The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Reforms to The Bahamas’ digital assets regulatory regime must send a “strong message” that this nation remains open to innovation and has not been spooked by FTX’s collapse, an industry entrepreneur urged yesterday.

Kevin Hobbs, chief executive and founder of Aventus Ventures, and a blockchain investor for ten years, told Tribune Business that The Bahamas has “a great chance to attract” more digital assets businesses and activity to its shores provided the Digital Assets and Registered Exchanges (DARE) Bill 2023 takes a risk-based, firm-by-firm approach to supervision.

Acknowledging that FTX’s implosion had disrupted, and blunted, The Bahamas’ ambitions to establish itself as a digital assets business for the wider region and Western Hemisphere, he added that it was vital the reforms provide “clarity” and clear guidelines for what those firms eyeing this jurisdiction can expect should they domicile here.

Mr Hobbs, who has established “a couple” of digital assets companies in The Bahamas because of “the strides” made with the existing DARE Act, told this newspaper he was personally aware of six Canadian digital assets players who had started the process of obtaining approval to operate in this nation but had placed this on hold because they were “a little bit shaken and scared” as to what the regulatory reforms might bring.

But, while not having studied the newly-released DARE Bill 2023 Bill in detail, he backed the Securities Commission’s moves to increase the reserves requirement for digital assets exchanges and ban algorithmic stable coins such as Terra Luna given the problems that were exposed by 2022’s so-called ‘crypto winter’.

“It’s extremely important that they update it and kind of move with the global trends but not be too restrictive because if they’re too restrictive they’re going to lose the potential business looking to domicile and wanting to come to The Bahamas,” Mr Hobbs said. “They had a bad experience with FTX, but you don’t want to be too restrictive with other crypto companies because of that.”

While the DARE Act reforms need to protect investors, clients and operators, he added that this has to be balanced with not penalising innovative companies because of what occurred with FTX. “You want to look at businesses individually,” Mr Hobbs said, calling on The Bahamas to avoid the enforcement-led approach preferred by the US.

“As long as The Bahamas doesn’t go the way the US is going, and takes a more individual approach to regulation, a more innovative approach to regulation, I think The Bahamas has a great chance to attract a lot of companies,” he told Tribune Business.

“Right now a lot of companies want to come to The Bahamas but they’re a little bit shaken and scared by the new regulations. I hope they do not regulate by enforcement. Hopefully they’ll take an open-handed approach that does not stifle innovation. I just know of those six [companies] because I’m familiar with them personally.

“They’ve started the process but kind of put it on hold until they get some clarity on is it going to be worthwhile. Are companies that are going to come here going to get clear guidelines on what they can and cannot do to run their business? That’s the biggest thing in crypto. People need clear guidelines; they can do this, they can’t do that.”

Mr Hobbs said banning algorithmic stable coins such as Terra Luna was the correct move given the fragility of the digital assets business, as he branded the product “too dangerous” and “a house of cards”. He added of the Securities Commission: “I like the approach they’re taking with it so far as long as they still have an approach where they look at each individual business, assess the potential and potential risk that has for The Bahamas.

“I think they can still come out with a real strong message that can attract talent to The Bahamas. I have numerous potential investors waiting to see what is going on before they invest in The Bahamas. As long as it’s not a warning message: ‘Don’t come here to try that’. The Bahamas had really good results in 2021 and early 2022. Unfortunately FTX started unravelling that for a bit.

“But people are not moving away from The Bahamas. They still are waiting to see what The Bahamas is going to do, what the message is going to be and, if the message is clear and positive, they will start the process all over again.”

The Securities Commission, in outlining the major reforms contained in the DARE Bill 2023, listed the operation of digital assets exchanges as one area that will be strengthened, and referred to “lessons learned” from last year’s so-called ‘crypto winter’, but studiously avoided any link to FTX.

Nevertheless, given the fast-paced evolution of the digital assets industry, the Securities Commission has constantly acknowledged that the DARE Act 2020 - the centrepiece of its regulatory regime - must be upgraded. It is hoping that Parliament will pass the Bill into law by the end of the 2023 second quarter, which is just two months away at end-June.

“In light of lessons learned during the so called ‘crypto winter’ of 2022, the Commission identified aspects of the DARE Act that require further consideration,” it told industry stakeholders.

“In April 2022, the Commission began consolidating its ongoing review of DARE for the purposes of addressing any legislative gaps, ambiguities and procedural concerns within the legislation.” The international law firm, Hogan Lovells, was hired to draft the new Bill, and the Securities Commission promised: “The DARE Bill 2023 will establish new regulatory frameworks to ensure the Bahamian legislative regime is current, proactive and compliant with international standards and best practices.

“The DARE Bill 2023 encompasses a comprehensive range of digital asset activities and establishes appropriate protection mechanisms for the registration and ongoing supervision of operators that align with prevailing international standards.

“The new DARE Bill represents an even greater focus on consumer and investor protection, robust risk management as well as market development and innovation. Furthermore, the DARE Bill 2023 explicitly addresses staking services in the context of international standards, making it among the first legislation of its kind.”

Stablecoins will be regulated for the first time, with the issuance of algorithmic stablecoins prohibited. “The amendments provide a clear definition for stablecoins, provide for the registration of existing stablecoins, specify acceptable forms of reserve assets and establish new requirements for custody and management, segregation, reporting and redemption of reserve assets,” the regulator added.

As for the issuance of digital assets, the Securities Commission added: “The DARE Act requires that issuers of digital assets in or from within The Bahamas must comply with several obligations aimed at protecting investors, primarily as related to initial token offerings.

“These include fit and proper requirements for the issuer, the requirement to prepare an offering memorandum unless an exemption applies, continuing disclosure obligations and purchasers’ rights to rescission or damages and withdrawal.

“Under the DARE Bill 2023, a voluntary registration regime will be established for persons who issue digital assets from outside of The Bahamas to persons outside of The Bahamas or otherwise not in the scope of the issuer requirements under the DARE Bill 2023. The Commission will keep a register of initial token offerings containing specified information.”