The Bahamas' securities regulator is pushing for a new framework for token projects, aiming to turn the island nation into the jurisdiction of choice for blockchain startups.
The Securities Commission of the Bahamas has filed a draft of the new bill regulating token offerings not deemed securities. The bill lays out a procedure for registering such offerings and informing authorities and investors on the details of a token sale.
The draft was submitted for public consultations March 27 and comments will be gathered until May 28, Christina Rolle, executive director of the commission, told CoinDesk.
According to Rolle, the regulator is receiving a lot of comments and the consultation period will likely be extended for another month. Once it’s over, the document will be passed to the government of the Bahamas, and then to parliament. If everything goes as planned, the legislation may be passed this autumn, Rolle said.
Several other island nations have recently introduced various legislation aiming to attract crypto projects.
In Malta, the government passed three laws last June allowing to issue cryptocurrencies and trade in the country. The country scored a big win in the jurisdiction competition when Binance announced it was opening an office there in March. In Bermuda, a new law allows the projects carrying out initial coin offerings (ICOs) to apply to the minister of finance for fast approval. And Gibraltar, new legislation allowing the issuing and trading tokens is underway.
“In late 2017, we started receiving a lot of interest in the jurisdiction for the registration of tokens. When we started to benchmark what was happening around the world we saw that we needed to create a legal framework,” Rolle said.
She added that other regulatory bodies in the Bahamas, including the Ministry of Finance, also have been getting inquiries from token projects looking for a jurisdiction to register.
Then the commission decided to come up with guidance that will give the token projects not deemed securities legal certainty. According to Rolle, the criteria for distinguishing security and utility tokens are still to be drafted and are expected to be ready before the end of May.
Even some tokens representing equity shares might be exempted from the country’s securities law, but the rules for that are still in the works, Rolle said.
In the meantime, a handful of companies that asked the commission for clarity have already received no-action letters, according to Rolle. These are letters written by staff members of a government agency stating that it will not take enforcement action against an entity for pursuing a proposed course of action.
One of these companies was PO8, a project aiming to tokenize archeological artifacts. While the artifacts themselves are stored in museums in the Bahamas and around the world, PO8 will be issuing non-fungible tokens (NFTs) representing their value, CEO Matt Arnett told CoinDesk.
The letter, obtained by CoinDesk, says that “the Commission will not pursue any enforcement action against PO8" if it issues the NFTs, as the plan is not subject to existing securities law. However, once the new legislation is passed, PO8 will have to comply with it, the letter says.
What’s in the bill
According to the bill, shared with CoinDesk, the new regulation will apply to token issuers, wallet providers, exchanges and anyone who is facilitating an initial token offering on the Bahamas.
The bill obliges token projects to publish a memorandum with a description of the project, and if any significant changes are made to the offering, like the class of tokens or the scale of fundraising, the memorandum should be updated in a timely manner.
Any information that can “reasonably negatively affect the interests” of token buyers should also be disclosed by the issuer immediately, and the failure to do so might cost the company a fine of 10,000 Bahamian dollars ($10,000), the document says. Companies should also secure adequate insurance coverage for their projects.
In the application for the registration, a company would have to give a detailed technical and financial description of the token issuance, covering the project’s technology; governance; risks related to anti-money-laundering and counter-financing of terrorism (AML/CFT) regulations; and even the system’s scalability — this will help the regulators evaluate the projects' viability, Rolle said. The document doesn’t elaborate on how scalability will be measured.
To register, token projects will need to hire an attorney who will be the “sponsor” of the registration and communicate with the regulator. Registrants will be subject to the Bahamas’ Data Protection Act, Financial Transactions Reporting Act, Financial Transactions Reporting Regulations and Financial Intelligence Regulations, the draft says.
Failure to comply with the law will lead to a fine of $500,000 or imprisonment up to five years, and if issuers file misleading information in their registration documents, they risk up to ten years in prison.
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