In a consultation paper released last week, the Bermuda Monetary Authority (BMA) proposed a framework for developing responsive regulation for the country’s expanding FinTech and cryptocurrency industry. The paper introduces draft legislation that will apply to businesses providing services within the domestic virtual currency industry, including virtual currency exchanges and wallet providers.
Worldwide, financial regulators have encountered difficulty extending existing securities and financial legislation to virtual currency and related projects. Attempts to regulate in this area are often motivated by a desire to protect investors or to prevent illicit activities like money laundering. However, many jurisdictions are also attempting to design regulations that also foster innovation and economic growth.
In an information session hosted by Wayne Caines, the Bermudan Minister of National Security, and covered by the Royal Gazette, government officials cited an increasing demand for regulatory certainty around cryptocurrency businesses. While some cryptocurrency businesses and projects focus on decentralization and self-regulatory solutions, other businesses increasingly seek to operate and grow within regulatory environments where their employees, contributors, and clients aren’t exposed to uncertain legal and financial risk.
The Regulatory Sandbox
Notably, Bermuda’s consultation paper proposes allowing innovative businesses in this sector to participate in a “regulatory sandbox” as part of their licensing system. Regulatory sandboxes allow businesses to consult with regulators while developing innovative products, services, and business models. The sandbox model also limits exposure to regulatory consequences while a business refines their offerings. Participation also provides regulators with essential information and feedback for designing effective, responsive and appropriate regulation.
If the proposals are implemented, Bermuda will join countries like Canada and the United Kingdom in adopting the regulatory sandbox approach to cryptocurrency business. The 150-page consultation paper and related proposed legislation can be accessed via the BMA’s Notices page. The paper and its proposals are open for comment from the industry and the public until May 2, 2018.