The Tribune

By Fay Simmons

Tribune Business Editor

jsimmons@tribunemedia.net

A Bahamian attorney says stable coins are a product better-suited for the international, rather than domestic, market as this nation moves to introduce new measures to better regulate the product.

Christel Sands-Feaste, a partner with the Higgs & Johnson law firm, told the D3 Bahamas Web3 and FinTech Conference that the upgraded Digital Assets and Registered Exchanges (DARE) Act will include regulations for stable coins and address many of the risks presented by this and other digital assets.

Pointing to The Bahamas’ demonstrated willingness to regulate digital assets in accordance with global standards, she added that the new DARE Act - expected to be debated and passed by Parliament later this year - will include greater consumer protection and increased disclosure requirements.

Mrs Sands-Feaste said: “The Securities Commission has announced in its proposed new DARE Bill, which we hope will be passed before the end of the year, that stable coins will be regulated.

“And the draft we saw earlier this year sought to address some of those risks…run risk, consumer protection, disclosure, reserve requirements, high quality assets…reserve requirements, the quality of the assets, only certain categories of assets can be used as reserves, requirements relating to segregating those particular assets, disclosure requirements, stabilisation mechanisms [and] consumer protection.

“I think The Bahamas really demonstrates, number one, a willingness from the policymakers to regulate, and secondly to regulate in accordance with global standards.” Mrs Sands-Feaste said The Bahamas’ central bank-backed digital currency, the Sand Dollar, is different from stable coins such as Tether.

The former, she added, is merely a digital version of fiat currency that is supported by the Central Bank, whereas stable coins are backed with fiat reserves. The Higgs & Johnson attorney explained that stable coins are better suited for the international market whereas the Sand Dollar is better-suited to domestic financial users.

She said: “It’s very important to point out that, from a payment perspective, when we talk about stable coins, we are talking about international financial services. We are not talking about the domestic market. So at the end of the day, this is a crypto currency, so I’m not suggesting that something like this is appropriate in the domestic market.

“Based on certain restrictions we have in place, I think a central bank digital currency is more appropriate for the domestic market, which is the confidence of the regulators that it’s central bank-backed.” Mrs Sands-Feaste said the “entire stable coin ecosystem should be regulated”, and that the DARE Act will apply to issuers and custodians, ensuring all players are monitored.

She added: “There is a need for the entire stable coin ecosystem to be regulated. So we’re not just talking about the issuer of the stable coin, but the exchanges, the custodians and so on. And I think the beauty... of the jurisdiction is that we have one comprehensive piece of legislation that will regulate not just stable coins, [but] exchanges and custodians as well. And so you’re satisfied that all of the key players in the ecosystem are regulated.”

Mrs Sands-Feaste said it is important to ensure stable coin issues are backed by a physical person who can meet capital requirements and take responsibility for losses.

She added: “I think it’s also important to note is corporate governance related to the fitness and properness of the issuer; that there is ultimately some physical person behind the issuer who’s accountable, and a regime which regulates and makes sure that the issuer meets the necessary capital requirements and is appropriately vetted.

“And then, finally, the service providers that are related to this, the stable coin ecosystem custodians, being regulated as well as the issuers in The Bahamas as well exchanges. If the issuer is appropriately regulated and has been vetted and approved, and the exchange as well, then I think a further level of oversight, perhaps by the exchange, would be more for a ‘four eyes’ principle rather than absolute necessity.

“But that’s not the case everywhere where you have that comprehensive level of regulation at all steps of the way, because the custodian, which is really key to valuation, and then the exchange in terms of redemption, is critical,” Mrs Sands-Feaste continued.

“So I think it really depends on the regulatory framework, and where the issue is based, that will really determine whether or not there should be some oversight. If there’s not appropriate oversight on all of the relevant parts of the ecosystem, it goes to credibility, it goes to investor protection, it goes to confidence in my view.”