The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas has no choice but to embrace fintech and crypto assets if it wants “to remain relevant” in the global economy, a former attorney general warned yesterday.

John Delaney, principal of the Delaney Partners law firm, told Tribune Business that this nation faced “becoming a bit of a back water” unless it caught up with such rapidly-evolving trends and harnessed them for its own economic benefit.

Speaking as the Securities Commission “dared” to regulate the emerging sector with the formal release of its Digital Assets and Registered Exchanges Bill 2019 (the DARE Bill) for an eight-week public consultation, Mr Delaney said The Bahamas’ status as an international financial centre (IFC) meant it simply has to “keep up or be left behind”.

He emphasised that it was critical for The Bahamas to strike the correct balance between an appropriate level of supervision that provided ample protection for investors, and the reputation/integrity of this nation’s financial services industry, but which did not over-regulate the sector such that innovation was “stifled” and this nation bypassed and “overlooked”.

Backing the issuance of the Securities Commission’s regulatory proposal, Mr Delaney said: “I think the whole crypto space, and whether it be crypto related to shares or crypto related to assets, all of that is clearly a new formula in the evolving ingenuity of commerce.

“Given the way The Bahamas has chosen to participate in the world economy for almost a century now, in terms of being at the forefront of international financial centres (IFCs) and being a well-regulated one, it’s important that The Bahamas has the infrastructure to oversee that activity.”

The former attorney general said digital, technology-driven financial services was not something The Bahamas could afford to ignore regardless of whether it can be exploited to give this nation a competitive advantage.

“I don’t see it as a matter of relaunching; it’s a matter of The Bahamas remaining relevant in the international economic space,” Mr Delaney told Tribune Business. “The Bahamas must evolve otherwise it will lose relevance and become a bit of a back water.

“We also need to be alert to ensure that, whatever regulation is needed, it must be effective and there is no under-regulation or over-regulation. If it is the latter, the industry will be stifled and we will be overlooked as a place to do business.”

The Ministry of Finance’s statement yesterday on the DARE Bill made clear that the Government sees Fintech and crypto/digital assets, together with associated technologies such as blockchain, as a key niche that - if harnessed correctly - can reposition and relaunch The Bahamas’ financial services industry in the wake of recent “blacklisting” threats and attacks.

While acknowledging the “disruptive” power of such innovations, the Ministry said it viewed them - in combination with the DARE Bill - as giving The Bahamas a potential competitive advantage and levelling the playing field for its financial services industry.

Revealing that it continued to field inquiries from persons and entities wanting to use The Bahamas as a base for initial token offerings (ITOs) and security token offerings (STOs), along with investors looking to establish crypto start-ups, exchanges and custodian businesses, the Ministry said oversight needed to be brought to what is currently an unregulated sector.

K P Turnquest, deputy prime minister, said in a statement: “The whole issue of crypto currencies and assets is very dynamic. We have been deliberate in creating a regulatory environment that safeguards the country’s economic interests and shores up our global competitiveness. These efforts will help to grow our reputation as an innovative and responsive financial centre.

“New legislative initiatives will facilitate these growth opportunities and drive innovation and diversification in the industry. “Disruptions caused by the digitisation of the economy are leading to a new wave of regulatory reform.

“As countries around the world innovate new ways to safeguard against the erosion of their tax base, these developments will undoubtedly affect us here in The Bahamas. With the DARE legislation we are looking to the future, anticipating and preparing for the changes on the horizon, forming coalitions to influence the nature of change.”

Mr Delaney yesterday voiced hope that the DARE Bill had been benchmarked against jurisdictions that have already sought to regulate Fintech and crypto assets, and that efforts had been made to learn “whether they got it right”.

“The whole idea of our regulator, the Securities Commission, being alert and watchful to ensure we have the right regulatory infrastructure is definitely the right way to go,” he said. “Regulation is good thing, as it gives credibility to a jurisdiction, in particular, if we get it right.

“In and of itself it’s a newly-evolved area in terms of international economics. It’s a new way of business. If we are to remain relevant we must evolve to be responsive to the needs of the international market in such areas.

“Fintech (financial technology) has been recognised as being something that will revolutionise the financial services industry. It is the natural path the financial services industry is taking. We have all encountered that in retail banking, how different it is today from two years ago,” Mr Delaney continued.

“It’s absolutely critical that if we’re going to remain relevant in the financial services space internationally we stay abreast of this thing and ensure we have the infrastructure - technology and skills, as well as regulatory. We keep up or we get left behind. It’s as simple as that.”

Cryptocurrency advocates yesterday hailed the Securities Commission’s unveiling of the DARE Bill as “a step in the right direction”, calling for a “level playing field for all entrants”.

Businessman Wayne Johnson told Tribune Business: “I think it’s a step in the right direction in terms of getting the jurisdiction to be a place that is crypto friendly. For crypto-enthusiastic individuals that want to do that kind of business in The Bahamas this is great news. I think it’s an excellent step.

“I will have to look closely at the draft legislation but, as I have said before, it must be in line with the entrepreneurial needs of the community in terms of technology and innovation taking place in this space. It must be a level playing field for all entrants. I look forward to reading over the legislation, adding my comments and being a part of the consultation.”

Christina Rolle, the Securities Commission’s executive director, gave an insight into the potential size of the market during a presentation, entitled Fintech: Balancing innovation and regulation, to the recent International Business & Finance Summit (IBFS) in Bimini.

She noted that some 1,257 initial coin offerings (ICOs) took place in 2018, raising a combined $7.852bn. More than 100 crypto exchanges are present worldwide, with the leaders conducting billions of dollars worth of trading activity.

The DARE Bill’s main goal, according to the Securities Commission, is to regulate the issuance, sale and trading of digital/crypto assets in or from The Bahamas. Initial token offerings will be covered by the new regime, while sponsors and intermediaries promoting such issues must be registered with the regulator.

Digital asset businesses, including crypto exchanges, will also fall under its oversight, along with custodians and wallet services providers. All participants in the sector will be required to implement stringent data protection measures and adhere to the same anti-money laundering and counter terror financing regulation imposed on traditional “bricks and mortar” operators.

The Securities Commission, which is due to shortly publish a policy paper to accompany the DARE Bill shortly, said: “The Bill proposes a legislative structure with standards for entry into, and participation in, the digital token 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.

“The Bill applies to any person who as organiser, issuer, founder, sponsor, wallet provider, exchange, purchaser or investor participates in the formation, promotion, maintenance, organisation, sale or redemption of an initial token offering. However, it does not apply to a person only by reason of his acting in a professional capacity on behalf of persons engaged in procuring the organisation, promotion, issuance, sale or trade of digital assets, or security tokens.”

Ms Rolle said in a statement: “Over the last year, the number of queries the jurisdiction has received from entrepreneurs interested in venturing into this form of capital raising has mandated that the jurisdiction ensure legislative and regulatory parameters are in place to address how operators conduct themselves and how token issues come to market.”

Robert Lotmore, the Securities Commission’s chairman, added: “The Securities Commission has been working in close consultation with the industry on the development of this Bill, which we anticipate will be the first piece of a suite of legislation that will establish the regulatory framework for crypto assets in The Bahamas.

“A comprehensive policy position paper will be released next, and the Securities Commission looks forward to input from the industry and general public on that as well.”