The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The deputy prime minister yesterday voiced optimism that proposed fintech/crypto regulations will make The Bahamas a Caribbean leader, adding: “We’re knocking on the tip of the iceberg.”

KP Turnquest told Tribune Business that the Digital Assets and Registered Exchanges Bill 2019, which has just been released for industry consultation, was designed to “keep us on the cutting edge” in a fast-evolving space and give the Bahamian financial services industry new products and services to market.

Confirming that the government views fintech (financial technology) and crypto/digital assets as one element in its strategy to reposition the financial services sector, and re-establish a competitive advantage, Mr Turnquest said embracing such innovation also went “hand in hand” with its Grand Bahama technology hub ambitions.

He argued that demand from industry players was already evident given that the government had first received inquiries in late 2017 from both “big entities and small start-ups” wishing to use The Bahamas as their base for a variety of crypto and digital asset-related activities.

Mr Turnquest said the government had been reluctant to issue any approvals until the necessary regulatory framework was in place, so that The Bahamas’ integrity and reputation were protected from “bad actors” who had already undermined other states.

The so-called DARE Bill 2019, an acronym of its first letters, is designed to address these concerns. It is currently being studied by the private sector, both locally and internationally, with the deputy prime minister confirming that the legislation aims to achieve the appropriate level of “light touch” regulation that is balanced with the need to protect investors and The Bahamas.

“We’ve been approached from the end of 2017 by various players, some small start-ups, some big entities, who were interested in relocating their business to The Bahamas and setting up various aspects of this crypto sector,” Mr Turnquest told Tribune Business.

“We were reluctant to do anything of a significant nature as we wanted to make sure we had the regulations in place so we didn’t run afoul of our international obligations or subject ourselves to bad actors.”

He added that the Securities Commission was “immediately commissioned” to examine the situation and “guide” the emerging fintech/crypto sector to a place where it was both regulatory compliant and “attractive to players in this space”.

With the DARE Bill now released for an eight-week industry consultation, Mr Turnquest confirmed that the Government viewed the digital niche as one part of a larger strategy to reposition the financial services industry and regain The Bahamas’ competitive advantage following two decades of being hit by international regulatory demands.

“That’s exactly the point,” he told this newspaper. “Certainly, as we look at the changing landscape in financial services, we know we need to develop new products for the industry that are compliant and attract new players to the market.

“This is an attempt to keep us on the cutting edge, and give us the potential for new product to market and attract business to the destination. This is a significant sector that is growing globally with significant players in the market, so if we are able to attract some of that back-end business to The Bahamas, and some of the exchanges that facilitate that kind of activity, it could be a significant asset to our portfolio of investment opportunities.”

Mr Turnquest pointed to the Bahamas International Securities Exchange’s (BISX) interest in creating a crypto and digital securities trading platform, as revealed by Tribune Business earlier this year, as one example of the “downstream” possibilities that exist for local companies and entrepreneurs in this space, as well as professionals such as attorneys and accountants.

“We’re knocking on the tip of the iceberg in this space,” the deputy prime minister told Tribune Business, “and hopefully that will lead to some untapped area where we will become the knowledge leader, and the leader in this space, in the region. We know there is potential in this market and want to position ourselves to take advantage of it.”

Asked about the potential synergies with the Government’s technology hub ambitions for Grand Bahama, Mr Turnquest added: “It works hand in hand. This whole initiative is based around technology, and evolving use of platforms such as blockchain, so it works hand in hand.

“Having regulation in place will help to guide this industry as we aim to inspire it, give confidence to the industry and those who invest in it.”

The Bahamas is not the first regional international financial centre (IFC) to pass laws regulating crypto and fintech activities. Bermuda already possesses such legislation, while others such as the Cayman Islands have made no secret of their ambitions and intentions to follow suit and target this market.

Mr Turnquest, though, said it was vital to strike the correct balance between fostering innovation and protecting The Bahamas and its clients through a well thought-out regulatory framework. This, he added, was why international advice and consultation had been sought in developing the DARE Bill.

“We know there’s been attempts at regulation by several states,” Mr Turnquest said. “One tried it without regulation and crashed, causing reputational damage, and we want to avoid that as best we can.

“We want to be light touch, and not tie it up in bureaucracy and make it difficult to operate, but at the same time have in place Know Your Customer (KYC) rules, customer due diligence rules, and a regulatory framework that eliminates any of the issues associated with doing business internationally.”

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.