Long renowned for its financial services sector, Bermuda has become an innovation hub for global digital assets companies searching for ground-breaking solutions
In 2018, Bermuda created a foundation for fintech regulation with the Digital Asset Business Act (DABA), a ground-breaking, transformational set of laws and policies that provided legal clarity and transparency for the fintech industry. Shortly after, DABA was enhanced with the Digital Asset Issuance Act 2020 and the Digital Asset Issuance Rules 2020, which updated the criteria and provided clarity regarding the issuance of digital assets.
Bermuda has benefited from the global recognition of its digital leadership and unrivalled risk-management. The latter had been spurred by an active and inclusive regulator of financial services, the Bermuda Monetary Authority. Modelled on that global recognition and on the success of the island’s insurance and re-insurance industry, a solid, secure regulatory environment has been paved for both global and local innovative companies.
The Three Cs of Fintech
Bermuda’s collaborative approach towards building best practices – which is exemplified in the re/insurance industry – was the perfect template to establish an enviable regulatory framework, through which risks are mitigated via the three Cs of Fintech: Cybersecurity, Custody and Compliance.
- Cybersecurity – is a significant industry issue where it is no longer a question of “if you’ll get hacked” but “when.” The framework has put in place clear requirements around the means to prevent cyber-attacks and to respond and mitigate them if, or more aptly when, they happen. Cybersecurity is one of the world’s biggest areas of concern, particularly as institutions are still grappling with a relatively new digital economy, involving new ways of doing business in a volatile and complex environment made all the more unpredictable by Covid. Bermuda is driving innovative approaches to providing a cyber-proof fintech ecosystem which is attracting more businesses to the Bermudian market. For digital value to be exchanged, secure and robust systems must be in place. Cybersecurity is centre stage for Bermuda and preventative measures are critical to mitigate against future risk. A cyber-led digital economy is necessary to boost productivity and aid economic growth.
- Custody – the framework is built around ensuring that there are clear procedures, protections, and guidance together to make sure that Bermuda’s companies distinguish themselves, can follow best practice, and are globally competitive. This has given them additional credibility and security.
- Compliance – compliance is the elephant in the room in terms of risk. Part of the reason finance has been so slow to adapt to technology is the ever-increasing list of requirements pursuant to Know Your Customer and Anti Money Laundering regulations, which can be costly and complex. The challenge is that many companies prioritise growth, often at the expense of proper compliance, and that introduces significant business risk. Bermuda has led the way to help businesses navigate the dynamics and complexity of compliance, and places prominently within its frameworks the significance of ensuring that data is protected from misuse.
Bermuda’s structure allows companies to progress a concept from an idea until go-to-market readiness. DABA’s licensing regime provides different licenses that vary depending on the company’s growth stage and readiness:
- The test license (Class T – test “alpha testing environment”) provides an environment for businesses looking to develop a business model. The purpose is to gain a more specific understanding of the risks of that business so that it can define for itself appropriate risk management policies and procedures. Self-risk management also enables greater accountability and responsibility by the businesses.
- The sandbox license (Class M – modified, “beta testing environment”) allows the operation of specific business activities within a defined scope and time period. This is designed for companies whose principals understand their business model and have scoped out the risk management policies and procedures but have not yet demonstrated the ability to implement them. The sandbox provides the environment to experiment with implementation under the supervision of a competent regulator.
- The full license (Class F – full, “production environment”) permits the full operation of a fintech business in accordance with a business plan and according to the approved classes of activities.
From Alpha to Beta to Production, Bermuda is set to provide the necessary innovative platform and benchmark to support the next generation of unicorn global companies. Many parts of the world are still grappling with how to regulate and manage risk with fast-transforming assets. Indeed digital assets, although relatively new, are gaining global traction. With the Government of Bermuda’s flexible and collaborative approach, the jurisdiction has led the way by lowering barriers to innovation, fostering a diverse business community, and supporting digital asset businesses to thrive.
The Currency Standard Initiative
The introduction of the Currency Standard Initiative (CSI) enables the development of standardised and harmonised rules for the private issuance and the distribution of digital value across interoperable systems. It could boost growth not only in Bermuda but across the world, supporting the renaissance of financial services, improving cross-border trade and opening up new market opportunities.
According to Michelle Chivunga, CEO, Global Policy House and member of the Bermuda Fintech Advisory Board: “CSI is an important instrument that can change the way institutions and global stakeholders interact. Imagine the removal of silos – that would significantly enable better coordination between policymakers, business leaders, regulators and innovators working together to bring not only profitable returns but sustainable and impactful value that is changing people’s lives.”
Chivunga – who was also a “Top 10 Woman in Blockchain in Africa 2020” and a “Top 40 Global Fintech4Good Fellow 2020” – continues: “At Global Policy House, we care about people and we want them to have access to this next generation of value and wealth which can complement what we have today. Mitigating risk is vital, but what is unquestionable is the digital revolution bringing a new kind of value that provides opportunity to so many who had been cut out before. Bermuda is leading the way to safely build wealth that trickles down across whole communities. What could be more exciting?”
With the current regime regulating digital assets, Bermuda is at the cutting-edge of an emerging, disruptive technology. This is allowing it to create jobs, build an ecosystem that is best-in-class, generate incremental revenue, and leave for future generations a world that is innovative, customer-focused, and sustainable.
Companies looking for a world class jurisdiction to grow their business – with a forward-thinking government that welcomes entrepreneurs – will discover exactly this in Bermuda. You can find accelerators and incubators anywhere in the world, from London to New York to Singapore, but there is only one place that is a dedicated innovation campus – and that is Bermuda. Bring your business to the island, innovate securely and feel the magic of Bermuda.