Product Due Diligence - Guidance Note (DABA 2018)

Summary

This is a Bermuda Monetary Authority guidance note explaining how digital asset business (DAB) licensees under the Digital Asset Business Act 2018 (DABA) should conduct product due diligence (PDD) before launching new products or services, or making material changes to existing ones. It supplements Section X (PDD) of the DAB Code of Practice and sets out the Authority's expectations, including the notification process for material changes under section 22 of DABA.

• Pre launch diligence: A DAB must conduct adequate due diligence before introducing a new product/service or making a material modification to an existing one, with board or relevant committee sign off obtained before submitting the Material Change Notification Form.
• Notification of material change: Section 22 of DABA requires notification to the Authority of any material change to the business; the completed Material Change Notification Form (or a section 8 application to modify the section 22 requirement) must be sent to the DAB's lead supervisor, copying FinTech@bma.bm.
• Authority review timeframe: The Authority will review section 8 modification applications within 30 calendar days of submission; early informal discussion with the Authority is encouraged.
• PDD evaluation factors: Under Section IX of the DAB Code, PDD must assess: product details, intended usage, product risk profile, targeted customers, risks to the DAB, risks to customers, AML/ATF considerations, marketing strategy, fee model, internal training, customer training, potential conflicts of interest, systems requirements, staffing impact, and legal implications.
• Post launch monitoring: After launching a new product or material change, the DAB is expected to implement processes to monitor customer complaints, periodically reassess training needs, monitor compliance with sales restrictions, and periodically reassess the product's risk profile and controls.

The guidance is not exhaustive, and the Authority may request additional information or documentation at its discretion; ultimate responsibility for DABA compliance rests with the DAB. Departures from the guidance should be documented along with the rationale.

Key obligations

• Conduct adequate due diligence before introducing a new product/service or making a material modification to an existing one
• Obtain board or relevant internal committee sign off on the intended new product or material modification before submitting the Material Change Notification Form
• Notify the Authority of any material change to the business as required under section 22 of DABA
• Submit the completed Material Change Notification Form (or a section 8 modification application) to the lead supervisor, copying FinTech@bma.bm
• Evaluate and document the fifteen specified PDD factors (product details, intended usage, risk profile, targeted customers, risks to the DAB, risks to customers, AML/ATF, marketing strategy, fee model, internal and customer training, conflicts of interest, systems requirements, staffing impact, legal implications) as part of PDD
• Implement post launch processes to monitor customer complaints, periodically reassess training needs, monitor compliance with sale restrictions, and periodically reassess product risk profiles and controls
• Document any departures from the guidance and the rationale for doing so

Applies to

Digital asset business (DAB) licensees under the Digital Asset Business Act 2018

Deadlines

• 30 calendar days: The Authority's stated timeframe for reviewing section 8 applications to modify the section 22 material change notification requirement, from submission.