 36 percent of respondents are invested in digital assets, and that 6 out of 10 believe digital assets ‘have a place in their investment portfolio’,” said the Prime Minister.

According to the report, over 80 percent of investors indicated that they would be interested in institutional investment products that hold digital assets.

“As an international financial centre with a considerable wealth management focus, this trending investor interest speaks to the potential for Bahamas-based wealth management experts to offer financial service related to digital assets,” the Prime Minister said.

Echoing the Prime Minister’s comments, Head of Business Development and FinTech with the Equity Group of Companies, Delphino Gilbert Cassar said, “DARE is an important development for The Bahamas. We have been broadening our service offerings in response to the indisputable evolution of the financial services industry towards FinTech products and solutions.”

The Securities Commission of The Bahamas (SCB) has been working in close consultation with industry and external consultants on the development of DARE for the past two years. SCB Executive Director Christina Rolle noted that with the intense interest in digital asset related businesses, it was essential for the jurisdiction to have an appropriate regulatory framework in place.

“The number of queries the jurisdiction has received from entrepreneurs interested in venturing into this form of capital raising has mandated that we ensure legislative and regulatory parameters are in place to address how operators conduct themselves and how token issues come to market,” she said.

Ms. Rolle added, “DARE solidifies a legislative structure with standards for entry into and participation in the digital assets space. These requirements stipulate who may participate, the level of capital required, the rules for reporting and seeking the Commission’s approval, and the penalties for failure to comply.”

Strict adherence to established anti-money laundering (AML) and counter-financing of terrorism (CFT) laws by DARE participants is required under the legislation and licensees are also statutorily mandated to ensure data protection measures are in place to safeguard the personal information of clients as well as to implement measures to prevent data breaches that would jeopardize clients’ digital assets. Specifically DARE participants are required to implement the same AML/ CFT and data protection measures as other regulated financial institutions.

By establishing the legal foundation for a new industry, DARE expands the playing field for financial services activity in the country, potentially creating new businesses and providing expansion opportunities for existing financial services providers and corporate services providers to grow their businesses into the digital space. It also allows for new FinTech operators to establish operations in The Bahamas, or to work with firms already in country.

In developing the legislative framework for DARE, the SCB examined the status and regulatory environment of crypto currencies in competitive IFCs such as Switzerland, Hong Kong, Malta and Gibraltar, as well as the United States.

On the same day the DARE legislation was enacted, The Financial and Corporate Service Providers Act, 2020 (FCSP Act) was also brought into force, providing legal clarity for both corporate and financial service providers. The FCSP Act modernizes the two-decade old legal framework of the existing Act and establishes a full regulatory, internationally compliant framework with appropriate powers vested in the SCB as regulatory authority.

More important from a DARE perspective is that the FCSP Act provides for the registration of persons engaged in the custody of digital assets as well as wallet service providers.

Similar to DARE the SCB began its extensive engagement with the industry in 2016 to develop a modern framework for FCSPs that is in keeping with international best practices and standards.

The Equity Group is positioning itself to provide crypto asset services such as:

  • Custody accounts for crypto assets
  • Online banking access to view periodic reports of one’s crypto asset portfolio
  • Real estate Crypto Sales Liquidations
  • Crypto Asset Liquidations generally
  • Crypto Asset Trade Execution (Buy, Sell, Transfer, Purchase Transactions)
  • Crypto Asset Compliance
  • Support for the following crypto assets: Bitcoin, Bitcoin Cash, Ethereum, Litecoin, and Ripple
  • Trusts for clients with digital assets.

Michael Dean, Managing Director of Equity Investment Funds Services Ltd.: “We assure you that Equity’s crypto asset offerings are underpinned by thorough and enhanced compliance procedures and software purposed to take steps to decipher the source of the crypto assets that customers would like to be held in custody, transferred and received.”

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