In order to advance the types of innovations we have discussed throughout the book, it will require the commitment and collaboration of governments, technology firms, and academic institutions. This collaboration could lead to sustainable economic growth and the betterment of our overall society.
We are at a pivotal point in our history where through advances in technology we have been given both the gift and the responsibility of massive amounts of data and the tools to interpret and create new frontiers in many fields. Crypto currency is one of the most talked about advances. Technology has enabled access to create and trade digital currency and put the opportunity to participate into the hands of the public in a decentralized and not fully regulated manner.
At its core, government has the responsibility to protect its citizens, to provide parameters for behavior, and to provide for their well-being. In that vein, it is government that records and stores the recordation life’s most basic and fundamental events and occurrences.
When a child is born, it is government that provides the birth certificate. When that same child becomes an adult and purchase a home, purchase a car, votes in elections, and possibly gets married, it is government that records and stores that data. Finally, when that same person passes away, it is government that issues a death certificate.
Blockchain Potential
Since the role of recording and storing information and data is fundamental for the government, they have the unwavering duty to have a system that is built upon trust. Citizens must trust that their information and data is secure with the government. Our citizens’ most basic information and data must be secure from hacks and breaches from within our borders and outside our state and country.
The nature and technology of blockchain seems very promising in a world where government must provide a safe haven for storing and transferring records. The distributed nature and trust verification process of blockchain is potentially of great use to our government and must be fast-tracked and implemented expeditiously. The deployment of these core technologies can lead to a more transparent and efficient government and benefit society.
The application of these concepts is demonstrated in the working example “The Bermuda FinTech Story: Building on a reputation for innovation and collaboration” by the Premier of Bermuda, the Hon. E. David Burt, JP, MP.
The Bermuda FinTech Story: Building on a Reputation for Innovation and Collaboration
A Brief History of Bermuda
Where is Bermuda? The earliest known map to have Bermuda depicted dates back to 1505. The island, located in the North Atlantic Ocean, was discovered by Spanish explorer Juan de Bermudez, after whom the island is named.
It wasn’t until 1609 that settlers, on their way from England to Jamestown, Virginia, were shipwrecked, during what is believed to be a hurricane, and came ashore. Bermuda is credited for saving the lives of settlers in Jamestown, Virginia; those who survived the Bermuda storm rebuilt their boats and carried wild hogs, fish, birds and eggs, all of which were found in abundance on the island. The settlers who landed in Bermuda were able to feed their fellow settlers who by all historical accounts were starving to death.
From 1612 onward, the tiny island some 21 miles long and 1 mile at its widest point was claimed and settled by the British.
1616—The Bermuda Court of General Assize was established
1858—The first bank was established
1904—Electricity was introduced
1946—Cars were generally used and the first broadcasting company was established
1968—Bermuda’s Constitutional Order came into effect and the first general election was held under universal adult suffrage
Bermuda is a self-governing British Overseas Territory.
The Economy
During the seventeenth century, the economy of Bermuda was whaling, shipbuilding, growing tobacco, and the start of the salt-raking trade with the Turks and Caicos Islands.
Between the 1600s and the 1800s, the economy was fueled by slavery which wasn’t abolished in Bermuda until 1834. The 1700s also saw Bermuda become a privateering economy as a result of hostilities between England and Europe.
During the 1800s, exporting vegetables, especially Bermuda onions, in the spring to the eastern US became the mainstay of the economy together with the growing and shipping of Bermuda Easter lilies (Lilium longiflorum) and bulbs.
With mild temperatures, stunning beauty, and less than 700 miles from the US, in the late 1800s and early 1900s, Bermuda emerged as a popular vacation destination among wealthy Americans. Author and humorist Mark Twain famously stated, “You can go to heaven if you want to. I’d rather stay in Bermuda.” Tourism was the mainstay of Bermuda’s economy until the 1980s when it was slowly replaced by international business which began to move forward as a viable economic option for the island.
Today, Bermuda’s international business portfolio includes insurance and reinsurance, captive insurance, life and annuity insurance, insurance-linked securities, asset management, trusts and private client vehicles, family offices, shipping and aviation registries, shipping finance and ship management, arbitration, filming and technology, and life sciences.
