The collapse of Bahamas-based digital asset exchange FTX put the country in the spotlight for all the wrong reasons. Now, the Caribbean Island nation is proposing stricter digital assets regulations to address concerns about its industry governance.
On April 25, the Securities Commission of the Bahamas announced a proposed revision of its Digital Assets and Registered Exchanges Act, or DARE, that would tighten regulations sullied by the FTX scandal, which is headquartered in the country. The proposed changes include bans on algorithmic stablecoins and privacy tokens.
The DARE Bill 2023, as it’s called, would strengthen financial and reporting requirements for digital asset companies, as well as requirements related to custody and custodial wallet services; the management of digital assets; staking services; stablecoins; and—tellingly—operating a digital asset exchange.
The Commission boasts that once passed, DARE 2023 “will be among the most advanced pieces of digital asset-legislation in the world and will align with The Bahamas’ commitment to facilitating development and innovation in a well-regulated environment.”
It includes widening the definition of ‘digital asset business activities’ to capture a greater range of products and services within the scope of the law. The new definition would include anyone who provides advice on the management of digital assets, anyone who provides distributed network node services, and anyone providing staking services.
One of the key changes proposed in the Bill is increased regulation around stablecoins and providing clear definitions. Existing stablecoins will be required to register, and the issuance of algorithmic stablecoins will be expressly prohibited.
A ban on the issuance of privacy tokens is also in the cards, along with new restrictions on certain proof of work mining of digital assets, in or from within The Bahamas.
Commission Executive Director Christina Rolle claimed on Tuesday that these changes are necessary to “modernize and strengthen requirements for conducting digital asset businesses in The Bahamas, and for the protection of consumers, investors, and the markets.”
Working in consultation with the industry and other consultants, the Securities Commission of The Bahamas began the development of the DARE Act in 2018, and the Bill passed in the House of Parliament in December 2020.
Initially, it focused on registering digital token exchanges and regulating related services, including rules around digital assets-based payment services and the creation, issuance, or sale of digital assets.
In April 2022, the Commission increased its ongoing review of DARE to “address any legislative gaps, ambiguities, and procedural concerns,” engaging the services of international law firm Hogan Lovells to help draft the new DARE Bill 2023.
Don’t mention FTX
The elephant in the room with these latest DARE amendments is the bankrupt digital asset exchange FTX.
The company is not mentioned in the press release. However, in its consultation document on the proposed changes, the Commission states that the Bill’s revisions come “in light of lessons learned during the so called “crypto winter” of 2022.”
The “so-called crypto winter” in question was almost entirely down to the collapse of FTX in November, but perhaps it’s no surprise the Commission kept its reasoning vague considering disgraced former CEO Sam Bankman-Fried chose the Caribbean Island nation as the headquarters of FTX.
Bankman-Fried was extradited from the Bahamas to the U.S. in December and faces eight criminal charges, including wire fraud and money laundering, facing a potential jail time sentence of over 100 years.
In a damning assessment of the situation Bankman-Fried presided over, FTX’s bankruptcy CEO John Ray III told the Delaware bankruptcy court:
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”
Undoubtedly the Securities Commission of The Bahamas’ efforts to bring more stringent controls to its governance of the digital asset industry were given renewed urgency by the negative attention it received for allowing such a failure to be orchestrated unimpeded from its soil.
With this in mind, it’s no surprise to see digital asset exchanges feature in the proposed amendments to DARE, specifically: “operators of a digital asset exchange must ensure the systems and controls used in its activities are adequate and appropriate for the scale and nature of its business.”
On this and the other proposed changes, the Commission invited the public to provide feedback from Tuesday, April 25, through Wednesday, May 31, after which it’s hoped DARE 2023 could come into effect in The Bahamas as early as June 2023.
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