The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Securities Commission’s top executive has warned that The Bahamas “cannot sit on our laurels” as she disclosed that further reforms to tighten digital assets regulation will be unveiled “in the next few months”.

Christina Rolle, its executive director, told a webinar debating the Government’s Digital Assets Policy white paper that stable coins, and how such investments are held by exchanges and custodians, will be a regulatory priority as it seeks to build on the supervisory foundations laid by the Digital Assets and Registered Exchanges Act.

Asserting that this law, passed in 2020, provides the correct mix of robust enforcement teeth and sufficient flexibility to enable the legislation to grow with the industry, she added that The Bahamas has to now account for “specific threats” exposed by recent stable coin and other digital asset collapses.

“When we set out to develop DARE, what we saw in the space was a space that at that time was evolving every three to six months,” Ms Rolle said of the Act. “It was really evolving into something entirely different, and the pace of evolution has not slowed down one bit.

“I think it’s typical that when you see something new in the market, the pace of evolution is very rapid until the area matures. We don’t see maturity yet in the digital assets space. We designed DARE with that in mind. What we sought to so, we put in place a framework to regulate the space in a robust way.”

The Securities Commission chief explained that the DARE Act, enacted under the former Minnis administration, gave the regulator the necessary authority to properly supervise the emerging sector, licensing and registering all proper participants, “but at the same time give us flexibility”.

“In that respect, yes, the DARE Act is adequate,” Ms Rolle said. “What we have seen since DARE was enacted in 2020, we have seen additional evolution in that space and now need to address some of those things specifically. We have seen specific threats to the market emerging with some of the collapses we have seen over the past few months. Some of these things have to be addressed specifically.

“It’s good that we put the framework in place the way we did because it allows us to react in a very timely way.” She identified stable coin regulation as one priority, as these digital assets were only just starting to emerge when DARE was implemented.

Ms Rolle and other webinar participants, in particular, referenced the collapse of the crypto token, Terra Luna, launched in July 2019 but which, after peaking at highs of $80 per Luna, was last week selling at just $0.0001074 per Luna. While many believed stable coins were asset-backed tokens, Terra Luna was instead backed by an algorithm.

“You’ll see things coming out in the next few months to address stable coins around disclosure, around the value of underlying assets,” the Securities Commission’s executive director affirmed. “For us as regulators, the consideration is that we’re going to have to become satisfied with these products calling themselves stable coins.

“Other areas that we have to address in DARE are how client assets are held by exchanges or how they are held by custodians, and how they are held on-balance sheet or off-balance sheet. We have to address these types of issue specifically.

“I want to say that the framework is adequate and has the flexibility to evolve, but we in The Bahamas cannot sit on our laurels and think the framework we put in place in 2020 is good and job done. We have to keep evolving as the space evolves.”

Responding to questions from the webinar moderator about The Bahamas offering “friendlier” regulation, Ms Rolle said she “always bristles” at such terms because some will interpret them as meaning “lax” supervision. “If you look at the [entities] coming to The Bahamas,what they are seeking is best in class regulation,” she added.

“There are jurisdictions that have gone the route of a sandbox, gone the route of a light touch regulatory regime. We’ve gone the route of a a robust regulatory regime. We didn’t want a sandbox regime specifically because we saw it as regulation light. We saw it as an environment where people were allowed to play without regulation. 

“In this jurisdiction we said we want to attract firms who want to be partners in building a robust regulatory framework. That was a very strategic decision on our part, and I think what you are seeing is we want to attract larger firms to The Bahamas that want a robust regulatory environment,” Ms Rolle continued.

“I would say we may be friendlier because we took the time to understand the industry, we took the time to understand the space, we wanted to in a very deep way understand the products and understand some of the developments that are emerging which calls for flexibility in our approach.... That is different than what their experience may be in other jurisdictions. In that respect we are friendlier.”

Hubert Edwards, principal of Next Level Solutions, a risk management consultancy, told the TCL Group-organised webinar that the Government’s Digital Assets white paper had “outlined the broad guard rails of where we need to go” but there was much work to be done if The Bahamas is to “get it right” and fulfill its ambitions of becoming a true ‘FinTech hub’ for the Western Hemisphere.

He backed the focus on a robust digital assets regulatory regime as a safeguard against rogue entities who were constantly looking for jurisdictions with minimal levels of supervision. “The Bahamas is saying to the world we are open for business, we want to play in this space, but we are not going to be the lowest one in play,” Mr Edwards said, warning against regulatory arbitrage. “We are not going to run an industry that doesn’t operate on very high standards.”

FTX Digital Markets, one of the world’s largest crypto currency exchanges, has effectively become the flagship entity signalling this nation’s efforts to become a major presence in the digital assets space. Mr Edwards said “you could tangibly feel the energy permeating through the country” when it held its recent Crypto Bahamas conference at Baha Mar.

“There is that great possibility for the spill over of technology for greater inclusion or greater synergies between the traditional financial sector and the emerging sector,” he added. “We would have seen or would have heard that there are multiple applications into the Commission. People are wanting to be here. It’s saying, it signals that The Bahamas is not going to be a loose jurisdiction.

“Persons are agreeing that despite the high standards communicated, it is sufficiently backed and sufficiently moderated that it makes sense to be here.... If properly managed and properly legislated, the intent of being the best player in the Caribbean, and one of the best players in the region - within the global arena - I think it’s really possible.”