The Tribune

• Nation overcomes FTX ‘material effect’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Attorney General yesterday argued The Bahamas is “leading from the front” on digital assets regulation as he sought to portray the jurisdiction as the ideal domicile for industry providers.

Ryan Pinder KC, addressing the D3 conference staged by the Government and Securities Commission, called on sector attendees to “judge us” by the Bahamas’ achievements and upcoming reforms that will see an enhanced Digital Assets and Registered Exchanges Act tabled in, and debated and passed by Parliament, before year-end 2023.

Conceding that the FTX crypto exchange’s implosion in November 2022 “had a material effect on the industry in The Bahamas”, he argued that this nation’s ambitions to become a major digital assets hub had survived the fall-out as “businesses continue to licence themselves to operate from The Bahamas in this space”.

Mr Pinder also pointed out that the Financial Action Task Force (FATF), the global standard-setter in the fight against money laundering and terror financing, had found The Bahamas compliant with its measures for digital assets services providers “after, not before” FTX’s collapse - thereby showing that the crypto exchange’s failure did not reflect, or result from, any regulatory weaknesses in this nation.

Setting out The Bahamas’ pitch to attract more digital assets services providers to these shores, and asserting that this nation is leading in striking the correct balance between regulation (consumer protection) and fostering innovation, the attorney general said: “We do not, in The Bahamas, believe regulation should stymie innovation.

“In fact, it’s quite the opposite. We believe that because of quick development and evolution of different components of fintech (financial technology) that proper, measured and nimble regulation is required for innovation and for development of the sector. Regulation, if done correctly and is measured, will cause for fintech developments to be respected internationally, giving them an adequate market and a viable environment in which to sustain and grow.”

Mr Pinder argued that The Bahamas’ ability to “switch and be nimble, and create policies and regulations” that enable this country to keep pace with innovation in digital assets should give it a competitive advantage over larger, more “bureaucratic” countries in the developed world.

“Regulation in fintech always seems to be late to the game, and always seems to be trying to catch up to the latest innovations and developments,” he added. “In particular, large countries with bloated bureaucracies and slow governance seem to take the longest to keep up with regulation and innovation in fintech.”

Citing the US and Europe as examples of the latter, Mr Pinder said digital assets firms that have invested heavily in operations in such locations were now frequently finding themselves non-compliant once regulations caught up, thus exposing themselves to “an enormous regulatory burden”.

“Alternatively, although some might say still not keeping pace with industry developments as they should be, smaller jurisdictions like The Bahamas are able to establish policy and a regulatory framework to quickly assist evolving fintech industries with a framework in which they operate.

“So our ability to switch and be nimble, and create policies and regulations to try and keep pace with innovation in what smaller financial centres like The Bahamas thrive on. That, we believe, is the greatest asset to innovators like yourselves,” Mr Pinder continued.

“This provides certainty, mitigates regulatory and political risk, and establishes a friendly, well-regulated jurisdiction for your companies to innovate. Because that’s what it’s all about. Safe innovation. Dependable and transparent innovation.”

Mr Pinder warned that operating in unregulated jurisdictions, and engaging in unauthorised activity in the digital assets world, is “now taboo and, some would say, criminal” as international regulatory bodies extend their standards and monitoring beyond traditional financial services. “Gone are the days of anonymous transfers of crypto currency,” he added.

“I would put forward that large economies are not where fintech firms will be given the flexibility and predictability to innovate. It is the smaller international financial centres that meet internationally-recognised regulatory standards, and have the natural human resources capacity from within and infrastructure from within for fintech operations to depend on which will give the fintech industry a suitable platform from which to grow, innovate and be successful.

“Naturally, I would propose that The Bahamas is just this place, but I’m biased. I tell you: Don’t judge us by what we say, but by the accomplishments that we have achieved and the policy and regulatory framework we propose to put in place going forward.”

Mr Pinder continued: “The Bahamas is a jurisdiction that takes pride in leading from the front and advancing regulatory innovation and compliance in the global marketplace. This isn’t new to us. We are an established financial centre, one that has seen the ups and downs, the valleys and the peaks, of what it means to be in the financial services business.

“One that has human infrastructure to support any kind of financial services business globally. We’ve seen it change over time, and we lead from the front when we regulate. Judge us for our accomplishments.”

Mr Pinder said digital assets remain “a viable industry” despite FTX’s implosion, given that the sector in The Bahamas continues to expand and grow via the addition of new licensees. “The innovation demonstrated by The Bahamas drew the attention of many businesses in the crypto currency industry, known to be a highly volatile industry at its juvenile stage in development,” he added. “That’s OK. We’ve done this before.

“Our innovation in this area resulted in almost immediate growth and success. Of course, we all know what happened. A major insolvency had a material effect on the industry in The Bahamas, although we should recognise that clearly we have a significant amount of well-respected licensees that continue in The Bahamas.”

The attorney general argued that the soundness of The Bahamas’ digital assets regulatory regime had been affirmed shortly afterwards by the FATF finding this nation was in compliance with anti-financial crime standards for providers.

“We became compliant with Recommendation 15, which addresses anti-money laundering, after, after the collapse of FTX, not before,” Mr Pinder said, “which shows that international regulatory institutions respect and agree on what we’re doing and regulating an infant, developing industry that may have a failure which is not indicative of the environment they’re operating in. That’s important to note....

“You’ll see one country is leading from the front in compliance. That’s The Bahamas. Again, you don’t have to believe what I say but recognise the accomplishments we have achieved.” Mr Pinder said blockchain and crypto currency are two key components of the digital assets industry, but do not represent its only niches.