In each quarterly issue of the Appleby Asia Alert, we bring you all the latest legislative and regulatory updates in the offshore jurisdictions of Bermuda, the Cayman Islands (Cayman) and the British Virgin Islands (BVI) in the technology and innovation sector.
Bermuda has continued to revise and refine its technology-specific legislation as the industry has evolved and developed. Key changes in the past few months include amendments to the Digital Asset Business Amendment Act, Insurance Act, and appointment of the first privacy commissioner. Amendments to the Bermuda Monetary Authority Amendment Act 2019 were also tabled in relation to establishment of a new innovation hub for financial institutions. We will continue to keep you updated as the legislative and regulatory framework of Bermuda evolves in the coming months.
Digital Asset Business Act amendments
The Digital Asset Business Amendment Act 2019, came into force on 8 Oct 2019. The Digital Asset Business Act 2018 (DABA) was introduced to regulate digital asset business carried on, in or from within Bermuda and provides that a person cannot carry out digital asset business in or from within the island unless the person is licensed to undertake in one of the classes specified under DABA or falls within an exempt category as provided in an exemption order issued pursuant to DABA.
After a year of DABA being operative, the Bermuda Monetary Authority (BMA) and industry saw the need to amend DABA to allow for more flexibility in oversight by the BMA, and introduced new classes of licences as a result.
The Digital Asset Business Amendment Act 2019 replaces the existing definitions of "exchange", "digital asset services vendor", "market maker" and "qualified custodian" to give clarity to their meaning and the expectations of the BMA in respect of those activities.
New provisions have also been adopted that give the BMA the discretion to waive or reduce digital asset licence fees, provided certain criteria is met. They also have the ability to enhance the level of oversight by the BMA of digital asset service providers if required.
The new licences available under the amended legislation are:
- "digital asset benchmark administrator" which is a person that controls a digital asset benchmark and sets an index or figure used to calculate the amount payable under a digital asset;
- "digital asset derivative exchange provider" which is a person that creates a marketplace for digital asset derivatives issuances, distributions and trades; and
- "digital asset trust services provider" which is a person who carries out the business of acting as a fiduciary, agent, or trustee on behalf of another person for the purpose of administration and management of a digital asset.
The amendment to DABA is a direct result of Bermuda's swift response to the needs of the industry and providing a flexible yet reputable jurisdiction in which to conduct business.
Insurance Act amendments
The Insurance Act 1978 was amended in 2019 and provides for the supervision and regulation of two new classes of insurer — 'Class IIGB' and 'Collateralised Insurers', as well as a new form of insurance intermediary, an- 'Insurance Marketplace Provider'.
The new collateralised reinsurer class (Collateralised Insurers) is aimed at insurers that wish to make use of leverage and transact with a greater variety of cedant types, including unrated non-affiliated cedants. This differs from the simple, limited duration catastrophe bond transactions that were common when the special purpose insurer regulatory framework was established.
The new innovation "Class IIGB" is designed for insurer business models utilising digital assets (as opposed to all innovation which can be incorporated in the other classes, e.g. business models that provide indemnity coverage for digital assets in fiat currency can be appropriately regulated in another class). The BMA will exercise a case-by-case assessment and is prepared to allow other innovations if the Class IIGB framework proves to be the most appropriate.
The "Insurance Marketplace Provider" category was introduced due to a growing interest in the establishment of insurtech-related insurance marketplaces. An insurance marketplace provider is an intermediary which provides a platform, of any type, established for the purpose of buying, selling or trading contracts of insurance.
These latest proposed changes further signify that Bermuda is committed to addressing the evolving innovation in the insurance industry.
Personal Information Protection Act
Alexander White has been appointed as Bermuda's first privacy commissioner (Commissioner) to take office from 20 January 2020, a role created pursuant to the Personal Information Protection Act 2016 (PIPA). He is commissioned to oversee the implementation of and adherence to the legislation, which seeks to regulate the use of personal information by organisations in a manner which recognises both the need to protect the rights of individuals in relation to their personal information and the need for organisations to use personal information for legitimate purposes.
Whilst certain sections of PIPA came into force in 2016, the legislation is now expected to become fully operative in the next 6 to 12 months, pending consideration by the Commissioner and the Government of Bermuda. Further developments will unfold in the coming months, but organisations are advised to review their policies to prepare for their obligations when PIPA comes into full operation.
The British Virgin Islands
A new data protection law has been presented for consultation in the BVI, which is a welcoming step for the jurisdiction in its continued adoption of internationally recognised standards. Further details will be provided when the draft legislation is released.
The BVI's new FinTech Regulatory Sandbox went live in the last quarter of 2019 which allowed for specific provisions of the regulatory legislation and regulatory code to be "disapplied" to participants in the sandbox. Although data in relation to the number and experiences of applicants is not available yet, the new sandbox demonstrates the commitment of the jurisdiction to support FinTech and innovative businesses.
The Cayman Islands
Following the coming into force of Cayman's Data Protection Law, 2017 in September 2019, the legislative development most relevant to the technology and innovation sector in the past few months was the issuance of draft legislation which will impact on the supervision of virtual asset service providers in order to ensure compliance with Cayman's anti-money laundering and counter terrorism financing legislation. New legislation is expected to be adopted in 2020, as the jurisdiction continues to strive for the highest international standard as a reputable technology hub.
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