Bahamas Releases Discussion Paper on Crypto-Asset Regulation
The Central Bank of The Bahamas (CBOB) has released a discussion paper proposing how it intends to regulate digital assets. This includes initial coin offerings as part of efforts to eliminate the alleged threat of tax evasion, fraud and money laundering. However, when regulation eventually comes, it is likely that only a state-issued cryptocurrency will be supported.
Only State-Sanctioned Digital Assets Likely to Be Allowed
“The bank seeks to enhance the sector’s competitiveness without compromising the integrity or international reputation of The Bahamas, or undermining the financial safety of Bahamian households,” said the CBOB in a statement released Nov. 7. “These considerations are consistent with international best practices.”
CBOB lent support to the international regulatory convention approach, which classifies virtual currencies as ‘crypto-assets’ rather than ‘cryptocurrencies’, “as (this) clearly distinguishes between central bank-issued fiat currency and private sector products such as bitcoin or ripple.”
Under the proposed framework, the island nation is to amend the Payments Instrument (Oversight) Regulations of 2017 “to ensure comprehensive coverage of both Bahamian dollar and foreign currency denominated crypto payments instruments.”
The financial regulator plans to limit the range of digital assets which institutions like commercial banks may transact while banning any direct convertibility between the local fiat unit – or a even a state-backed crypto-asset – and forex-denominated cryptocurrencies. Noting the decision is in line with existing exchange control laws, CBOB warned:
It is likely that only central bank sponsored digital currencies, or payments instruments fully backed by central bank issued currencies or deposits will be eligible for issuance by payment services providers.
Tougher Operating Requirements
In June, Peter Turnquest, The Bahamas deputy prime minister, revealed his government’s plans to introduce a national cryptocurrency aimed at improving financial inclusion among the majority of the islanders who have limited access to banking services. The CBOB’s new discussion paper appears to be preparing for this eventuality, something it has referred to as “modernizing the country’s financial services sector.”
The Bahamian apex bank is seeking to come up with measures to deal with issues relating to market volatility, tax evasion and money laundering, in line with recommendations from the IMF. Until now, the country’s cryptocurrency industry has been a free-for-all, operating outside international best practice, thus making it hard to “manage emerging risks in the fintech arena.”
“The regulations also stress the fitness and propriety of individuals who provide electronic money services, safety and soundness of operations practices – especially when operations become systemically important,” stated the CBOB in the paper.
“Thus, any business contemplating operations in, or from within The Bahamas would have to demonstrate safe and sound business practices; show that they have systems in place to measure, monitor, and adequately control market and other risks.”
The Bahamas central bank indicated the need to protect investors from ICO-related scams, now a global problem. To that extent, companies will have to prove their credibility by providing evidence to the Securities Commission of the Bahamas (SCB). The report reads:
When the instrument’s purpose is to confer digital access rights as a utility token, there may be no obvious connection to the central bank’s remit, other than the application of the exchange control regulations. This would also be the case for asset-backed/security tokens, where the determined jurisdiction of the SCB may also apply.
The development comes just a few days after Thailand announced that it would be following a similar course of action, regulating ICOs through a dedicated platform that is designed to facilitate due diligence, tighten security and decrease fraud.