The Securities Commission of The Bahamas (SCB) has published its Digital Assets and Registered Exchanges (DARE) Bill 2023 for consultation, with the new bill strengthening financial and reporting requirements for digital asset businesses, a press statement from the SCB on the upgraded bill explained.
SCB Executive Director Christina Rolle said in the statement that the bill, when passed, will be one of the most advanced examples of digital asset legislation in the world.
The revamp of the legislation, in the works before the collapse of cryptocurrency exchange FTX, likely takes into consideration some of the pitfalls learned from the implosion of FTX, especially given that the SCB still has custody of a large sum of the company's assets in a digital wallet.
The Bahamas-headquartered FTX was the SCB's first DARE registrant.
According to the SCB statement, the bill strengthens areas related to custody and custodial wallet services; operating a digital asset exchange; providing advice on and management of digital assets; provision of staking services; and a comprehensive approach to the regulation of stablecoins.
The SCB said the bill aims to become effective by the end of the second quarter of this year, which coincides with the start of the new budget year. The bill could likely be wrapped up in the government's budget procedures in June.
The bill is out for consultation until the end of May.
"I am pleased to present for consultation the Digital Asset and Registered Exchanges Bill 2023, which will modernize and strengthen requirements for conducting digital asset businesses in The Bahamas, and for the protection of consumers, investors, and the markets," said Rolle.
"We invite the public to respond to this consultation process, as we seek to develop and expand the legislative framework. Once passed, DARE 2023 will be among the most advanced pieces of digital asset-legislation in the world, and will align with The Bahamas' commitment to facilitating development and innovation in a well-regulated environment."
The SCB said the review of the DARE Act 2020 included benchmarking the legislation with comparable frameworks from jurisdictions such as the European Union, Hong Kong and New York, USA.
The statement explained that the review of the legislation began in April of 2022, seeking to address possible legislative gaps, ambiguities, and procedural concerns.
"The commission engaged international law firm Hogan Lovells to draft the new Digital Assets and Registered Exchanges Bill, 2023, and will continue to collaborate with them in the consultation process until the amendments are complete," the statement said.
"The revisions are designed to minimize systemic and contagion risks. The amendments strengthen the protection mechanisms such as new disclosure and reporting requirements, specific registration obligations, and enhanced ongoing supervision for operators in the digital asset space.
"The proposed enhancements to the DARE legal framework allow room for digital asset businesses to innovate, as the space continues to evolve and provides the flexibility for the commission to prescribe additional rules applicable to digital asset exchanges and bespoke requirements for different categories of registrants."
The statement said the revamped bill will capture a wider range of digital asset activities and align with international standards.
The new bill ensures that operators of a digital asset exchange have the systems and controls that are adequate and appropriate for the scale and nature of its business. This was a concern about FTX in the days following its collapse.
The revamped bill also ensures that wallets are protected and providers are able to return client assets.
In a first-of-its-kind addition, the SCB said, it is ensuring that a "dedicated disclosure regime... captures the activity of the staking of digital assets belonging to clients or the operation or management of a staking pool as a business".
The statement adds: "A voluntary registration regime will be established for persons who issue digital assets from outside of The Bahamas to persons outside of The Bahamas or otherwise not in scope of the issuer requirements under the DARE Bill 2023. The commission will keep a register of initial token offerings containing specified information.
"The DARE Bill 2023 establishes a new and comprehensive regulatory framework for stablecoins. The amendments provide a clear definition for stablecoins, provide for the registration of existing stablecoins, specify acceptable forms of reserve assets and establish new requirements for custody and management, segregation, reporting and redemption of reserve assets.
"Non-fungible tokens (NFTs) are categorized between whether they are financial or consumer assets, with financial NFTs now falling within the scope of regulation."
The statement also explains that liquidity requirements and standards for addressing conflicts of interest "and/or connected third party relationships established" are all now tackled in the updated bill.
It adds that the new bill restricts some proof-of-work mining of digital assets in or from within The Bahamas, and also prohibits the issuance of privacy tokens and algorithmic stablecoins.
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