Over the years Bermuda has developed a reputation for innovation and collaboration in insurance and reinsurance. Industry professionals together with the government and the Bermuda Monetary Authority work closely to find unique solutions to clients’ needs. Bermuda has a track record of firsts—the world’s first captive insurers, the first excess liability carriers, the first property catastrophe insurers and “cat” bonds. With a population of approximately 65,000 people, the island attracts sophisticated clients who are interested in conducting business in a modern, well-regulated, solutions-oriented environment.
The Bermuda FinTech Strategy
It is against this economic backdrop that Bermuda’s FinTech story began when in November 2017, the Government of Bermuda introduced a Blockchain Task Force comprising two groups who were charged with creating an ecosystem based on industry knowledge and an understanding of industry needs, while preparing Bermuda to be a leader in this new technological space. The vision was for Bermuda to introduce groundbreaking legislation, building on the island’s sound reputation as a world-class regulator while understanding the requirements of business leaders in this new technology.
The Legal and Regulatory Working Group was tasked with developing a sound, appropriate legal framework to govern products and services related to FinTech. The group brought together international advisors and industry leaders with local regulators, technical officers, and experts to make sure the concerns surrounding digital assets were properly addressed through regulation.
Before Bermuda, there had been no jurisdiction equipped with the combined experience, innovation, agility, and determination to legislatively navigate the world of digital assets. This tiny island nation is proud to lead the charge, carving out a comprehensive regulatory future for the FinTech industry.
The Legislative Components
Initial Coin Offering Legislation
In April 2018, the Government of Bermuda made history by drafting and laying legislation in the House of Parliament that governs initial coin offerings (ICOs). Bermuda’s Companies Act 1981 and the Limited Liability Company Act 2016 were amended to accommodate this new category of business. The legislation represents a strategic cornerstone of the Bermuda FinTech regulatory ecosystem.
In order to take advantage of Bermuda’s regulatory framework, persons must first register a Bermuda-based company or a limited liability company (LLC) and be subject to the laws governing business entities in Bermuda. This also means that beneficial owners of entities seeking to launch their ICOs in Bermuda will be vetted by the Bermuda Monetary Authority and must meet Bermuda’s stringent standards aimed at minimizing risks related to money laundering and terrorist financing.
Bermuda’s business mandate is compliance, cooperation, and transparency, which means if a legitimate international tax authority requests information about the beneficial owners of a company, the information will be shared in accordance with the applicable treaty.
There are requirements for the disclosure of information related to the rights and functionality of the digital assets, timelines for any project to be funded with ICO proceeds, and disclosure of any risks which may impact those who purchase the digital assets;
There are specific requirements for the verification of the identities of everyone who purchases the digital assets, including cases where enhanced due diligence is required; and
To ensure that purchaser identity information is available, as needed. There are also record-keeping requirements for such information.
An application for approval to issue an ICO from Bermuda must include a copy of the white paper, and will be subject to examination by a government-appointed Review Committee made up of legal, regulatory, and technology professionals. Applicants will be notified if additional information is needed or if additional laws will apply to the proposed issuance. If the entity meets the Bermuda Standard, the Government of Bermuda’s Ministry of Finance will issue a consent to conduct the ICO.
The Digital Asset Business Act 2018
On Friday, May 11, 2018, two days after the passage of the ICO legislation, the Government of Bermuda tabled the Digital Asset Business Act in the House of Parliament. The Act has since been passed by the House of Assembly and Bermuda’s Upper House, the Senate, and has also received the necessary assent for enactment.
This piece of legislation represents a world-first in providing comprehensive regulatory oversight for service providers of digital assets and associated products. With the passage of the Digital Asset Business Act, Bermuda has added a critical component to its FinTech strategy, while continuing to leverage what is deemed the Bermuda Standard.
The Digital Asset Business Act, which will be administered by the Bermuda Monetary Authority, is expected to serve as a global model of best practices for regulation of digital asset service providers. The Act is structured to be generally consistent with Bermuda’s regulatory approach for other highly regulated business activities, and is modeled after Bermuda’s Money Service Business Act 2016, the Insurance Act 1978, and the Investment Business Act 2003. It includes a tiered licensing structure, anti-money laundering (AML), and anti-terrorist Financing (ATF) protocols and prudential requirements, client asset protections, auditing requirements, and enforcement measures and powers.
