Bermuda set to pass world-first cryptocurrency regulations
Bermuda's Virtual Currency Business Act was carefully designed to be a global model for cryptocurrency regulation.
The last year has seen cryptocurrency arrive on national agendas around the world, with some countries doing their best to push it away and others jumping up to take advantage, and vie for a position as the world cryptocurrency capital. Switzerland and Malta might be among the current front-runners, attracting Bitfinex and Binance headquarters respectively with their crypto-friendly regulatory environments.
But Bermuda is also angling for a piece of the pie, and its groundbreaking Virtual Currency Business Act might give it something other countries can't yet match.
Unlike most other industries, where businesses are often attracted by generous tax laws, cryptocurrency companies are more hungry for a comprehensive regulatory framework than anything else. According to the experts who worked with the Bermudan government to craft the bill, the Virtual Currency Business Act might be exactly what they have been looking for. And if it proves as effective as intended, it could also become a model for global cryptocurrency regulation and help spur developments elsewhere.
The Virtual Currency Business Act
According to one of these experts behind the bill, Loretta Joseph, OECD Think Tank leader and chair of the Australian Digital Commerce Association, Bermuda's Virtual Currency Business Act (VCBA) managed to strike a unique balance, offering enough certainty for today, enough flexibility for tomorrow and effective consumer protections along the way.
"The Virtual Currency Business Act includes extensive consumer protection so that the BMA can protect its citizens. However, it also has enough regulation that allows the ecosystem to flourish without consequences of not knowing what will be down the road, if the law is going to change on them or the regulations are going to change," Joseph explains.
Essentially, it focuses on making the regulator's intentions clear, rather than laying out a system of boxes to be ticked and hoops to jump through. It applies this system to a wide range of subjects in the cryptocurrency space, touching on exchanges, ICOs and others, rather than just picking at one piece at a time.
This might be an especially effective take on ICOs, which have been a particular sticking point for regulators. Legal bodies in the USA, for example, are spinning their wheels in the air over the classification of all ICOs as securities, which arguably isn't the most productive system in the long run.
"Governments are still grappling with ICOs and how to regulate them," Joseph says. "For us, it's about taking a leap of faith and saying, "Let's put together a responsible form of regulation around activities happening anyway. Give these projects credibility and give them an ecosystem in which they can flourish."
"Within the ecosystem what are we talking about with ICOs? Are we talking about utilities, securities or something that's in between both of them? I think as long as there’s clear guidance to the industry of the regulators' goals, how they want to regulate and how things are defined, the ecosystem can flourish and develop. We're seeing it unfold with these new blockchain entrepreneurs who want to flourish in the new open economy. These entrepreneurs are open to having regulation and a jurisdiction that doesn’t tolerate the nefarious players in ICOs."
A model global citizen
"The problem with regulation in the crypto space is that every country has been running toward different legislation and there’s a lot of jurisdictional arbitrage. With the Virtual Currency Business Act, we hope to create a standard. Because the BMA made a point of hearing out all the stakeholders, it is the most responsible regulation that I’ve seen being adopted by any country in the crypto space," Joseph said. "We hope that different jurisdictions can take this as an example and will adopt similar regulations."
"What we want to avoid is what happened with internet regulation. Every jurisdiction came out with different responses on how we grapple with innovation and technology, and it has not been working. So let's start to write responsible local standards that affect people at much more global level. If we've learned anything from that into blockchain technologies, it's that we need to work together from the start to write the rules that include everybody."
"The worst thing is that policy writers are not technologists and technologists are not policy writers. The reason why we see vastly different regulations around the world is because both those worlds rarely ever meet. However, what we're trying to achieve is to have crypto regulation across the world that looks similar... That way, entrepreneurs in this ecosystem... can move seamlessly between jurisdictions. At the end of the day, companies have to be able to scale. Once they have built their company in a smaller jurisdiction, it has to be able to scale into more mature markets.... take it global."
It's an ambitious goal, laying out regulations to eventually become a global standard, but Bermuda might be in a uniquely good position for it, says Joseph Weinberg, OECD Think Tank special advisor and Shyft chairman, and another one of the experts who helped craft the VCBA.
The Bermuda crypto hub
Bermuda's main advantage is probably its long history as a global financial services hub. This gives it a deep pool of local talent with a lot of experience in compliantly managing financial services around the world.
"Bermuda has a long history of being a financial powerhouse and center for financial services," Weinberg notes. "It has the biggest reinsurance market in the world. On top of that, being a Commonwealth country... Bermuda also has a framework for the blockchain and crypto ecosystem to bind itself to... Along with that, Bermuda also has a highly skilled workforce that is experienced in regulation and compliance and securities laws."
Bermuda's other key advantage might be a deliberate effort to prudently blaze a well-informed new trail, rather than trying to cram cryptocurrencies under existing regulatory frameworks, or going entirely hands-off, the way other countries are.
"It’s been a challenge for us, because normally we look at what other jurisdictions are doing, but in this case there are no examples," said Kevin Anderson, speaking for Bermuda's Monetary Authority at a meeting introducing the VCBA. "We have taken on board everything that everyone has said to us. We believe this act will be fit for purpose and will stand up as a shining example of what can be done on this small island... We don't want to be making mistakes — we don't want to be the first to go down in flames, so we have raised the bar very high."
According to the OECD Think Tank experts, it showed.
"The island also has a rich entrepreneurial history and a willingness to learn and adapt quickly. This made for an incredible working relation in building out regulation for the crypto community," Weinberg said.
"Working with the Bermuda Monetary Authority in crafting the Virtual Currency Business Act has been a very collaborative process," Joseph agreed, "from the industry to stakeholders to the government to regulators to policymakers, its been the most collaborative jurisdiction that I've worked with in the crypto space and an example for the rest of the world to follow."
Bermuda's willingness to bravely strike out into the unknown, in an appropriately informed manner, might be showing results already, even though the bill has yet to be passed. The country's lawmakers have already noted "phenomenal" demand from crypto companies, including a $15 million commitment from Binance, to spend $10 million on university level training for Bermudans in blockchain technology development, and up to a $5 million investment in new Bermuda-based blockchain companies through Binance Labs.
"We think the Bermuda Government and regulatory body are one of the most approachable, most reasonable and most forward-thinking bodies on the planet," said Binance CEO Changpeng Zhao.
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, BTC, XRB