Consultation Paper - Conduct of Business Regulatory Regime: Digital Asset Business Act 2018 Code of Practice & Client Disclosure Amendment Rules 2022 (2022-10-19)

Summary

This is a Bermuda Monetary Authority consultation paper seeking industry feedback on proposed amendments to two instruments under the Digital Asset Business Act 2018: the DABA Code of Practice and the Digital Asset Business (Client Disclosure) Rules 2018. The draft texts are attached as Appendix I (revised Code of Practice) and Appendix II (Client Disclosure Amendment Rules 2022). Nothing in this document is yet binding; it is a consultation draft inviting comments before finalisation.

• Who it targets: All Digital Asset Businesses (DABs) licensed under Section 12 of the Digital Asset Business Act 2018, and other DAB sector stakeholders.
• Code of Practice changes: Consolidates and formalises conduct of business principles requiring DABs to treat clients fairly, act in clients' continuing interests, ensure clear and non-misleading communications, protect client assets from internal fraud or misuse, handle complaints fairly and promptly, and ensure clients understand their responsibilities.
• Client Disclosure Rules change: Proposes deleting existing sub-paragraph (g)(vi) of paragraph 3(3) of the Client Disclosure Rules 2018 and replacing it with a new provision requiring DABs to give clients prior notice, as soon as practicable, of fee/charge/interest rate changes, material modification or discontinuation of products or services, and material changes to terms and conditions or account policies.
• Draft Code coverage areas: The draft Code also addresses corporate governance, senior representative duties, risk management, client due diligence, internal management controls (including cyber risk, segregation of client assets, internal audit, compliance function), outsourcing, and cooperation with regulatory authorities.

The Authority states it will provide a suitable transition period once the amendments are finalised and communicate this to affected entities. As a consultation, this document creates no immediate compliance obligations; obligations will only arise once the Code of Practice and Client Disclosure Amendment Rules are formally issued.

Key obligations

• Stakeholders and licensed Digital Asset Businesses wishing to comment must submit feedback on the proposals to conduct@bma.bm no later than close of business on 19 December 2022.
• Once finalised, DABs will be required to treat clients fairly and equitably, maintain fair and clear client communications, protect client assets against internal fraud or misuse, and handle complaints and errors fairly and expediently under the amended Code of Practice.
• Once finalised, DABs will be required to give clients prior notice, as soon as practicable, of changes in fees/charges/interest rates, material modification or discontinuation of products or services, and material changes to terms and conditions or account policies, under the amended Client Disclosure Rules.

Applies to

Digital Asset Businesses (DABs) licensed under the Digital Asset Business Act 2018

Deadlines

• 19 December 2022: Deadline for stakeholders to submit comments on the consultation proposals to conduct@bma.bm.