Bermuda recognizes that the climate is challenging for transparency and the mitigation and prevention of financial crimes. As with the ICO legislation, anyone seeking a license under the Digital Asset Business Act will be required to first establish a traditional Bermuda company which will require vetting of the beneficial owners. The Act specifically requires that companies have a physical presence in Bermuda, including a senior representative who will be responsible for reporting specified information to the Bermuda Monetary Authority. Companies governed under the Act will also be subject to a number of requirements intended to mitigate risks related to financial crimes, consumer fraud, market manipulation, and unethical business practices.
It is imperative that Bermuda’s reputation of being a well-regulated jurisdiction is preserved, and further enhanced with the country’s entry into the FinTech space. As such, this comprehensive regime will be implemented in conjunction with regulations, codes of practice, statements of principles, and guidance similar to the legislative framework in place for other financial services regulated by the Bermuda Monetary Authority.
Banking Service for FinTech Companies
In the summer of 2018, Bermuda’s Banks and Deposit Companies Act will be amended to create of a new class of bank that will provide services to Bermuda-based FinTech companies. The Bermuda Monetary Authority was consulted and supports the changes. The rationale for the introduction is that the FinTech industry’s success globally depends on the ability of the businesses operating in this space to enjoy the necessary banking services. In other jurisdictions, banking has been the greatest challenge and therefore it had to be resolved with creative thinking and explored with new options.
National E-ID System
The Government of Bermuda is collaborating with leading technologists to create a national ID scheme for people and businesses. This will be a platform to help fulfill Know Your Customer (KYC) requirements in Bermuda. It will remove the need for multiple hard copies and handwritten signatures. Greater efficiencies will be realized together with business opportunities for the government, individuals, and businesses.
It is anticipated that E-ID will become a solid value-added addition to Bermuda’s digital arsenal of business-friendly solutions.
Land Title Registration
In developing the legislation for the FinTech industry, Bermuda is developing blockchain solutions that improve vital government services for the country’s citizens. In the first instance, all deeds will be put into an electronic format, replacing the current deeds-based system. With this advancement will be the opportunity to then place the deeds on blockchain, which will render the records immutable.
The Bermuda FinTech Innovation Hub
To foster and facilitate innovative thinking and creative solutions, the government is developing a purpose-built facility for technology companies that are domiciled in Bermuda to have access to a premium facility and support services. Companies will have access to a co-working space, private board room, lounge areas, high-speed internet, and concierge services.
Setting Up Business in Bermuda
Existing support agencies have been deployed to assist companies as they set up their business in Bermuda. The Bermuda Business Development Agency (BDA) is a critical first stop in setting up a business in Bermuda. As an independent entity whose mandate is to help raise Bermuda’s profile through targeted business development activities which will help create jobs on the island, the BDA provides concierge services to help international companies set up, relocate, or expand their business in Bermuda.
The BDA connects prospective businesses to industry professionals and regulatory and government officials, providing options for corporate service providers and a legal support team for the company registration process. The BDA provides a single point of contact helping businesses to quickly and easily establish their presence in Bermuda.
Summary
Bermuda has partnered with key industry stakeholders putting in place memoranda of understanding which will prove mutually beneficial in the development of Bermuda’s FinTech industry. The companies that incorporate a company in Bermuda will have revolutionary legislation to support their development and Bermuda will continue to be an incubator for advances in the industry.
Although this tiny island in the middle of the Atlantic is in the early stages of its FinTech strategy, Bermuda is leading the way by responding quickly to the market’s needs and finding creative solutions that will allow FinTech companies to innovate in this nascent industry.
The Bermuda FinTech story is just starting. This account is a snapshot in time, as new developments and opportunities continue to evolve. Follow their progress at www.FinTech.bm.
Conclusion
One thing we know for certain is that technological advances will continue. These advances will create new marketplaces and evolve existing ones in real time. There will be more questions than answers in this space; therefore, there is a need to conduct more research on the impact of these emergent technologies and how they can benefit society. Topics that merit exploration include but are not limited to the following questions: Can the crypto marketplace evolve enough to become the global stock exchange of the future? Could crypto currency be used as an overlay to developing countries’ currency backed by larger developed nations? Could crypto become an agnostic universal accepted currency for all types of business transactions? Could this currency provide access to wealth to underserved populations?
The future is here and those participants willing to accept the challenge and collaborate across industries will be the pioneers of this new frontier.