Consultation Paper - Digital Asset Business Amendment Act 2021

Summary

This is a Bermuda Monetary Authority consultation paper (November 2021) seeking industry feedback on proposed amendments to the Digital Asset Business Act 2018 (DABA) and related rules, together with a draft Digital Asset Business (Exemption) Rules 2021. It is a draft proposal, not yet in force, and the BMA is inviting comments before finalising the changes.

• New definitions: Introduces definitions for digital assets lending/borrowing, digital asset repurchase transactions, and related services providers.
• New licensable activity: Adds digital asset lending, borrowing or repurchase transaction services as a new DAB activity, with a proposed licence and annual fee of the greater of $100,000 or 0.00075 times client receipts, taking effect only after separate guidance consultation is completed.
• IBA exemption: Proposes exempting entities licensed under the Investment Business Act 2003 from DABA licensing where DAB activity is merely ancillary, subject to a new notification requirement for the senior representative, and exempts non-self-managed investment funds.
• Consolidated exemptions regime: Proposes a new rule-making power under section 7 of DABA and consolidation of all exemptions into the draft Digital Asset Business (Exemption) Rules 2021, with a requirement to file an exemption form before relying on an exemption and annually thereafter.
• Administrative penalties clarification: Proposes removing the word civil from sections 7, 16, 57 and 66 to clarify that deadline-related administrative (default) penalties are distinct from civil penalties, with no right of appeal for these administrative penalties and weekly accrual while in default.
• Cyber risk and disclosure rule changes: Proposes renaming the Cybersecurity Rules to Cyber Risk Rules, requiring annual or licence-interval cybersecurity filings, and amending Client Disclosure Rules to require Class M and Class T licensees to describe licence limitations and permitted activities.
• Housekeeping amendments: Various technical corrections across sections 4(5), 7(1)(d), 15(2)(b)(iii), 16(1) and 71(2), plus consequential fee schedule amendments under the Bermuda Monetary Authority Act 1969.

Interested persons, including digital asset businesses and other stakeholders, were invited to submit comments on the proposals via an online survey no later than 7 January 2022. None of the proposed changes are yet binding; they depend on finalisation of the Bill and the Exemption Rules following this consultation.

Key obligations

• Submit comments on the proposed DABA amendments and draft Exemption Rules via the BMA survey link no later than 7 January 2022.
• (Proposed, not yet in force) Entities relying on an exemption under the draft Exemption Rules would need to file an exemption form with the Authority before carrying out the exempt activity and annually thereafter.
• (Proposed, not yet in force) A DAB's senior representative would need to notify the Authority if the entity ceases to provide IBA services in an ancillary manner, triggering DABA licensing.
• (Proposed, not yet in force) Providers of digital asset lending, borrowing or repurchase transaction services would need to obtain a licence and pay an annual fee equal to the greater of $100,000 or 0.00075 times client receipts once the activity takes effect.

Applies to

digital asset business licensees, undertakings licensed under the Digital Asset Business Act 2018, entities licensed under the Investment Business Act 2003, investment funds, Class M and Class T licence holders

Deadlines

• 7 January 2022: Deadline to submit comments on the consultation paper and draft Digital Asset Business (Exemption) Rules 2021 via the BMA survey link.
• 1 January 2023: Date from which the proposed annual fee for existing licensees carrying out the new digital asset lending/borrowing/repurchase activity would become due, once the activity takes effect.

Related documents

• This document amends Digital Asset Business Act 2018