The Tribune

By Fay Simmons

Tribune Business Reporter

jsimmons@tribunemedia.net

THE DARE act will have to adjust to the inherent risks associated with crypto currency after the collapse of FTX, including dealing with staking and separation of assets, said Christina Rolle, executive director of the Securities Commission of the Bahamas, yesterday.

She said: “What we’ve seen since…FTX, what we saw leading up to that was a crypto winter that really informed a lot of what we saw as risks in the in the industry. And so as regulators, we saw that this is now beginning to look like some other things we understand, and so we know how to deal with it.

“And so what you would see is the evolution of the regulation, we’re now dealing with things like staking, we’re now dealing with things like segregation of assets. You know, we’re looking at how a digital asset firm may be vertically integrated and the inherent risk that may be there. And so these are some of the things that we’re beginning to look at.”

Ms Rolle maintained that as The Bahamas is an international financial centre it must have proper legislative framework in place to ensure companies formed in the country can be properly regulated.

She said: “We are an international financial centre, and as such, if we don’t have a framework in place, the danger is that a company can come to The Bahamas, they can set up shop and we’ll not have the tools to address issues, to supervise and to enforce.

“Another problems that is posed by crypto specifically in digital assets specifically, which is the question of a lack of a legal definition. And so what we set out to do with the DARE act is we recognise that the scope of our regulatory perimeter did not allow us to regulate in an area that is not defined anywhere. And so we set out with DARE first to give digital assets a legal definition, and then to frame the legislation around it.”

She explained that from the DARE act was introduced in 2019, the crypto space has undergone many changes and legislation must adapt to ensure that it is properly regulated.

She said: “I don’t know that I agree that the technology itself should be an underpinning for the regulation. I think that as regulators we look at this from a principles-based approach, and we say that look, we know why we regulate in the capital markets, we know why we regulate in financial markets and there are certain principles, that inform our regulation across the board.

“And when an activity looks a certain way, then those principles should apply to that activity. I think that what we saw in the crypto space since 2018, to now is an evolution of how the technology is being used.”

Ms Rolle explained that regulating DeFi poses an issue to regulators manage intermediaries and an underlying principle of DeFi is that there are no intermediaries.

She said: “The issue for regulators with DeFi is really a problem of how we regulate in the first place. So the issue for regulators is that we don’t we’re not used to regulating individuals and we’re not used to regulating activities directly.

“What we’re used to doing is we’re used to regulating intermediaries and the principle of DeFi says that the intermediaries will be gone. That’s the principle. I don’t know that that’s true in effect, when you look at what would you actually see, but the principle is the intermediaries will be gone.

“And so for a regulator the issue now is how do we deal with this? Who is providing a service to whom and how do we now make sure that the market is operating under good principles and that consumers are being protected?”

She added that many in the crypto space are realising they must be regulated to enter the global financial space and that over time firms that offer DeFi services will end up being regulated.

She said: “The truth is, there are some intermediaries…and when you look at the way some digital asset businesses are forming themselves, they are acting as intermediaries within this so called DeFi framework, and they want to continue to call themselves DeFi, but they’re really acting as intermediaries.

“I think that that crypto in particular is coming to terms with the fact that they will have to be regulated. I think they’re coming to terms with that kicking and screaming, but they’re coming to terms with the fact that they will have to be regulated in order to interact in the financial markets,

“And so, I think what you’re going to see happen is that these so-called firms that are saying they’re providing DeFi services, they will find themselves regulated in ways that traditional financial services are regulated or traditional digital assets businesses are regulated.”