The DARE Act Opens the Door for New Industry in the Bahamas
The passage of the Digital Assets and Registered Exchanges Bill, 2020 (DARE Bill) has put in place the legal framework for a vital, well-regulated and compliant industry in the Bahamas for those interested in entering the digital asset space.
It also creates specific opportunities for entrepreneurial Bahamian Fintech firms to enjoy the credibility of being licensed and functioning under a comprehensive regulatory regime and participate in the Fintech industry that is being forged with the DARE Act.
The DARE Act
The DARE Bill passed in the House of Parliament in December 2020, thus becoming the Digital Assets and Registered Exchanges Act, 2020 (DARE Act), facilitates the registration of digital token exchanges and the provision of services related to them. It also provides for the regulation of digital assets-based payment service businesses and for the registration of financial services related to the creation, issuance or sale of digital tokens and other digital assets.
The Securities Commission of The Bahamas (SCB) worked in close consultation with industry and outside consultants on the development of the DARE Act. SCB noted that with the intense interest in digital-asset-related business, it was essential for the jurisdiction to have an appropriate regulatory framework in place.
The DARE Act solidifies a legislative structure with standards for entry into and participation in the digital assets space. These requirements stipulate who may participate, the level of capital required, the rules for reporting and seeking the SCB’s approval, and the penalties for failure to comply.
The DARE Act applies to any organiser, issuer, founder, purchaser or investor, as defined by the legislation, that participates (DARE participants) in the formation, promotion, maintenance, organisation, sale or redemption of an initial token offering (ITO), as well as any legal entity carrying on a digital asset business, irrespective of any physical location from which the activity is carried out. Strict adherence to established anti-money laundering and combating the financing of terrorism (AML/CFT) laws by DARE participants is also included in the legislation; to ensure data-protection measures related to the personal information of clients and implement measures to prevent data breaches that would jeopardise clients’ digital assets. Specifically, DARE participants are required to implement the same AML/CFT measures as designated non-financial business professionals and financial institutions.
The release of the Fidelity Digital Assets’ Institutional Digital Asset Survey Report indicates the explosive growth of virtual currencies and the need for a jurisdiction like the Bahamas to equip itself with compliant and competitive legislation to participate in the digital asset space. The survey of almost 800 institutional investors across the US and Europe indicated that 36 percent of respondents are invested in digital assets, and that 60 percent believe digital assets “have a place in their investment portfolio”. According to the report, over 80 percent of investors indicated that they would be interested in institutional investment products that hold digital assets.
As an international financial centre (IFC) with a considerable wealth management focus, this trending investor interest speaks to the potential for Bahamas-based wealth management experts to offer financial service related to digital assets according to SCB.
By establishing the legal foundation for a new industry, the DARE Act expands the playing field for financial services activity in the country, potentially creating new businesses and providing expansion opportunities for existing financial services providers and corporate services providers to grow their businesses into the digital space. It also allows for new Fintech operators to establish operations in the Bahamas or work with firms already in the country.
In developing the legislative framework for DARE, the SCB examined the status and regulatory environment of cryptocurrencies in competitive IFCs such as Gibraltar, Hong Kong, Malta, Switzerland and the United States.
On the same day DARE legislation was passed, Parliament approved The Financial and Corporate Service Providers Bill, 2020, thus becoming The Financial and Corporate Service Providers Act, 2020 (the Act) providing legal clarity for both corporate and financial service providers. The Act modernises the two-decade-old legal framework of the pre-existing Act and establishes a full regulatory, internationally compliant framework with appropriate powers vested in the SCB as a regulatory authority. More important from a DARE perspective is that the Act provides for the custody of digital assets and wallet service providers.
Similar to the DARE Act, there was extensive engagement with the industry to develop a modern framework for financial and corporate service providers that is in keeping with international best practices and standards. With 344 financial and corporate services licensees in the Bahamas, the Act directly impacts Bahamian entrepreneurs and operators, perhaps more than any other financial services legislation.
Written by Tanya McCartney TEP, CEO and Executive Director, BFSB
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