Consultation Paper - Proposed Amendments to the Digital Asset Business (DAB) Act 2018 and the DAB (Prudential Standards) (Annual Return) Rules 2018 (2024-10)

Summary

This is a BMA consultation paper proposing amendments to the Digital Asset Business Act 2018 (DABA) and the Digital Asset Business (Prudential Standards) (Annual Return) Rules 2018. It sets out proposed changes to definitions, rule-making powers, wind-down planning, penalties, and annual reporting for digital asset business licensees, and invites industry feedback before any amendments are finalised.

• Control of assets: Introduces a new statutory definition of control of assets and expands sections 17 and 18 to cover licensees who hold or control client assets, requiring segregation of client assets and maintenance of sufficient assets to meet client obligations.
• Rule making powers: Amends section 7 to let the Authority make rules on additional capital and solvency, wind down planning, net assets, and liquidity, replacing the existing custody of client assets rule making power with one on control of assets.
• Wind down plans: Mandates that all licensed undertakings prepare, maintain and submit to the Authority a wind down plan for orderly market exit.
• Late fees replacing civil penalties: Replaces certain civil penalties with late fees for failure to file prudential or other returns or required notifications on time: proposed at 500 dollars per week (or part week) in default for Class M and T licensees, and 1,000 dollars per week for Class F licensees.
• Disclosure and advertising: Requires publication of head office, registered office, principal place of business (Class T) and business email addresses, and expressly prohibits misleading advertisements about a licensee's assets or financial standing.
• Material change notifications: Narrows and clarifies section 22 notification triggers to new product types and outsourcing of critical functions, while still requiring immediate notification when offering a new product or outsourcing a non-critical function.
• Licence revocation and winding up: Clarifies that sandbox licence expiry is distinct from revocation (deleting section 24(f)), expands revocation criteria, and extends the Authority's power to petition for winding up where a licensee has contravened the Act.
• Minimum licensing criteria: Amends Schedule 1 to expressly require licensees to maintain minimum net assets, capital and liquidity appropriate to prudent operation of the business.
• Annual return rules: Revamps the annual return and proposes amending the First Schedule to the Rules to update prudential reporting content.
• Transitional period: Proposes a twelve month transitional period for licensed undertakings to align operations with the new control of assets and wind down plan requirements once adopted.

This is a draft consultation only; none of the proposed amendments are yet in force. The BMA invited written feedback via an online survey link, with the paper stating two slightly different deadlines for comments (9 December 2024 in the introduction and 6 December 2024 in the conclusion).

Key obligations

• Once adopted, licensed undertakings that control client assets must segregate those assets from their own assets and maintain sufficient assets to meet client obligations
• Once adopted, all licensed undertakings must prepare, maintain and submit a wind down plan to the Authority, with a twelve month transitional period to comply
• Once adopted, licensees must pay a late fee (500 dollars per week for Class M and T, 1,000 dollars per week for Class F) for failing to submit regulatory filings or required notifications on time
• Once adopted, licensees must notify the Authority immediately upon offering a new product type or outsourcing a critical (or non-critical) function as specified in revised section 22
• Once adopted, licensees must publish specified contact and address information (head office, registered office, principal place of business for Class T, business email)
• Once adopted, licensees must maintain minimum net assets, capital and liquidity appropriate to prudent operation of the business under revised Schedule 1
• Interested parties may submit comments on the proposals via the provided survey link by the stated consultation deadline

Applies to

digital asset business licensees, Class F licensees, Class M licensees, Class T licensees, custodial wallet providers, digital asset and digital asset derivative exchanges, stablecoin and token issuers, payment service providers

Deadlines

• 9 December 2024: Deadline stated in the introduction for the DAB sector and other interested persons to submit comments via the survey link
• 6 December 2024: Deadline stated in the conclusion for the digital asset industry and other interested parties to submit feedback on the proposals
• twelve months: Proposed transitional period for licensed undertakings to align operations with new control of assets and wind down plan requirements after adoption
• each week or part of a week in default: Recurring basis on which the proposed late fee (500 dollars for Class M/T, 1,000 dollars for Class F) would be levied for late filings or notifications