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 revisions to two instruments issued under the Digital Asset Business Act 2018 (DABA): the Code of Practice (CoP) and the Digital Asset Business (Client Disclosure) Rules 2018. The changes are intended to embed the conduct of business Principles first outlined in the Authority's December 2020 consultation into binding guidance and rules applicable to licensed Digital Asset Businesses (DABs). The document is a draft for comment, not yet in force.

• Draft Code of Practice (Appendix I): Sets out expanded conduct of business expectations covering corporate governance, senior representative duties, risk management, client due diligence, internal management controls (including cyber risk, segregation of client assets, internal audit and compliance functions), outsourcing, conduct of business standards (integrity, conflicts of interest, fair treatment, vulnerable clients, advertising, sales practices, disclosure, suitability, client agreements, online business, confidentiality, complaint handling, closed/inactive accounts) and cooperation with regulatory authorities.
• Draft Client Disclosure Amendment Rules (Appendix II): Replaces sub-paragraph (g)(vi) of paragraph 3(3) of the Client Disclosure Rules with a new requirement that DABs give clients prior notice, as soon as practicable, of changes in fees, charges and interest rates; material modifications to or discontinuation of products or services; and material changes to terms and conditions or account policies.
• Core conduct obligations proposed: Treat clients fairly and equitably, have continuing regard for client interests, ensure communications are fair, clear and not misleading, protect client assets against internal fraud or misuse, handle complaints and errors fairly and expediently, and ensure clients understand their responsibilities in the business relationship.

The Authority invites feedback from licensed DABs and other stakeholders, particularly on how the proposals would apply across differing business models and in largely non-face-to-face client interactions. After considering feedback, the BMA will finalise the CoP and Client Disclosure Rules and will provide a transition period before they take effect.

Key obligations

• Licensed DABs and other stakeholders must submit comments on the proposed CoP and Client Disclosure Amendment Rules to conduct@bma.bm by close of business on 19 December 2022
• Once finalised, DABs would be required to treat clients fairly and equitably and have continuing regard for client interests in conducting business
• Once finalised, DABs would be required to ensure client communications are fair, clear and not misleading
• Once finalised, DABs would be required to maintain documented complaint handling procedures including a complaint register and public complaint contact information
• Once finalised, DABs would be required to give clients prior notice, as soon as practicable, of changes in fees, charges, interest rates, material product/service modifications or discontinuation, and material changes to terms and conditions or account policies
• Once finalised, DABs would be required to make information on closed/inactive account criteria and procedures publicly available and give clients reasonable notice and opportunity to rectify shortcomings before account closure

Applies to

Digital Asset Businesses (DABs) licensed under Section 12 of the Digital Asset Business Act 2018

Deadlines

• 19 December 2022: Deadline for stakeholders to submit comments on the proposed Code of Practice and Client Disclosure Amendment Rules to conduct@bma.bm

Related documents

• This document amends Digital Asset Business (Client Disclosure) Rules 2018