Digital / Virtual Assets
Digital Assets in The Bahamas
In order to keep up with developing financial technologies, the Digital Assets and Registered Exchanges Act (the Act) went into effect on December 14, 2020, and regulates the issuance, sale, and trade of digital assets in or within The Bahamas.
Application & Supervision
The Act applies to all who participate in the formation, promotion, maintenance, organization, sale or redemption of initial token offerings as organizers, issuers, founders, purchasers, and investors.
The Act applies to any entity in The Bahamas which was incorporated, registered, or established as a company, partnership, or exempted limited partnership, conducting decentralized asset trading, irrespective of the physical location in which the activity is done.
For the purposes of the Act (i) “digital assets” are any digital representation of value distributed through a DLT (distributed ledger technology) platform where value is embedded or in which there is a contractual right of use, including a contractual token, (ii) “digital assets business” includes the business of a digital token exchange, providing services related to a digital token exchange, operating as a payment service provider utilizing digital assets, operating as a digital asset service provider, participating in and providing financial services related to an issuer’s offer or sale of a digital asset and any other activity prescribed by regulation and (iii) an “initial token offering” is an offer by an issuer for sale to the public of a digital token in exchange for fiat currency or another digital asset.
The Securities Commission of The Bahamas (the SCB ) regulates and monitors the creation and issuance of digital assets, digital asset businesses, and their activities in The Bahamas. It is essential to keep a complete record of initial token offerings and digital asset businesses operating in the country. The remit of the Securities Commission of the Bahamas includes the development and maintenance of investor protections for the digital-asset industry regarding initial token offerings.
Registration of a Digital Asset Business
Entity proposing to perform digital asset business from or within The Bahamas must be registered with the Act, and submit an application in the form required by the Act for the form of digital asset business to be conducted as well as the amount and type of documentation and supplies required by the Act.
Digital Asset Business as an Additional Activity
A person which is (i) registered under the Securities Industry Act, 2011 (the “SIA”), (ii) licensed as an investment fund administrator under the Investments Funds Act, 2020 or (iii) licensed as a financial or corporate service provider under the Financial Corporate Service Providers Act, 2020 may apply under the Act to register a digital asset business as an additional activity.
A person that is a marketplace or registered firm may conduct a digital asset business as an additional activity and must provide written notice to the SCB of a change of information pursuant to regulations 27(1)(a) and 53(1)(a) of the Securities Industry Regulations, 2012.
Digital Token Exchange
Legal entities that wish to offer services as a digital token exchange (i.e., as a platform using distributed ledger technology for the sale, trade, or exchange of digital tokens, whether for fiat currency or one or more digital tokens) must register as a digital asset company prior to applying for registration to establish and operate a digital token exchange. Registration is to be submitted in the required format and must be accompanied by the applicable documents and fees.
An applicant must also demonstrate the following to the SCB:
- it is fit and proper;
- has sufficient capacity and resources;
- has appropriate and sufficient systems and controls to perform its functions and manage its risks, including fraud and market abuse;
- has the ability to meet solvency standards and levels of capital as may be prescribed by regulations; and
- has designed a digital asset framework which addresses but is not limited to (a) technology and security;
(b) governance; (c) scalability; (d) identified risk framework; and (e) data protection and storage.
A digital token exchange must have systems that and safeguards appropriate for the firm’s size and nature, such systems and safeguards being those which are adequate and appropriate and must address the following:
- the recording, storing, protecting and transmission of information; the effecting and monitoring of transactions;
- the operation of the arrangements made for securing the timely discharge, whether by performance, compromise or otherwise, of the rights and liabilities of the parties to transactions;
- the safeguarding and administration of assets belonging to investors; and in the event of disruption, business continuity and planning.
Initial Token Offerings
Registration of initial token offering
An issuer that intends to offer digital tokens in or from The Bahamas through an initial token offering must (i) be fit and proper; and (ii) apply for registration of the initial token offering no later than forty-five (45) days before the start of the offer period, which must not exceed six (6) months. The application for registration must be in the prescribed form and be accompanied by (i) a written legal opinion for the classification of the tokens, (ii) the offering memorandum relating to the offering and (iii) a filing fee. The offering memorandum must contain the information set out in the Second Schedule of the Act and be posted on a website operated and maintained by the issuer, which is readily accessible to and downloadable by potential purchasers for the duration of the offer period and for no less than fifteen (15) days after the offer period ends. The Act imposes ongoing disclosure requirements on the issuer in connection with the offering.
Classification of Tokens
An issuer must identify the class or classes of tokens that it will offer to its subscribers in the offering memorandum. The written legal opinion enclosed with the registration application concerning the classification of issuers’ tokens, must be attached to the offering memorandum. Where the Commission’s assessment is that a token is a security, an issuer must withdraw its application for registration of the token and may proceed to have the token registered under the provisions of the SIA.
Purchaser’s right of withdrawal
A purchaser of a token offered under the provisions of the Act is entitled to withdraw his purchase by written notice to the issuer. A purchaser’s notice of withdrawal must be made no later than seventy two (72) hours after the date of the agreement to purchase the token. Where a purchaser has exercised the right of withdrawal, all funds paid by the purchaser must be paid over by the issuer to the purchaser within two (2) days of the purchaser’s request.
Regulatory oversight by SCB
The Act confers broad investigative and regulatory oversight powers on the SCB over registrants acting under the Act, including the power to conduct on and off-site investigations and to request information.